After having done all of the basic research, you’re now ready to begin searching for the perfect property.
This is when things get really exciting. You have to keep your wits about you, because property selection is critical.
When you take your researcher’s hat off and put your buyer’s hat on, what you’re looking for is renovation potential.
You must assess each property not only on where it’s at right now, but what it can be when you’ve renovated it.
The main consideration is the condition of the property. You want something that needs work, but nottotally derelict (unless you love a challenge)!Then you need to think about the needs and wants of the current market, and whether the place might meet them with your improvements.
Finally, you need to consider how much you need to do to the property.
Some properties just need a basic style change to bring you a tidy profit.
Other properties can be totally transformed, taking them to the next level and unlocking better profits.
Generally speaking, there are three kinds of properties that attract renovators:The ‘Patch ‘n’ Paint’ is a solid property, in good nick structurally but the decor is dated.
It will respond to fresh paint, carpet, fittings and fixtures, and the garden needs tidying up.
The ‘Fixer-Upper’ is usually older and in rougher condition than the Patch ‘n’ Paint.
The decor needs a revamp, but it also needs a kitchen or bathroom makeover.
The ‘Fixer-Upper’ often has some structural problems.
It may have cracks in the walls or need a new roof. Possibly the wiring or plumbing is uselss and needs replacing. These issues can be costly to put right but don’t necessarily add any value.
The ‘Knock-Down’ says it all, requiring a top to bottom restoration or demolition. These properties often catch the eye of developers, especially if they’re in a great location, on a large block or have fantastic views. From experience, the best places for renovating for profit are the ‘Patch ‘n’ Paint’ and the ‘Fixer-Upper’.
The type of renovation work you should do depends on your knowledge, skills, experience and contacts, but most people should be able to renovate these kinds of places without too much trouble.
In addition, they tend not to have a high level of risk.
Dealing with structural defectsIn general, I advise people to avoid properties that need structural work.
You want to spend the renovation budget on improvements that tenants or buyers can see because that’s how you get results.
Spending money fixing defects that are not seen eats into your renovation budget and you may not see a buyer who appreciates quality for some time, therefore your profits will be reduced.
Tenants and buyers expect a property to have good foundations, wiring and plumbing. They won’t pay extra for it, so the extra expenditure to fix the defect doesn’t add any value.
If you do want to make an offer on a property with structural defects you must get a quote to find out how much it will cost to rectify the problems and factor that into the purchase price.
If the numbers still stack up then go for it. Plus, you can usually negotiate hard because generally, other will be scared off by the “problems”.
Don’t skimp on inspection reportsMany property investors are tempted to save a few bucks by foregoing inspection reports when buying a property.
Don’t do it! Termite infestations, dodgy wiring, rotten foundations. There are many possibilities of problems with any structure that most people won’t notice.
And just one of these problems can cost you big bucks. You wouldn’t buy a second-hand car for $10,000 without a $250 inspection report, so why purchase a property for several hundred thousand dollars without an inspection report that just costs a a little more? For your peace of mind get the inspections done. For building inspections brisbane, contact Home Inspect today or visit their web site.
Meeting market demandLet’s forget about property for a minute and think about people, because renovating for profit is a people business, not a property business.
Tenants or buyers of your renovated property are the source of your profits -from either the rent you receive or the profit you make when it’s sold, so to maximise your return you must create a home that tenants will rent and buyers want to buy.
It’s the golden rule if you intend to make a profit renovating houses.
If you intend to keep the renovated property then you need to research your target tenants for the suburb.
When you match a property to target tenants you’re not going to have down-time with an empty house, or need to make a reduction in therent to get someone in.
Talk to property managers and find out what type of properties are most wanted in the area. Tell them you’re looking at buying an investment property in the area, and ask them what tenants prefer.
What sort of property is needed? What kind rents the quickest?In this suburb do tenants prefer houses or apartments? Do they prefer one, two, or more bedrooms? Do they require parking or not? You need to know these basics so you can make an informed decision on what to buy.
If you intend to sell the property after renovating it, the same principle applies but now you must consider the wants and needs of buyers rather than tenants.
While there are a lot of similarities, there are differences you should cater for.
Finally, although there will be some features of the property you can improve, some features, such as the location and aspect, etc, are fixed.
You can do a first class renovation, but if the property backs onto a railway line you can expect to trouble renting and selling it.
This is why selection of a property is critical. I always say, you can improve a property, but you can’t improve its location.