After having done all the necessary research and preparation, you’re ready to start searching for the perfect property.
This is when things get exciting. You have to keep your wits about you, because property selection is critical.
When you get to this stage, what you’re looking for is potential for renovation.
You must assess each property not only on where it’s at right now, but what it can be once you’ve done your magic to it.
The first consideration is the condition of the property. You want a place rundown, but notcompletely derelict (unless you really like a challenge)!Next you will think about the needs and wants of the local market, and whether the property will meet them with optimal improvements.
Finally, you need to consider how much you need to do to the property.
Some properties just need a quick fix-up to make you a decent profit.
Other properties can be completely transformed, bringing them to a far superior state and unlocking better profits.
Generally speaking, there are three types of properties that attract renovators:The ‘Patch ‘n’ Paint’ is a solid property, in sound condition structurally but the decor is faded.
It needs fresh paint, carpet, fittings and fixtures, and the garden needs a revamp.
The ‘Fixer-Upper’ will generally be older and in rougher condition than the Patch ‘n’ Paint.
The decor still needs a revamp, but it should also have a kitchen and bathroom makeover.
The problem child may have 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 problems can be very costly to fix but don’t necessarily return any value.
The ‘Knock-Down’ says it all, requiring a top to bottom restoration or demolition. These properties often attract developers, especially if they’re in a great location, on a large block or have fantastic views. From experience, the best bets for renovating for profit are the ‘Patch ‘n’ Paint’ and the ‘Fixer-Upper’.
The type of renovation work you should attempt will depend on your knowledge, skills, experience and contacts, but most people should be 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 defectsIn general, I advise people to avoid the properties that need structural work.
You want to spend your renovation budget on improvements that tenants and buyers can see because that’s how you get results.
Spending money on 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 must get a quote to find out how much it will cost to rectify the problems so you can factor that into the purchase price.
If the numbers still stack up then go for it. And, you can usually negotiate hard because many buyers will be scared off by the “problems”.
Don’t skimp on inspection reportsMany property investors are tempted to save a few bucks by foregoing an inspection report when they buy a property.
Don’t be tempted! Termite infestations, dodgy wiring, rotten foundations. There are many potential problems with any home 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 would you 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 demandNow let’s think about people, because despite what most renovation newbies think, 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 what you make once it’s sold, so to maximise your return you must create a home that tenants will rent and buyers want to buy.
It’s the golden rule if you intend to profit from renovating houses.
If you intend to keep the property then you need to research your target tenants for the suburb.
When you match a property to target tenants you’re less likely to have down-time with an empty house, or need to discount therent just to get someone in.
Talk to property managers and find out what type of properties are most wanted 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 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 should know these facts so 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 a lot of 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 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 critical. I always say, you can always improve a property, but you can’t improve its location.