In the current market, one of the best opportunities that we’ve been focusing on is uncovering properties that might not look too good on the surface but have a lot of upside potential.
I call these ugly ducklings and in the current environment, they can make for a really great way to quickly manufacture equity.
The main way we are able to manufacture equity is through renovating. While there’s nothing new about renovating properties to make a profit, just look at any of the property shows on TV, at the moment, there are a lot of buyers out there who are unwilling or even a little afraid to attempt a renovation.
As we know, the cost to do a renovation has been on the rise in recent years. Materials haven’t been all that easy to get a hold of and prices have gone up. What’s even harder most of the time is trying to get the right trades on board to get the job done at a fair price and in a reasonable timeframe.
And it’s for all those reasons why renovations can work really well at the moment.
In the current market, run-down properties and ones that might not present very well because of their age or condition have been seeing a lot less interest from buyers. Most buyers are happy to pay for a quality home that is move-in ready. Far fewer are prepared to take on a renovation project and most wouldn’t even know where to start. For investors willing to do the work and manage the project, there can be some healthy upside.
When assessing the viability of a renovation, we like to use the rule that for every dollar we put in, there should be at least two in return at the other end. This means that we are effectively doubling the cash that we put into the deal.
This gives us plenty of upside potential and also covers us in the event of some cost overruns or other unexpected things that might come up during the renovation process.
The way we like to do this is through making changes to things like kitchens and bathrooms, opening up floor plans and being able to add things like another bathroom or an extra bedroom. Our goal is to find ways that we can substantially change the property, without undertaking large structural renovations.
When you’re trying to find potential renovation candidates, you’ll often find a lot of neat and tidy properties, but more often than not there is not going to be enough of a difference between the value of the renovated property and its value in its current state.
If you can find an ugly duckling or the worst house on the best street, they can oftentimes present really great opportunities to create some equity.
We’re trying to pick up properties for basically their land value, then spending more to renovate the property and bring them up to a standard that really appeals to the buyers in that location. And ultimately ending up with a property that is worth more than we paid for it to begin with.
If you are interested in the above, feel free to reach out to a Henderson buyers agent today for more information.