Renovating could make you a lot of money, but there are potential dangers for the unwary.
1. Rushing in and buying something with only marginal profit
In a hot market, it can be difficult to find a project that stacks up, with so many competing buyers. However, you need to hold your nerve. There’s no point buying something that’s only going to make you a few thousand dollars or, even worse, lose you money.
2. Assuming that buying something cheap is automatically a good renovation project
Cheap houses are often that way for a reason. It might be because of the location of the property, or it could be something structural. It might be because it’s a one-bedroom house in a suburb where families are the prevailing demographic. There are always property bargains to be found, but make sure you’re buying a bargain and not a lemon.
3. Not understanding the area in which you want to renovate
Every suburb has streets that are more sought after and areas that are considered not so desirable. Understanding the subtleties of your target suburbs and the values of properties in the area will help you know when you’ve spotted a good opportunity to buy at a fairly significant discount.
4. Not researching/knowing your likely selling price
If you don’t know what the property is likely to be worth once the renovation is complete, you’re not going to know your profit figure and whether the project is viable. You should be researching the selling price of renovated properties in the area, or unrenovated properties, and making an educated estimate of what the property is likely to achieve once renovated.
5. Overcapitalising with expensive fixtures and fittings
If you’re looking to flip a basic apartment or mid-range family home, you don’t need to spend big money on renovating the property. You want it to look nice and present well, but that doesn’t mean buying top of the range. There are fixtures and fittings that you can buy that look great but are considerably cheaper than the top-end European types. It’s about getting bang for your buck. Every dollar saved puts more profit in your pocket.
6. Not planning and costing your renovation before you start work
While important in any renovation project, this is particularly critical with major structural changes where you’re using a builder to add rooms, move walls, put in new bathrooms or bedrooms, etc. It’s critical to do all the planning up front before any physical work is done so you’re not making any changes along the way. If you’re making variations midway through a structural renovation, the cost blowout is significant and can have a major impact on your profit. Look to have everything in place, even down to the tiles and taps you’re going to use, before any work commences.
7. Not knowing what the market wants in your area
You need to know what ‘product’ is in demand in that area and deliver that. If the market wants four bedrooms, two bathrooms, multiple living areas and outdoor entertaining, you need to create that product. While you might be able to put cheaper no-name-brand appliances in the kitchen in a basic unit, in a higher-end family home buyers will want to see the European brands.
8. Competition from new properties
If you’re renovating units or apartments, you need to be mindful of your competition. There is a great deal of new apartment stock coming onto the market in some cities, and your renovated property is competing with this. Therefore, you need to either have an end product that is at a cheaper price point or that has a location or attributes the new apartments don’t have.
9. Not factoring in the costs of getting in and out of a property
Buying and selling property has significant costs attached. The inexperienced can sometimes forget that and find that all their planned profits have been eaten up in stamp duty and agents’ fees. You need to allow roughly 5% of the property’s purchase price for buying costs. When you sell, most agents charge a commission that is about 2% of the value of the property, as well as marketing costs.
source Your Investment Property 27-4-2015 with warm regards,