In today’s show, we’re going to give you a dose of renovating reality.
Renovation can make your property more attractive to tenants, reduce your vacancies, and minimise lost rent.
But it’s important to approach renovation strategically, so that you maximize the value of your property, without spending more than you need to.
Today, we’re going to talk about what works and what doesn’t, and about the common mistakes that property renovators make.
- Avoid over-capitalising.
Start with establishing a post renovation market appraisal on the property. Allow for purchase price and any associated costs, interest, marketing or selling fees and a healthy buffer and deduct that from the post Reno market appraisal. What's left is the budget, inclusive of profit for the renovation. As a rule, keeping the renovation budget to 10% of the market value of the home is about
- Allow a contingency amount.
Once a budget is established, allow a contingency based on your experience level and extent of the renovation works. Allow a little more if structural works or there's planning/building approvals required and a little less if the works are purely cosmetic. Remember, renovating is full of variables that not allowed for could quickly make your project unfeasible.
- Tailor the renovation for the target market.
Becoming an expert in the area by attending property inspections of similar properties, discussing the expectations of the tenants with local real estate agents will help determine the scope of works for your renovation. By knowing what the market expects, you can tailor the works to suit that market and therefore not spend on things that may not bring a return on your dollars.
- First impressions matter.
Natural light, fresh paint, new floor coverings and window furnishings go a long way towards transforming a tired old property into something that will be sort after. Often, it's the little things that can make or break a successful renovation. Neutral colours allow tenants to create their own identity with their belongings. Dominant colours and textures tend to close in the wall and makes spaces feel smaller than they are.
- Kitchens and bathrooms sell properties.
Beware diluting your dollar by doing half the job. When assessing the scope of works for your renovation, keep in mind that the two big ticket items, the kitchen and bathroom generally come a package deal. If you renovate the kitchen but leave the original tired and rundown bathroom, it will devalue the kitchen, and vice versa. If the budget doesn't allow for both them, it may be worth deferring renovation works until the budget is healthier or consider undertaking a smaller refurbishment to include repainting, floor coverings and window furniture or air-conditioning to improve the first impression and the feel of the property.
- Avoid DIY.
Unless you’re a skilled tradesperson, don't get lured into to misconception that you'll save money by doing the work yourself. TV shows like the block glamorise and simplify the renovation process. In most cases, it will cost you the same or more but always take you longer if you’re doing the work yourself, therefore resulting in poor finishes, delayed completion dates and unnecessary holding costs due to the extended completion times.
- Remove the emotion.
Adding value to an investment property or a flipper should be run like a business. There's no room for latest fad in design and you shouldn't be trying to make the cover of Belle magazine, that's for your own home. The purpose of renovating investment properties should always be about maximising both the rental return and capital value of that property.
- Get a good team around you.
Renovation involves coordinating various tradespeople all of which are managing a whole lot of other 'jobs' at the same time. Discuss your schedule and plan for the renovation and seek their assistance and advice. Remember, they're the experts. They've done it before and probably seem the mistakes others have made. By getting close to your trades, you'll avoid falling into the same trap.
You normally get only one chance per property – do it right and don’t skimp
“Over the years I’ve found that renovating is full of variables. Things crop up that you didn’t foresee, and it suddenly makes what looked like it was going to be a great project not profitable.” – Michael Yardney
“It’s not what you like; it’s actually what the target market would like.” – Michael Yardney
“You’re not going to get two dollars back for every dollar you spend, despite what some of the magazines and some of the seminars will tell you.” – Michael Yardney
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