Renovations are one of my favourite things and something I’ve never lost money on. Yes, you can make money on renovations if you follow these four critical components:
1. Buy under market.
You make money on your purchase and in a down market, you can count on your end value going down from the time to buy to the time you sell. Therefore, it’s critical you find a motivated seller. This is easier than you think as homeowners are the main buyers. They don’t see what the house can be, only what it is. There are very few buyers for a renovation so if the vendor is motivated, they will meet your price.
2. Get a building inspection report.
In a cold market, your buyer will be a homeowner and they will definitely get a building inspection report. Those reports kill deals. Buyers pull out on the smallest thing. You need to get a report done first to make sure you can fix everything on the report and there are no unexpected, expensive surprises. Then get a post renovation report and have both available for your buyer.
3. Your property must stand out.
When there are 10 properties for every buyer to choose from, yours must pull at the heartstrings of your buyer. Buy a property that has something extra to offer. Such as an extra bedroom, rumpus, space for the trampoline, walking distance to shops or transport, sleep out, granny area, extra bathroom, big garage. Something more than the standard three bed, one bath.
4. Have a top selling agent.
Selling is an art. In a cold market the agent you choose could make or break a deal. Ask for a referral from property traders or look for award winning agents who have the number one status in their company.
When I buy my trade, I start with my sale price, deduct the costs, deduct my profit and that’s my buy price. When I set my sale price, the agent I’m buying it off will give me a ‘maybe’ price (it ‘should’ sell for $900K) but I use a definite price (I will get $800K) and that’s how I do my numbers. If it sells higher and I make more, I can live with that. If I listen to the agent and get less that’s my money being lost not theirs.
Those are rules I follow right now. You must have all four critical components in place for a profitable trade.
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