After having done all of the required research, you’re ready to begin shopping for a place.
This is where it gets exciting. You must keep your wits about you, because property selection is critical.
When you get to this stage, what you’re looking for is renovation potential.
You need to assess each property not only regarding what it is right now, but what it can be when you’ve renovated it.
The main 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 mood of the local market, and whether the property could meet them with optimal improvements.
Finally, you need to consider how far you can take the property.
Some properties just need a basic style change to gain a decent profit.
Other properties can be totally transformed, bringing them to the next level and unlocking superior profits.
Generally 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 tired.
It needs fresh paint, carpet, fittings and fixtures, and the garden needs tidying up.
The ‘Fixer-Upper’ will generally be older and in rougher condition than the Patch ‘n’ Paint.
The decor will still need updating, but it should also have a kitchen and/or bathroom makeover.
The problem child may have structural issues.
It may have cracks in the walls or need a new roof. Possibly the plumbing or wiring is uselss and needs replacing. These issues can be costly to fix but don’t necessarily add any value.
The ‘Knock-Down’ requires a top to bottom 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 experience, the best places to renovate for profit are the ‘Patch ‘n’ Paint’ and the ‘Fixer-Upper’.
The type of renovation work you should do depends on your knowledge, skills, experience and contacts, but most people should be able to renovate these kinds of places without too much trouble.
In addition, they tend not to have a high level of risk.
Dealing with structural defectsGenerally, I advise people to avoid properties that need serious work.
You want to spend the renovation budget on improvements that tenants or buyers can see immediately as that’s how you get results.
Spending money repairing 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.
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 want 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 and factor that into the purchase price.
If the numbers still stack up then go for it. Plus, you can usually negotiate 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 an inspection report when buying a property.
Don’t do it! Termite infestations, dodgy wiring, rotten foundations. There are many possibilities of problems with any structure that most people won’t notice.
And 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.
Tenants or buyers of your renovated property are the source of your profits -from either the rent you receive or the profit you make when it’s sold, so to maximise your return you need to create a place that tenants will rent and buyers want to buy.
This is the golden rule if you intend to profit from renovating houses.
If you intend to keep the property then you need to research your target tenants for the suburb.
When you match a property to target tenants you’re not going to have down-time with an empty house, or need to cut therent just to get someone in.
Talk to 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 prefer one, two, or more bedrooms? Do they require parking or not? You need to 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.
And 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.
This is why property selection is critical. Remember, you can always improve a house, but you can’t improve its location.