Buying an investment property, renovating it and selling for a profit can be an enjoyable and rewarding experience. It can also be a demanding and troublesome process. In order to avoid pitfalls and maximise your return, take a look at the following tips:
• Know how to calculate profit. Profit is whats left over when you start with your end sale price, less the purchase price, less purchase costs, less exit costs, less renovation costs, less holding costs and less capital gains tax.
• Draw up a schedule and plan your reno. Before even looking at properties, work out what you can afford in money and time commitments. Be conservative, and ensure costings are accurate. If you are borrowing to make the purchase, allow for interest rate increases and borrowing costs.
• Do your research. Find out what similar properties are worth in the same area, and find out what the growth potential is. Inspect as many properties as possible – you can pick up great ideas from these visits, and you’ll start to learn the market for the area you’re interested in. Take a look at the sale prices of similar properties, and get an idea of the type of return you may be looking at.
• When buying an investment property, beware of hidden dangers such as electricity issues, termites, damaged foundations and failing drainage systems. A thorough building inspection may detect some of these problems before you go through with the contract.
• Once you’ve purchased the property, work out the renovations achievable within your budget. If using tradesmen, ask around first. Word-of-mouth is a great way of finding out which tradies have a good rep, and those to stay away from.
• Stick to your budget. Be strict about not exceeding financial limits, otherwise you’ll eat into your projected profit margin.
• Decide if it’s worth being a DIYer or not. If you’re going to take time off from your job to do the renos yourself, it may be costing you money. Think carefully before committing yourself to an intensive reno project. Do you have the skills, are you fit enough, do you have the time? – these are all questions that need to be addressed. If you like reno work and will enjoy working on your weekends, go for it. If you aren’t that committed, you need to pay someone else to do the work.
• Talk to experts – real estate agents, mortgage brokers, financial planners, accountants (and yes, a renovation consultant like Hotspace!) can all assist you in making informed choices. Yes, the advice can cost money in some case (renovation consultant/designer, accountant etc), but it could save you much more!
Profit from your reno
