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
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
Renovating 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.
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.