After having done all the required research, you’re now ready to start shopping for a property.
This is where things get exciting. You must keep your wits about you, as property selection is critical.
When you get to this stage, what you want is potential for renovation.
You must assess each property not only on what condition it is right now, but what it can be when you’ve done your magic to it.
The first consideration is the state of the property. You want a place that needs work, but notcompletely derelict (unless you love a challenge)!Then you will consider the needs and wants of the current market, and whether the property could meet them with your improvements.
Finally, you should consider how far you can take the property.
Some properties just need a basic style change to make you a tidy profit.
Other properties can be completely transformed, bringing them to a far superior state and unlocking higher profits.
Roughly speaking, there are three kinds of properties that attract renovators:The ‘Patch ‘n’ Paint’ means it is a solid property, in good condition structurally but the decor is dated.
It’s begging for fresh paint, carpet, fittings and fixtures, and the garden needs tidying up.
The ‘Fixer-Upper’ is usually older and in rougher condition than the Patch ‘n’ Paint.
The decor needs updating, but it also needs a kitchen or bathroom makeover.
The problem child has structural issues.
It may have cracks in the walls or need a new roof. Perhaps the plumbing or wiring is shot and needs replacing. These issues can be expensive to put right but don’t necessarily add any value.
The ‘Knock-Down’ requires a complete restoration or demolition. These properties often catch the eye of developers, especially if they’re in a great location, on a large block or have fantastic views. From my experience, the best places to renovate for profit are the ‘Patch ‘n’ Paint’ and the ‘Fixer-Upper’.
The type of renovation work you should attempt will depend on your knowledge, skills, experience and contacts, but most people are able to renovate these kinds of properties without too much trouble.
Also, they don’t tend to have a high level of risk.
Dealing with structural defectsIn general, I advise people to avoid properties that need serious structural work.
You want to spend the renovation budget on improvements that tenants and buyers can see immediately because that’s how you get results.
Spending money repairing defects that are unseen 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 must get a quote to find out how much it will cost to rectify the problems so you can factor that into the maximum purchase price.
If the numbers still stack up then go for it. Plus, 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 foregoing an inspection report when they buy a property.
Don’t do it! Termite infestations, dodgy wiring, rotten foundations. There are many possibilities of problems with any house that most people won’t notice.
And just 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 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 demandLet’s forget about property for a minute and think about people, because despite what most renovation newbies think, 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 the profit you make when it’s sold, so to maximise your return you must create a place that tenants will rent and buyers want to buy.
This is the golden rule if you want to profit from renovating houses.
If you intend to keep the renovated property then you need to research your target tenants for the area.
When you match a property to target tenants you’re less likely to have vacancies, or need to discount therent just to get someone in.
Build a good relationship with 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 in short supply? 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 facts so you can make an informed decision on what to buy.
If you intend to sell the property after renovating 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 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 so critical. Remember, you may be able to improve a house, but you can’t improve its location.