Renovating or developing for profit
Renovating for profit isn’t about simply painting a wall and watching the returns roll in. It’s about carefully adding real value over the long haul. With the successful sale of our Robert Street renovation earlier this year here are my tried and tested points to ensure you make your projected profit.
1. Get studying
Take the emotion out of the equation and learn what improvements are most likely to add value for your style of home, your suburb, in the current market.
Changes that don’t fit won’t fly, no matter how fancy they are, and your renovating for profit dreams could end up being a nightmare. Research property value in the area, the demographic of the people residing there are plan accordingly. For our last renovation we concerted the old kitchen into a master bedroom and added an ensuite bathroom. This now added an extra bedroom and bathroom come sale and from my research (which proved spot on) got us an extra $100k + come auction day.
2. It's not about you!
If you’re looking to renovate for profit, adding ‘character’ can be a touchy subject. There’s always a risk that your ‘character’ will be someone else’s turn-off. So, with this in mind, how do you ensure your improvements will add value?
The starting point is to think about your buyer. Consider their needs in a home and tailor your work to suit them. Are they a young family or are they empty-nesters? (this comes back to doing your research)
If you’re targeting family buyers, you’d look to have two bathrooms, three to four bedrooms, a kitchen with direct sight to the rear or front yard where the kids can play, secure gates and fences. For our Robert Street renovation, we opened up the space to create an open plan kitchen/living and dining room and added an addition bedroom and bathroom to take this home to the next level to accommodate a family.
On the flipside, empty-nesters prefer a smaller footprint with two to three bedrooms for an office and guests, higher-end fittings, low-maintenance yards and building materials – close to public transport and shops.
The key when renovating for profit is to keep the renovation accessible to the buyer. If you’re undertaking an extension, avoid ‘edgy’ and run with popular, proven finishes that are in vogue.
Focus on incorporating lots of natural light, warm white walls and sociable open spaces and considered storage, over the years these have proven to be big ticket items that have sold our homes.
3. How to renovate for profit: Budget like a hawk
This could be the most important point to note. Blowing out your renovation budget can breed cash-flow issues and unhappy suppliers, not to mention kill morale and raise blood pressure.
A professional valuer can help you estimate costs and craft a disciplined budget. Aim to double what you spend as your end game, and always add a buffer for those unpredictable hiccups. I find working off a spreadsheet and updating it with every single purchase/invoice with a running tally keeps me on track.
Undertaking feasibility and costs estimates while weighing up market trends. This is where you make your money. It might sound like a grand idea to include a pool but there are a lot of associated costs surrounding something like that. Visually it is pleasing to the eye but the trades involved to fit it will hurt your budget and the upkeep costs could scare off potential buyers.
I would also suggest chatting with an accountant sooner rather than later about capital gains tax and repairs vs improvements. The timing of your work and the period for which you hold your property makes a big difference to your taxable bottom line. There are lots of regulations around tax that need to be considered. Once you sell your property, if you haven’t resided there this capital gains tax as well as agent and conveyancer fees are deducted off your profit.
4. Simple can work wonders
There are plenty of small, low-cost improvements that could make a huge difference to your property’s value. Fresh paint, new light fittings, new bathroom fixtures, and door handles can all help a place command more for rent or sale.
Avoid overcapitalising, don’t renovate your house to be the best on the street, instead aim it to be the most adaptable. Appealing to a broader range of buyers. Spend money where it counts and where people can actually see it like stone bench tops, kitchens and bathrooms.
5. Agents are your friends
Sometimes agents will chat to a network of prospective buyers before they list properties. Connect with agents in the areas you’re looking to renovate for profit, and share your goals so they can hit you up with a winner before the competition. It is also great to have these relationships established when you are looking for your next property to sink your teeth into.