How to Profit From a Renovation

It’s important to set your ultimate goal in the early stages of the renovation process. We are going to focus on the case of an investor increasing their return.

There are many ways to profit through property renovation but it all starts with buying well. The question then becomes how to tell the difference between an endless pit of trouble and a diamond in the rough. Our theory is that the structure must be sound and the floor plan should not need altering in order to work. Also, never see a property alone; two sets of eyes are always better than one.

Location, Location, Location…

Know the area that you are buying in. Anyone can buy a property, but it is important to ensure that you understand the prospective demographic of the area. For Example, South Yarra’s apartment demographic is mostly comprised of young professional couples or young share houses whereas Glen Iris’s demographic is more family oriented. Know your target audience and ensure that you understand the style of the suburb in order to maximise your return/minimise vacancies.

Select one to three suburbs bordering onto to one another and study the market in order to recognise when something is priced well. Some properties may just need a general tidy up. This could include a re-paint, re-carpet and new roller blinds (more tenant friendly). This can easily be done for less than $10,000 on an average 2 bedroom apartment.

Don’t Let Your Creativity Break The Bank…

Budgeting can often be a weak spot. It is easy to get caught up in the excitement of a project but how can we stop ourselves from over capitalising? A general rule for investors is to spend only 2% of a property’s value on a renovation. For example, using this formula, a property worth $500,000 should have no more than $10,000 spent on its renovation.

A cosmetic renovation is a much safer bet than a structural renovation. Updating a kitchen and bathroom can sound like an expensive exercise but there are some simple ways to ensure you keep costs down. We truly believe that paint can be the best money spent because it is such an easy way to breathe new life into a space. A bathroom can be cosmetically changed by swapping a daggy shower curtain for a panel of glass, re-grouting tiles if the tiles are neutrally coloured and in good order, getting a painter to re-spray the bath tub and add a lick of paint (opt for an anti-mould paint, especially for tenants in a bitter Melbourne winter). The kitchen can be cosmetically updated with a paint job, a change of cabinetry handles and the addition of a fresh laminate counter top.

Any other glaringly obvious problems will need to be addressed too. Do not underestimate Bunnings or Masters for handles or light fittings. They have surprisingly fashionable decor items, which won’t break the bank.