You might think it seems like an easy decision… renovate and then make lots of money right!  But renovating for profit is not that simple.

There are a number of ways you can add value to your property through renovation. 

What is true is that renovating a property can bring you profits, even in a flat market.  Renovating is about bringing a fresh new look, feel and design to a tired old property.  If planned well – you can make really good money to put towards your next property or pay off your home loan faster.

Here are some factors to consider when renovating for profit

• You need to consider the area that the property is located in – as I always say – buy the worst house in the best street or best suburb
• You could consider getting a real estate agent in to give you some facts and figures on the suburb, property types and values in the area – they will also be able to give you  some guidance on how you can add value
• Don’t buy with your heart – if the house is not for you – then get your head making the decision not your heart
• Don’t over capitalize – make sure you have a decent renovating budget in mind and an achievable growth figure and stick to it
• Be prepared to get your hands dirty – the more you can do yourself, the more money you will save.  For example if you can remove tiles yourself and demolish a bathroom you can save hundreds of dollars in labor
• Get a specialist in when you need one – things like tiling, plumbing, electrics and possibly even painting can be best left to the professionals
• Add a bedroom whenever possible. You can add serious dollars to your property by adding a room – for large rooms, consider adding a partition or turning a nook into a study
• When you get quotes, get at least 2 per task (utilize your feiends network and ask around for good LOCAL suppliers. Make sure each supplier quotes on exactly the same item – apples for apples!
• Watch some TV – by that I mean watch the renovation shows that are all over our screens like the BLOCK – you can get some great tips and ideas from these shows
• A good budget figure to work to is 10% of the purchase priced of the house
• Allow a minimum 10% contingency on top of your budget – maybe even 15%

Remember, always focus on your end audience!  Who are the people who are going to buy a house like yours and in that suburb – then make sure you provide a solution that suits them.

Here is a scenario for you.

Say you are looking at a property in a suburb where the median price for a 4 x 2 is $550,000 – (this is for an average property in the area – a well renovated property might sell for $575,000).  You have found a run down property on a big block for $450,000, then you need to add your purchase fees including stamp duty  – I would allow around $15,000 to cover everything.  The purchase price is $465,000 now.

You then allocate a budget of $40,000 which you want to cover the following items:

New kitchen, bathroom, new flooring, window fittings, painting throughout plus landscaping and the front facade.  Then add in your contingency of $4000.

Your new purchase price is $509,000.

If you then sell the property for the median price in the area – you would make a profit of $41,000 less selling fees of around $12,000 – so total profit of $29,000.  If you can sell it for the price of a good renovated property in the area – you could make up to $54,000.  Now that’s not a bad days work… or lets say 3-6 month work.

You do need to factor in mortgage repayments too over the time you hold the property for renovation.