After having done all of the required research, you’re ready to begin searching for the perfect property.
This is where it gets really exciting. You have to keep your wits about you, as property selection is critical.
When you take your researcher’s hat off and put your buyer’s hat on, what you’re looking for is potential for renovation.
You need to assess each property not only on what condition it is right now, but what it can be once you’ve done your magic to it.
The first consideration is the condition of the property. You want something that needs work, but notutterly derelict (unless you love a challenge)!Then you need to consider the needs and wants of the current market, and whether the property could meet them with your improvements.
Finally, you should consider how much you need to do to the property.
Some places will only need a quick fix-up to make you a good profit.
Other properties can be quite transformed, taking them to the next level and unlocking higher profits.
Roughly speaking, there are three kinds of properties that attract renovators:The ‘Patch ‘n’ Paint’ is a solid property, in sound condition structurally but the decor is faded.
It will respond to fresh paint, carpet, fittings and fixtures, and the garden needs a tidy up.
The ‘Fixer-Upper’ will generally be older and rougher than the Patch ‘n’ Paint.
The decor will still need a revamp, but it also needs a kitchen and bathroom makeover.
The problem child has structural issues.
It may have cracks in the walls or need a new roof. Possibly the wiring or plumbing is shot and needs replacing. These problems can be expensive to fix and yet won’t necessarily add any value.
The ‘Knock-Down’ requires a top to bottom restoration or demolition. These properties often attract developers, especially if they’re in a good location, on a large block or have fantastic views. From experience, the best bets for renovating for profit are the ‘Patch ‘n’ Paint’ and the ‘Fixer-Upper’.
The amount of renovation work you should attempt depends on your knowledge, skills, experience and contacts, but most people are able to do up these kinds of places without too much trouble.
Also, they don’t tend to have a high level of risk.
Dealing with structural defectsGenerally speaking, I advise people to avoid the properties that need serious work.
It’s best to spend the renovation budget on improvements that buyers and tenants can see as that’s how you get results.
Spending money fixing defects that are not seen eats into your renovation budget and you may not see a buyer who appreciates quality for some time, therefore your profits will be reduced.
Basically, tenants and buyers expect a property to have good foundations, wiring and plumbing. They won’t pay extra for it, so the extra expenditure to fix the defect doesn’t add any value.
If you do decide to make an offer on a property with structural defects you must get a quote to find out how much it will cost to rectify the problems so you can factor that into your purchase price.
If the numbers still stack up then go for it. Remember, you can usually negotiate hard because generally, other will be scared off by the “problems”.
Don’t skimp on inspection reportsMany property investors are tempted to save a few bucks by going without inspection reports when they buy a property.
Don’t be tempted! Termite infestations, dodgy wiring, rotten foundations. There are many potential problems with any house that most people won’t notice.
Any one of these problems can cost you big bucks. You wouldn’t buy a second-hand car for $10,000 without a $250 inspection report, so why would you purchase a property for several hundred thousand dollars without an inspection report that just costs a a little more? For your peace of mind get the inspections done. For building inspections brisbane, contact Home Inspect today or visit their web site.
Meeting market demandNow let’s think about people, because renovating for profit is a people business, not a property business.
That’s because the tenants or buyers of your renovated property are the source of your profits -from either the rent you receive or what you make when you sell it, so to maximise your return you must create a place that tenants want to rent and buyers want to buy.
That’s the golden rule if you want to make a profit renovating houses.
If you intend to keep the renovated property then you need to research your target tenants for the suburb.
When you match a property to target tenants you’re less likely to have vacancies, or need to reduce therent just to get someone in.
Build a good relationship with property managers and find out what type of properties are most wanted in the area. Tell them you’re looking at buying an investment property in the area, and ask them what tenants prefer.
What sort of property is needed? What rents the quickest?In this suburb do tenants prefer houses or apartments? Do they want one, two, or more bedrooms? Do they require parking or not? You should know these basics so you can make an informed decision on what to buy.
If you intend to sell the property once you’ve renovated it, the same principle applies but now you must consider the wants and needs of buyers rather than tenants.
While there are a lot of similarities, there are differences you should cater for.
Finally, although there will be some features of the property you can improve, some features, such as location and aspect, etc, are fixed.
You can do a first class renovation, but if the property backs onto a railway line you’ll have trouble renting and selling it.
This is why property selection is so critical. I always say, you can improve a property, but you can’t improve its location.