After having done all the required research and preparation, you’re ready to start searching for a property.
This is where it gets really exciting. You have to keep your wits about you, as property selection is critical.
When you get to this stage, what you’re looking for is renovation potential.
You have to assess each property not only regarding where it’s at right now, but what it could be once you’ve renovated it.
Your main consideration is the condition of the property. You’re searching for a place rundown, but nottotally derelict (unless you really love a challenge)!Next you need to think about the needs and wants of the current market, and whether the property might meet them with optimal improvements.
Finally, you need to consider how far you can take the property.
Some properties just need a basic style change to bring you a good profit.
Other properties can be completely transformed, bringing them to a far superior state and unlocking superior profits.
Roughly speaking, there are three kinds of properties that attract renovators:The ‘Patch ‘n’ Paint’ means it is a solid property, in good nick structurally but the decor is faded.
It needs fresh paint, carpet, fittings and fixtures, and the garden needs a tidy up.
The ‘Fixer-Upper’ is usually older and in rougher condition than the Patch ‘n’ Paint.
The decor still needs attention, but it also needs a kitchen and/or bathroom makeover.
The problem child often has some structural problems.
It may have cracks in the walls or need a new roof. Possibly the wiring or plumbing is shot and needs replacing. These issues can be costly to fix but don’t necessarily add a comparable value.
The ‘Knock-Down’ requires a top to bottom restoration or demolition. These properties often attract developers, particularly if they’re in a great location, on a large block or have fantastic views. From experience, the best places to renovate for profit are the ‘Patch ‘n’ Paint’ and the ‘Fixer-Upper’.
The amount of renovation work you should attempt depends on your knowledge, experience, skills and contacts, but most people are able to do up these kinds of properties without too much trouble.
Plus, they tend not to have a high level of risk.
Dealing with structural defectsGenerally, I advise people to avoid the properties that need serious work.
It’s best to spend the renovation budget on improvements that tenants and buyers can see immediately because that’s how you get results.
Spending money fixing defects that are not seen 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 want to make an offer on a property with structural defects you really should get a quote to find out how much it will cost to rectify the problems so you can factor that into your maximum purchase price.
If the numbers still stack up then go for it. And, 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 inspection reports when buying a property.
Don’t be tempted! Termite infestations, dodgy wiring, rotten foundations. There are many possibilities of problems with any structure that the average person won’t notice.
Remember, 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 that just costs 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 profits -from either the rent you receive or the profit you make when it’s sold, so to maximise your return you must create a home that tenants want to rent and buyers want to buy.
It’s the golden rule if you want to make a profit renovating houses.
If you intend to hold onto the 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 reduce therent to get people in.
Talk to property managers and find out what type of properties are most sought after in the area. 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 before 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.
Finally, although there will be some features of the property you can improve, some features, such as the location and aspect, etc, are fixed.
You can do a first class renovation, but if the property backs onto railway tracks you can expect to trouble renting and selling it.
This is why property selection is critical. I always say, you can improve a building, but you can’t improve its location.