While we’ve all seen people making money through renovations on TV shows like The Block, when it comes to doing your own renovation most people fail before they even begin.
Like anything in property, if you want to undertake a profitable renovation it all starts well before anyone picks up a hammer or starts pulling out an old kitchen.
The basic math behind a property that you want to renovate is that you need to be able to make $2 for every $1 that you put in. While on the surface that seems simple, it’s not always easy to do. Just because you can go out and find an old property that is in need of a refresh, doesn’t mean that it is profitable to do so.
To determine if you can make money on the project you need to start with some market research.
What we look for when we undertake an Accelerator project for a client, are firstly areas where there is a big difference between what older properties are selling for and what nicely renovated homes are achieving. If the difference is big enough, there is going to be room to do the work that is required, pay all the costs and then come out with a property.
Not all areas are going to stack up, so you really need to have your hand on the pulse to make sure the market wants what you’re trying to create.
The second factor that you need to take into account is the type of project you want to do.
Again, just because a project can be done, doesn’t mean it will be profitable to do so. Just because you go in and change over a kitchen or bathroom doesn’t mean it will actually increase the property’s value. This is a common misconception with renovation projects.
We see this sort of thing happening a lot during a hot market. People buy a property and do a basic renovation only for them to go and sell it for a nice profit and think it was because of their hard work. When in reality, much of those gains likely just came from the market rising. While the property might be more attractive to a buyer, the extra gains might not have been more than the cost of doing the renovation if the market didn’t rise.
When we look for suitable properties we want to hone in on ones that have floorplans that can be reconfigured so we are adding more value to the property and more appeal. Ideally, we like to see a home that has a large living space under the roof, that we can reconfigure to make it more livable.
Some simple examples of this might be converting some dead space into another bedroom. Creating a more open-plan feel. Turning an old laundry into an ensuite.
There are many ways to do it, but it all starts with the fact that you first have enough space under the roof that it can be done. We don’t want to go in there are start adding more buildings or putting on a second story. These things cost a lot and again might not give you the bang for your buck that something simpler would.
Ideally, we’re looking to find properties that are almost unlivable to begin with. This also means most of the value is in the land.
This also gives us plenty of opportunity to reconfigure it for 2023 living and ideally make a nice profit in the process.
A renovation is a great way to create equity and it can also be done really quickly. But it all comes down to doing your research and buying the right asset at the very start.