5 mistakes to avoid when renovating for profit
Plenty of people have an appetite for doing a place up and selling for a profit. But there are common pitfalls that get us into trouble.
Remember that renovating strategically isn't about painting a wall and calling it a day. It's about a careful consideration of adding real value to a property in the market, and that takes some homework as well as sweat equity.
Smart renovating can lead to capital growth and well considered improvements can hedge against maintenance issues on a property you intend to keep a hold of and rent out.
1. Leading with the heart not the head
If you're not buying your forever home, you really need to dial the emotion down. While you can indulge a little feeling - the type that lets you spot the potential of a renovation gem - don't let the heart dominate the head.
If you intend to improve and move on, keep your eye on your objectives. Stay rational and let your research guide you, and while we're on the subject of research… you can never do too much. Really.
Comprehensive research will help you avoid common mistakes, identify the right property projects, cost your renovations accurately, understand your target market and maximise your end profits.
Know where, what and why you're buying, and be prepared to defend it with real data, not instincts or assumptions.
2. Paying too much for property
A mistake in any situation, but especially if you're looking for a fixer upper that you hope to turn a profit on.
How much you buy your property for has a huge impact on what you will ultimately make from that property. No matter how exciting the deal seems, if you over spend, you'll be forever trying to make that up in your renovating. This leads to ill advised cost cutting and can further crimp your success over time.
Watch out for the usual things that can lead to over spending, such as letting an auction bidding process run away from you, getting emotionally involved and develop and be confident in your negotiating skills. They're as important as your skills in finding great suppliers or tradespeople to work on the property.
If you're not sure, get some help or training.
3. Over capitalisation
It can be deadly in any context, but it's easy to let money get away from you when you're renovating.Blowing out your renovation budget can create serious cash flow issues and unhappy suppliers. You'll lose motivation to finish the project, and people will be less inclined to work with you if they don't think you're handling things sensibly.
Enlist the help of a professional valuer and, if you have a big job ahead of you (such as renovating a block of flats), a surveyor. Knowing what the property if worth, where the opportunities are to increase value, and an estimate of costs and work involved will help you keep on track.
Locally based valuers are ideal as they'll understand your likely target market well, and will know where your money will and won't have a tangible impact on value.
Create a disciplined budget. Every dollar you spend deliver you ideally two dollars in added value.Watch the numbers like a hawk and make judicious decisions where you can to save the bottom line (don't cut corners with things like safety though!)
It's worth adding between 20% to 30% contingency for unforeseen expenses. That way you'll stay on top of your finances, no matter the curve ball that comes at you.
4. Doing it yourself
Unless you're a professional by trade, it's usually not worth the risk of DIY when resale is your objective.
While it might seem cost efficient at first, it'll quickly lead to budget pain if you don't know what you're doing. You don't want things falling apart once your new tenant or owner has arrived. The pros can work fast and they know their business.
Using a specialist gives you certain guarantees. If there are issues down the track, you'll have recourse because you used a professional, governed by professional bodies and grievance policies.
If you're a truly experienced DIY-er you might be able to share the load.
5. Ignoring your audience
If you're improving a property with profit in mind, it's essential you think about where that profit will come from - that is, who's going to buy it and what will appeal to them.
Your starting point should be neutral - and then tailor to those people most likely to buy the property, whether families, students, couples or retirees.
Don't trust your own assumptions here. Even if you think you are, or understand, your target market, make sure you actually seek them out, research them, and understand their real tastes and needs. Advice from a professional designer or stager is often a great investment, and will help you win hearts and minds when your ideal buyer walks through the door.
It's possible to renovate for profit, even when overall market conditions are flat or uncooperative.
But you need to keep focused on your end game and collaborate with a team of specialists who can offer trustworthy guidance.