After having done all of the required research and preparation, you’re now ready to begin looking for a property.
This is where things get exciting. You have to keep your wits about you, because choosing a property is critical.
When you get to this stage, what you want is potential for renovation.
You need to assess each property not only on where it’s at right now, but what it can be when you’ve done your magic to it.
Your main consideration is the condition of the property. You’re searching for a place that needs work, but nottotally derelict (unless you really love a challenge)!Then you need to think about the needs and wants of the local market, and whether the place might meet them with optimal improvements.
Finally, you should consider how much you need to do to the property.
Some places will only need a quick fix-up to bring you a decent profit.
Other properties can be totally transformed, bringing them to a far superior state and unlocking better profits.
Generally speaking, there are three kinds of properties that attract renovators:The ‘Patch ‘n’ Paint’ means it is a solid property, in good nick structurally but the decor is faded.
It will respond to fresh paint, carpet, fittings and fixtures, and the garden needs tidying up.
The ‘Fixer-Upper’ will generally be older and rougher than the Patch ‘n’ Paint.
The decor still needs updating, but it should also have a kitchen and/or bathroom makeover.
The problem child has some structural problems.
It might have cracks in the walls or need a new roof. Possibly the wiring or plumbing is shot and needs to be replaced. These defects can be expensive to repair and yet won’t necessarily add a comparable value.
The ‘Knock-Down’ says it all, requiring a top to bottom restoration or demolition. These properties often attract developers, particularly if they’re in a good location, on a large block or have fantastic views. From my experience, the best places to renovate for profit are the ‘Patch ‘n’ Paint’ and the ‘Fixer-Upper’.
The amount of renovation work you should attempt depends on your knowledge, skills, experience and contacts, but most people should be able to do up these kinds of places without too much trouble.
Also, they tend not to have a high level of risk.
Dealing with structural defectsIn general, I advise people to avoid properties that need serious structural work.
You want to spend your renovation budget on improvements that buyers and tenants can see because that’s how you get results.
Spending money on fixing defects that are not seen eats into your renovation budget and you may not see a buyer who appreciates quality, therefore your profits will be reduced.
Basically, 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 decide 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 maximum purchase price.
If the numbers still stack up then go for it. Remember, you can usually negotiate hard because many buyers will be scared off by the “problems”.
Don’t skimp on inspection reportsMany property investors are tempted to save a few bucks by going without an inspection report when buying a property.
Don’t do it! Termite infestations, dodgy wiring, rotten foundations. There are many potential problems with any home that the average person won’t notice.
Remember, any 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 for 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 despite what most renovation newbies think, renovating for profit is a people business, not a property business.
Tenants or buyers of your renovated property are the source of your money -from either the rent you receive or what you make when it’s sold, so to maximise your return you must create a place that tenants will rent and buyers want to buy.
It’s the golden rule if you want to profit from renovating houses.
If you intend to hold onto the property then you need to research your target tenants for the area.
When you match a property to target tenants you’re less likely to have vacancies, or need to discount therent just to get people in.
Build a good relationship with property managers and find out what type of properties are most sought after 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 in short supply? What rents the quickest?In this suburb do tenants prefer houses or apartments? Do they want one, two, or more bedrooms? Do they require parking or not? You should know these basics before you can make an informed decision about what to buy.
If you intend to sell the property once you’ve renovated 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.
And 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’ll have trouble renting and selling it.
This is why selection of a property is so critical. After all, you may be able to improve a building, but you can’t improve its location.