3 Considerations Before Renovating an Investment Property

 

When the opportunity arises to invest in real estate, there are a myriad of factors that go into selecting the right property.

For first-time investors, the prospect can be daunting.

After all, investing in property is a major financial commitment. Get it wrong and you could face substantial losses. But, get it right and you could be setting yourself up for long-term financial security.

One popular strategy used by many Australians to succeed at real estate investing is to add value through renovations.

By buying an old, ramshackle property in a good location, and then renovating it to meet the demands of today’s market, investors are often able to generate a healthy profit.

While this strategy isn’t for everybody, if it is something you’re thinking about, here are a few key considerations before embarking on your renovation journey:

 

1. LOCATION, LOCATION, LOCATION

Almost every rookie investor understands the importance of selecting a property in the right location.

But what exactly makes a location right or wrong?

Answering this question requires you to know your target market.

Know the type of potential buyers who are likely to purchase your property once the renovation is complete.

Start by undertaking market research of the areas in which you’re considering investing. For example, how do houses and apartments compare when it comes to auction clearance rates? Have houses or apartments performed more strongly over the past 12 months?

Demographics are also crucially important. What is the age range distribution in the area? What types of households exist? Are they mostly single occupancy, couples, or families with children?

Economic indicators are also important. What are local employment rates? Are local businesses thriving?

Finally, consider the level of infrastructure and other services in the area, such as schools, colleges, hospitals, recreational facilities and access to public transport.

Once you’ve taken the time to understand the local area properly, it will become clearer what types of dwellings are likely to be in demand. An aging population will likely require more apartments with easy access to hospitals. However, a high birth rate will indicate a need for family houses with backyards that are close to schools.

Understanding the market will help you pick the right type of property that will be in demand in the right location.

Get this decision right, and you’ll be well on your way to making the investment a financial success.

 

 

2.GET TO KNOW THE PROPERTY BEFORE YOU BUY IT

One of the greatest pitfalls is thinking the old house you’re buying only requires cosmetic renovations. However, once you get started with the renovation, it becomes clear there are a range of structural problems which have to be fixed.

This can be extremely costly and time-consuming.

To avoid this problem, make sure you have professional inspectors examine the property before you purchase it. They will be able to advise you on the true state of the property, helping you determine the nature of the renovation that will be required.

Most importantly, you need to obtain a building inspection report. A licensed builder, surveyor or architect will search for any structural defects. They will examine the foundations of the building, any cracks, sagging ceilings, as well as other potential problems such as rising damp. They will provide you with a comprehensive report, so you will be fully aware of the extent of the renovations that are required.

You should also obtain a pest inspection report. Rodents may be lurking under the building or in the rafters. These could be hazardous if they chew through electrical cables and rewiring the building may be necessary. Termites or white ants may have eaten away at the wooden foundations, leading to expensive remediation works. It’s important to know about all such matters before you begin.

 

 

3.PAY THE RIGHT PRICE

Investing and renovating is a business venture. Your goal is to increase the value of an asset and ultimately sell it for a profit.

It is therefore essential that you do your homework to know if the sums add up.

Investigate what similar properties in the neighbourhood are selling for by the square meter. This will help you know what price you should be paying for any property you’re considering buying.

Realistically assess all the renovation costs. Include any structural fixes that may be required. Don’t forget other expenses such as stamp duty, architectural designs and local council expenses. Furthermore, during the time that it takes to complete your renovation, you will probably need to be paying interest on any borrowings you used to buy the property. These also need to be factored in.

Once you know all the costs, you need to consider the profit margin you expect in order to justify the entire project.

You will now be able to determine what sale price would be required once the project is complete.

How likely is it that you will be able to achieve this desired sale price? Real estate markets can be volatile. Market conditions may differ when it comes time to sale time.

If the market softens, how would this impact your financial situation?

Make sure the numbers stack up before beginning the process to avoid financial stresses later on.

How can Devine Real Estate help you?

If you’re seriously considering buying an investment property, renovating it, and then selling it for a profit, speak with Devine Real Estate.

Our expertise in Sydney’s Inner West is unmatched. We have plenty of potential properties that may be ideal for you and we can assist you in understanding the local market to find the one that suits your investment goals.

Steven Devine 
Director 
Devine Real Estate 
T: 02 8789 0217 | M: 0419 202 930

https://www.devinere.com.au/

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