After having done all the basic research, you’re ready to start shopping for a place.
This is where it gets really exciting. You have to keep your wits about you, as choosing a property is critical.
When you take your researcher’s hat off and put your buyer’s hat on, what you want is potential for renovation.
You need to assess each property not only on where it’s at right now, but what it can be when you’ve renovated it.
The first consideration is the condition of the property. You want something that needs work, but nottotally derelict (unless you love a challenge)!Then you need to consider the needs and wants of the local market, and whether the place could meet them with optimal improvements.
Finally, you should consider how much you need to do to the property.
Some properties just need a basic style change to bring you a tidy profit.
Other properties can be quite transformed, bringing them to the next level and unlocking higher profits.
Roughly speaking, there are three types of properties that attract renovators:The ‘Patch ‘n’ Paint’ means it is a solid property, in sound condition structurally but the decor is faded.
It’s begging for fresh paint, carpet, fittings and fixtures, and the garden needs a tidy up.
The ‘Fixer-Upper’ will generally be older and rougher than the Patch ‘n’ Paint.
The decor needs attention, but it also needs a kitchen and bathroom makeover.
The problem child often has some structural problems.
It may have cracks in the walls or need a new roof. Perhaps the wiring or plumbing is uselss and needs replacing. These issues can be very costly to fix but don’t necessarily add any value.
The ‘Knock-Down’ requires a complete restoration or demolition. These properties often catch the eye of developers, particularly if they’re in a great location, on a large block or have fantastic views. From my experience, the best bets to renovate for profit are the ‘Patch ‘n’ Paint’ and the ‘Fixer-Upper’.
The amount of renovation work you should do will depend on your knowledge, skills, experience and contacts, but most people should be able to renovate these types of properties without too much trouble.
In addition, they tend not to have a high level of risk.
Dealing with structural defectsGenerally, I advise people to avoid properties that need serious structural work.
You want to spend your renovation budget on improvements that buyers and tenants can see because that’s how you get results.
Spending money fixing defects that are unseen eats into your renovation budget and you may not see a buyer who appreciates quality for some time, therefore your profits will be reduced.
Basically, 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 really should get a quote to find out how much it will cost to rectify the problems and factor that into your maximum purchase price.
If the numbers still stack up then go for it. Remember, you can usually negotiate because most other will be scared off by the “problems”.
Don’t skimp on inspection reportsMany property investors are tempted to save a few bucks by going without inspection reports when buying a property.
Don’t do it! Termite infestations, dodgy wiring, rotten foundations. There are many potential problems with any home that most people won’t notice.
Remember, just one of these problems could 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 renovating for profit is a people business, not a property business.
That’s because the 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 you sell it, so to maximise your return you must develop a property that tenants want to 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 down-time with an empty house, or need to reduce therent to get people in.
Build a good relationship with property managers and find out what type of properties are desirable 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 needed? What kind rents the quickest?In this suburb do tenants prefer houses or apartments? Do they prefer one, two, or more bedrooms? Do they require parking or not? You need to know these basics before you can make an informed decision about 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 a lot of 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 railway tracks you can expect to trouble renting and selling it.
That’s why property selection is so critical. I always say, you can improve a property, but you can’t improve its location.