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One of the best things about buying and then renovating a home is the equity you can gain in a relatively short amount of time.
Begin by asking yourself what you want to achieve. Are you going to flip the house or will this be a buy and hold property? The numbers must work or you’ll be wasting your time.
The answer you’ll have for these questions will determine the type of property you’ll buy. For example, if you plan to buy and hold, you’ll want your holding costs to be minimised so focus on properties which are already in fairly good condition.
Not every home will be a good option for renovation; some are more suited to a wrecking ball than a paintbrush, so it’s important to know what to look for to avoid spending more than you’ll ever make on the deal.
1. Good market
For the most gain, buy when the property is at the bottom or just coming off of the bottom of the market. You’ll not only get the best deal by snagging a discount, but capital growth resulting from the renovations you’ve done may be realised much sooner than in other market cycles.
Once you’ve found your target market look for deals within the market by using the following strategies:
- Use the “worst house, best street” strategy to find possible renovation opportunities.
- Understand the pricing in the area so that you can spot a good deal quickly, focusing on no more than three areas at a time.
- Find suburbs that are close to each other, and study the lifestyle, demographics, infrastructure and development plans to spot potential renovation projects.
- Run the numbers so that you’re making a decision based on facts, not emotion.
- Subtract the original purchase price + the renovation costs + holding costs from the sales price to calculate your profits.
2. Solid structure
The property should have property experts like to call ‘good bones’. This simply means that the structure is solid and the home only needs mainly surface changes such as updated fixtures, new paint, window fixtures, landscaping, flooring, etc.
Properties with a kitchen and bathroom that can be easily modernised are a good choice. Resurfacing cabinets (if needed), some new handles for the cupboards, new laminate bench tops, a glass shower screen, etc. are good renovation choices.
Another good renovation is the addition of another bedroom. Look for large rooms that can be easily split to create another room.
3. Property styles
- Open floor plans or homes that can be renovated to create one.
- A boutique block of units that simply need updating both externally and internally.
- Homes that are well crafted but need updating and modernisation.
To learn more about improving your returns through renovations, how to put together a feasibility analysis to see if a deal is profitable, how to negotiate renovations while the property is tenanted and much, much more, come along to our next Property Investor Night. Seats fill up fast, so book yours now!