After having done all the fundamental research and preparation, you’re now ready to begin looking for a property.
This is where things get 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 regarding what it is right now, but what it can be once you’ve renovated it.
Your first consideration is the condition of the property. You want a place that needs work, but notabsolutely derelict (unless you love a challenge)!Next you will consider the needs and wants of the current market, and whether this property will meet them with optimal improvements.
Finally, you need to consider how far you can take the property.
Some properties will only need a quick fix-up to gain a decent profit.
Other properties can be totally transformed, taking them to a far superior state and unlocking better profits.
Roughly speaking, there are three kinds of properties that attract renovators:The ‘Patch ‘n’ Paint’ is a solid property, in good condition structurally but the decor is faded.
It will respond to fresh paint, carpet, fittings and fixtures, and the garden needs a revamp.
The ‘Fixer-Upper’ will generally be older and rougher than the Patch ‘n’ Paint.
The decor needs a revamp, but it should also have a kitchen or bathroom makeover.
The problem child has structural problems.
It might have cracks in the walls or need a new roof. Perhaps the wiring or plumbing is uselss and needs to be replaced. These issues can be costly to repair but don’t necessarily add a comparable value.
The ‘Knock-Down’ says it all, requiring a complete restoration or demolition. These properties often attract developers, particularly if they’re in a great location, on a large block or have fantastic views. From my experience, the best bets for renovating for profit are the ‘Patch ‘n’ Paint’ and the ‘Fixer-Upper’.
The type of renovation work you should do depends on your knowledge, experience, skills and contacts, but most people should be able to renovate these types of properties without too much trouble.
In addition, they tend not to have a high level of risk.
Dealing with structural defectsGenerally speaking, I advise people to avoid properties that need serious structural work.
You want to spend your renovation budget on improvements that buyers or tenants can see immediately because 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, therefore your profits will be reduced.
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 need to get a quote to find out how much it will cost to rectify the problems so you can factor that into your maximum purchase price.
If the numbers still stack up then go for it. And, you can usually negotiate hard because most 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 buying a property.
Don’t do it! Termite infestations, dodgy wiring, rotten foundations. There are many possibilities of problems with any home that the average person won’t notice.
Remember, any one of these problems could 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 for 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.
Tenants or buyers of your renovated property are the source of your money -from either the rent you receive or what you make when it’s sold, so to maximise your return you need to develop a place that tenants want to rent and buyers want to buy.
That’s the golden rule if you intend to make a profit renovating houses.
If you intend to hold onto the renovated property then you need to research your target tenants for the area.
When you match a property to target tenants you’re not going to have down-time with an empty house, or need to discount therent to get people in.
Talk to property managers and find out what type of properties are desirable in the suburb. 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 prefer one, two, or more bedrooms? Do they require parking or not? You should know these facts 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 some 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 the location and aspect, etc, are fixed.
You can do a first class renovation, but if the property backs onto a railway line you can expect to trouble renting and selling it.
That’s why selection of a property is so critical. Remember, you can always improve a building, but you can’t improve its location.