How and where to complete the perfect renovation project
There's a lot to get right and much that can go awry when renovating a property, but done well in the right area it can deliver terrific property investment profits.
Each year, Australians spend around $12 billion renovating property.
While much of this spending is directed towards people’s homes, a significant proportion of renovations are for investors looking to make money from a remodelled or reworked property.
If you’re thinking of joining Australia’s army of renovation investors, here are some things you need to know.
Where to find a great renovation opportunity
Firstly, you need to identify the best areas in which to search for a reno’ opportunity.
I turned to two of my colleagues who often encounter buy-to-renovate-and-sell clients to find out more.
Michael Kimbel, in Melbourne’s eastern suburbs says it’s established homes in the middle ring that are best suited.
“Primarily this is due to the strong land value as a proportion of the sale price and the multifactor demand for detached homes in established suburbs,” he says.
That means you will be spending around a metro’ area’s median price, about $1 million in Brisbane and Melbourne, around the $1.3 million mark in Sydney, or $700,000 for Perth and Adelaide.
In Sydney’s west and Melbourne’s north west in particular, there is strong demand for large family homes with four bedrooms and two bathrooms in established suburbs.
Around my patch in the inner suburbs, I regularly come across good apartments and units begging for a tasteful remodelling.
But great renovation opportunities are not confined to major metropolitan areas.
My colleague, Anjay Zazulak in Albury-Wodonga points out that some of Australia’s regional centres are well placed for renovation investors. When we look at markets like Albury, Geelong, Bathurst, Toowoomba and Ballarat, we find there are some established three-bedroom family homes with great renovation potential.
But this is not just about identifying the right location. As Mr Kimbel makes clear, you need to understand who will be the end buyer for your project before you move ahead.
So, when you think you’ve identified a good area, take the time to research the local market, and talk with agents and builders. You should have a clear understanding of the most likely buyers for your end project before you purchase.
You’ll also need to have a clear understanding of the planning regime in the area you’ve targeted.
Assess the property thoroughly
Before you commit to any property you want to renovate (or buy for any other purpose) you should ensure you have a detailed assessment from electrical, plumbing, building and pest inspectors.
Yes, I know that sounds basic, but you’d be surprised how many buyers don’t do this and end up with a property too difficult to work with.
What the report should show is that the property is structurally sound, without engineering, electrical, plumbing or other issues.
The other necessity here is purchasing a place with a workable floor plan. If the property requires major structural work, leave it to others.
Property types with strong renovation potential
Investors should consider the street appeal of the property they are targeting.
Appeal can be a little subjective but a good guide is to judge whether the house or apartment block fits in with the rest of the street and neighbourhood.
If it does, it will more likely garner strong appeal when it comes time to sell.
Your assessment of the outside should also take in the driveway as these can be expensive to fix, and whether the property provides enough outdoor space to occupants to enhance the indoor living offered.
Foundations to ceilings
Before you arrange professional inspections, it pays to look for issues.
When real estate professionals enter a property for the first time they look up at the ceiling and down at the floors.
If they are uneven or not level, that’s a red flag that the property may be shifting. Spider-sized cracks recently painted over may not be a major problem but if there’s more movement than that, the fix may prove expensive.
Take a solid look at the exterior roof as well. If it’s not up to scratch it may be allowing water into the property’s interior or wall cavities.
Kitchen and bathrooms
These two rooms can have an outsized influence on people’s perceptions. As a rule, you don’t want to have these rooms more than two decades out of date.
Interestingly enough, some of the best renovation projects my team have been associated with have been houses with “great bones” and a truly hideous interior styling.
Budget realism
When setting your budget, start with one question first: what is the renovation for?
Many investors will be interested in the first option, the flip, where you fund a cosmetic make-over with perhaps a repaint, new carpet or a restyling of the kitchen and bathrooms.
That option suits a house or unit with a good floorplan, no structural issues and typically, and an out-of-date and unattractive interior.
These properties are also in the spotlight of the second option; the quick value-add. Here investors fund a manageable remodelling to the existing floorplan, making a change such as a second bathroom, inserting a wall to create an additional room or removing walls to open up an area.
The third option is a complete remodelling with changes to the floorplan. This can work in some higher end inner suburbs, but you’ll need significant funds, and a much longer timeframe to make money (if you do at all).
Critical to all of these budget considerations is understanding what you can do yourself and what you’ll need to outsource.
So, if laying floating floorboards and repainting is something you’re good at, you’ll need less money for scarce tradespeople.
Renovation is a challenge
A final word of advice: Renovation is typically more cumbersome, time consuming, risky, and complex than many investors realise up front.
From planning issues, fixing structural faults to judging the market and getting the colour scheme right, renovation is not for the faint hearted.
The investors who do best have a budget, process and plan ready before they start and just as importantly, a mindset to be able to meet challenges as they arise.
In other words, the investors who make the most out of “fixer-up opportunities” tend to be great project managers.
If you want to be the reno’ queen or king, your ability to develop a budget, draw up contingency plans and have effective communications with everyone involved in the project are vital assets.
