If you are one of the many enthusiastic DIY home renovators aiming to make this your chosen business, key investment strategy or principal source of income, then it’s always wise to listen to the experts in the field. With this in mind, in this article I’ve summarised the Seven Golden Rules of Renovating for Profit by renovation guru Sam Vannutini. Because without doubt, property renovation is still one of the hottest investment topics being discussed in the Australian real estate market. However, even though we have all heard of the renovating success stories, would be renovators should be aware that things can and do go wrong. And unfortunately in these cases, rookie mistakes can end up costing the unsuspecting beginner tens of thousands of dollars or more.
Develop Your Plan
Whilst becoming a full time property renovator is actually a very easy process, so many inexperienced investors get it wrong or make basic mistakes. However, the # 1 rule for success is having a game plan, because if you don’t know where you’re going, you’ll probably end up lost.
So, before you commit a single dollar or a minute of your time to property renovation, you should step back and have a good think about what it is that you want to achieve. Work out your objectives, and draw up a step-by-step “to do” list of how to achieve your outcomes.
When developing your game plan you may wish to consider the following questions:
- How many renovations do you wish to complete in one year?
- Do you have sufficient capital/finance to achieve this target?
- Will you sell for profit or hold?
- Do you wish to create an additional income stream?
- Do you wish to do it as a full time job?
Assemble Your “A-Team”
Working with a team of experts is vital if you want to Renovate for Profit. Therefore don’t try and do it all yourself. Instead leverage off other people’s expertise to fast track your success. This means gathering your team or experienced professionals around you.
Furthermore, your “A-Team” will also become a valuable resource in finding property deals, especially solicitors, accountants and estate agents.
Apart from the obvious trades people your “A-Team” should also include experts from all other relevant areas of property renovation such as:
- Registered Valuer
- Quantity Surveyor
- Real Estate Agent
- Finance Broker
- Trades People
- Property Manager
Choose the Best Finance Structure
It’s important to remember that not all loans are created equal and the correct loan type for you will depend on your financial and investment objectives. Therefore your first priority, before you even start looking at properties, is to establish your level of borrowing capacity. In other words, how much can you borrow and what price range of property should you be considering. This is why setting up your finance correctly is critical to successful renovating and why it pays to speak with a Mortgage Broker, sooner rather than later.
Purchase the Correct Property Type
It’s a fact that some properties are better suited to renovating for profit than others. So your intention should be to buy the ugly duckling properties which others don’t want, and those requiring cosmetic renovations only. This means looking for properties that require basic superficial and aesthetic improvements instead of those needing extensions, additions and costly structural repairs. The reason being that astute investors can see the potential for capital gains, whilst others cannot be bothered and would rather purchase a new or renovated property.
The key is to always aim to add maximum wow factors for minimum cost. Therefore, properties that require a fresh coat of paint and new fixtures are prime targets for property renovators. As minor works such as painting, new carpets and landscaping can drastically improve the overall value of the property.
Always Buy At or Below Market Value
Paying too much for your property is the biggest mistake you can make, and this alone can cost you tens of thousands of dollars. So, always research your market well and ensure that the potential selling price is achievable when all costs and profit margins are taken into consideration. Never, ever, let yourself be ruled by your emotions when buying.
Cosmetic Makeovers Only
Remember that profit is the name of the game. Therefore, I’ll say this again, always aim to create the maximum visual impact for the least amount of money and avoid major structural repairs at all costs. As the great temptation of renovation is to go too far and spend too much. So whilst the wow factor is critical you MUST keep your emotions out of the equation and strictly adhere to your budget.
On the other hand, how often have you walked into a property and been totally horrified by the décor? Yet, this is another common mistake made by renovators when they let their emotions get in the way and decide what is good for them is good for everyone else. This is a BIG MISTAKE! Therefore keep things simple and go for neutral colours and designs.
Depending on your investment objectives, there are basically two strategies that you can adopt:
Buy, renovate and hold
This strategy is for investors with a preference for equity accumulation. Therefore, the strategy will be to have the property re-valued, draw out the equity, and duplicate the process.
Buy, renovate and sell
When selling, the name of the game is to maximise the sale price of your property. Experience in marketing properties has taught me that there are three main factors that will influence the saleability of your property. These are presentation, selling agent and price.
Go to it renovating champions,