Cherie Barber, founder of Renovating for Profit, offers pointers on how to pick properties with the most potential when you’re renovating to make a profit.
It’s a common misconception that any property in need of a renovation has profit potential. That couldn’t be further from the truth – there are properties that are money pits, and there are also those properties that will only do well if they’re renovated in the right way.
Buy for the right price
This is probably the most important step of all. There’s no point being frugal in the rest of your project if you’ve already blown the budget in your initial outlay. Additionally, remember that if you’re getting something for a steal, there’s probably a reason for it. Aim for a fair market price – that’s the best you can realistically hope for. It’s important to not overspend or overcapitalise.
Do your research
To know that fair market price, you’re going to need to have spent some time conducting background research on the area you’re buying in. I’d recommend spending at the very least a few weeks observing the local market, noting what kind of properties sell for what kind of price, as well as going to view properties that are currently on the market. Knowing where to buy is critical.
Tailor your renovation plans to the area
Your research will come in useful again here, as you need to be aware of the kind of styles that are selling in the area you’ve chosen. If it’s a traditional village, there will be a certain style that is favoured, and it’ll be very different to what’s popular in a city. Even if your personal preference is for something different, you need to style with the buyer in mind.
Make sure that you also check the difference in price between unrenovated and renovated versions of similar properties in the area before you decide on a property. There’s no point renovating in an area that prefers new builds.
Always keep an eye on the money
When you’re renovating for profit, the bottom line is always exactly that – the profit. It should always be at the forefront of your mind. Keeping an eye on the financials is vital once you’ve picked a property. Set a budget when you start and stick to it. This is where many people fall, as it’s easy to get carried away.
Cosmetic renovations should be capped at 10 per cent of the property’s value. The bottom line is simple: the property plus the renovation cost has to be significantly less than the sale price of the renovated property.
Renovating for profit can be tough if you’re inexperienced in the field but if you’re committed to putting in the legwork and building up the right expertise and knowledge, it’s an incredibly rewarding – and profitable – business.