RENOVATE FOR PROFIT
by Dwell Building Services | Aug 1, 2021 | Invest
At the moment two key things are happening that make turning a profit from property renovations difficult.
There’s a run-away real estate boom going on (you’ve probably heard) and
There’s a serious issue with obtaining building supplies which is driving the price of everything upward, pushing out both time lines and budgets (thanks Covid-19).
So can you still renovate for profit? Yes and no.
This is where we can see the gains:
Cosmetic Renovation
This renovation, in order to actually make money, requires the subject property to have very good bones and a decent floor plan that requires minimal alteration. In the current market, you’re not super likely to find a cheap property, but if you can find an older property in a popular area with a reasonable kitchen carcass, you’re ahead.
The game plan is to replace the kitchen cabinet doors and handles, paint throughout, modernise the window coverings to something universally popular and remove a wall or two to open up spaces that feel pokey.
If you can afford a stylist or you’re clever with interior decoration, you will do well. Sell as soon as possible.
Renovate and Hold
With this approach, you’re more able to search out properties in the less expensive suburbs - pick the suburb next to the already booming suburb.
We favour this approach because it usually gives you a chance to ride out negative cycles, experience some positive cash flow after a few years, play out your depreciation schedule over a few income tax years and then make good capital gains when you do sell.
On top of these benefits, your renovation can be more impactful because there’s less pressure to keep your renovation budget to the bare minimum.
However, this approach is a bit difficult to achieve at the moment because it seems like all suburbs are booming.
improve an Awkward Space
You’re looking for the problem properties here. Awkward properties that for whatever reason “waste space” - a funny dog-leg in the kitchen or a completely shut off dining area.
For this technique to work, you’ll need a clever eye for reconfiguration. When house hunting, make sure you’ve got access to floor plans. It also helps to have a building consultant or an interior designer to call on so that when you feel seriously about a property, you can consult the experts prior to running the numbers or making an offer.
Beware the Knockdown
Don’t try to renovate a knock-down!! This is truly what your building inspection is for. Unless you’re truly planning to knock it down straight away. If that is the case, the purchase price should reflect land value only.
