Renovating your property for profit

Home buying & selling, Investing
comment11 Comments

First Home Buyer AdIf an alien landed in Australia, it might think that we’re a nation of renovators.

Not only do we have a plethora of TV shows about renovating for profit, but there is an army of amateurs who spend their weekends becoming better acquainted with a paintbrush.

There is no doubt that buying a house to renovate can be the path to capital growth – as long as you select the right property to start off with.

Most people also need some sort of property development finance so they can complete the renovation.

Both of these factors require a level of understanding to ensure that you’re investing in the correct real estate as well as accessing the right finance.

What to look for when you’re buying a property to renovate

Renovating for profit can work, but it can also leave some novices with a bad taste in their mouths as well as holes their wallets if they choose the wrong property to begin with.

Buying a house to renovate requires an understanding of the local market, including recent sale prices of similar properties post-renovation.

One of the most common mistakes that new renovators make is they over-capitalise.

That means that they don’t stick to their project budget – or even create one – and spend far more on the property than it could return to them anytime soon.

An example could be buying a property for $500,000 and then spending $75,000 on the renovation when the top price for a similar property in the area is $525,000.

Time might heal that price divide, but most renovators need to repay the cost of renovation via their property development finance sooner rather than later, so they probably can’t wait for a market upswing that may happen later rather than sooner.

The difference between house flipping and property development

 Renovating

A common strategy in the renovation game is to “flip” properties, which means buy, renovate and sell as quickly as possible to reduce holding costs.

This can work in theory, however many beginning renovators fail to include an array of buying and selling costs into their feasibility analysis (if they do one at all) which eats into their profits.

As well as the cost of renovation, there are expenses such as stamp duty and legal costs when you buy, then there are selling costs such as commission and legal costs (again) when you sell.

Let’s consider a $500,000 property again.

Depending in which state the property is located, these additional expenses could be about $35,000 – on top of the cost of renovation!

Plus, there are holding costs during the renovation as well, which can add about another $15,000.

So, before you know it, the “profit” has been reduced by $50,000, which likely makes the exercise not an overly lucrative one after all.

Property development – while a more advanced strategy – usually involves holding a proportion of the new properties, which secures the profit, and ensures continued capital growth in the years ahead.

Of course, both options probably require some form of property development finance, which can result in a smoother ride – as long as you access the right advice at the outset.

Getting the right financial advice to get started as a developer or renovator

First Home Buyer AdRenovating for profit is a valid property investment strategy, but it’s not one for complete novices.

Before you attempt to renovate a property, or construct a property development, it’s vital that you understand all of the potential financial implications.

The world of banking and finance can be a pretty daunting one for both novice and sophisticated investors, and since our establishment in 2002 we’ve focused on providing outstanding service and business standards.

This approach has been vindicated many times by our multi award-winning approach.

So, if you’d like to understand more about renovating or property developing, why not contact Intuitive Finance today to ensure you have the right information and expert support on your side from the very beginning.

If you’d like an expert to teach you more about renovating for profit or property development finance, or if you have any other questions, please just contact us directly and we’ll be in touch.

Discuss your specific needs & formulate the right strategy for you. Get in touch to organise your complementary 60min session today!

The information provided in this article is general in nature and does not constitute personal financial advice. The information has been prepared without taking into account your personal objectives, financial situation or needs. Before acting on any information you should consider the appropriateness of the information with regard to your objectives, financial situation and needs.

Andrew Mirams

11 Comments. Leave new

  • Renovations In North Shore
    June 6, 2018 8:46 am

    Good points in this article. Have seen a lot of people who seem to think that renovating is an excuse to pretend that money is no object. They forget they have to pay for it in the end! This is a good guideline to follow.

    Reply
    • Chloe Osborne
      June 7, 2018 8:54 am

      Hi Bobby,

      Thanks for the feedback!
      We are glad you took some good points from the article.

      Reply
  • Undoubtedly, renovating a property could significantly increase the value of the property. So, buying older property and selling it after renovation could be very profitable. However, a lot of factors should be considered prior to buy such kind of property. A lot of research should be done prior to the investment to gather information related to such kind of investment. Apart from this, asking an experienced professional to provide proper guidance could be very helpful to understand the real estate business and make a profitable deal.

    Reply
    • Hi Kylee,
      You make many great points here. You are right, renovating is not for everyone and making sure you do your due diligence is vital to ensure you secure a great outcome in terms of improved value.
      It should be noted that renovating is not for everyone but if you can, and you surround yourself with a team of professionals, then there are some great “vale add” advantages to this strategy.

      Reply
  • Dinas Property Investors
    January 2, 2019 8:53 am

    Great article and some valid points especially with regards to people buying property to renovate people really need to do their homework before venturing down this path as you mentioned it can leave people with a very bad taste in their mouth.

    Reply
  • First of all Thanks for sharing your experience with us about Renovating your property for profit. This post is very helpful, and good.

    Reply
  • Great info! Thanx for the share 🙂

    Reply
  • The way you consider the significance of construction is appreciable. Nice blog!

    Reply

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