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According to the most recent Westpac Renovation Report, increasing the property value, increasing comfort and updating style are the most common reasons for renovating in Australia, with the average homeowner spending $47,984 per job.
Renovating for profit is a great way to create both capital growth and cash flow, but only if you have your finger on the pulse of the latest real estate news. It takes more than an eye for style, layouts and colours to increase property value with a renovation. It takes research and planning and an intimate knowledge of the current real estate trends and up and coming suburbs. We spoke to Cherie Barber or Renovating For Profit, one of Australia’s most successful professional renovation and property experts, for her top tips on renovating for profit.
1. Make sure you do thorough suburb and property due diligence.
“You need to work out whether the deal is profitable or not. Suburb due diligence involves analysing the suburb to make sure enough pricing disparity exists (the range of low to high property values in the suburb). Property due diligence means making sure you’re buying a diamond rather than a dud! Whenever I renovate, there are 64 different things I ensure I check. A thorough building and pest inspection is one of those things, but I also check less well-known aspects of the house like electrical wiring and structural cracking. Only once you’ve done your suburb and pricing due diligence will you know whether the deal is profitable, and that process can take months.”
2. Renovate to what the market wants, not your own personal style
“If you’re renovating your own home and you’re not planning on selling any time soon, then renovate however you want, because you’re the one living there. However, if you’re renovating as a flip, you need to be renovating to what the market wants. You need to identify what style of property is most popular in the area you’ve bought in. Work out what properties in that area are expected to have in terms of number of bedrooms, whether or not it needs a formal dining room, whether a European style laundry will do or if you need a full size one, and if you need to factor a garage into your plans. Think of your renovation like a product: all you’re doing is creating a product to meet the needs of the market.”
3. Pre-plan your renovation as much as possible before it starts.
The devil is in the details! You should be completely costing up the entire renovation ideally before you even buy the property. A lot of Australians only tot up renovation costs after they’ve bought the property, and then realise they’re on the back foot. This can be easily avoided by ensuring you do your homework beforehand. You need to identify the full scope of works before your renovation starts. Cost everything up and finalise your design plan, and buy all your materials, before the renovation starts. Every time I start a new project, I have a project plan and I map out step-by-step the sequence of construction, and work out what materials are required for each task. That way, I know if I’m over budget before the reno even starts. If I can see I’m going over budget I will cut out some of the work I’d planned because it’s no longer possible from a budget perspective. If you fail to plan, you plan to fail. What you do before your renovation starts will dictate your profit margin.”
4. Know the formulas for renovating for profit
“When you’re renovating for personal use, there are no formulas. But when you’re doing it for profit, everything is formulas. From what you buy and resell at, to how much money you spend on your renovation, and how you break your budget down on a room by room basis – every detail is important. There is definitely a science to renovating for profit. It’s the reason I educate because I had to work it all out the hard way.”
5. Think strategically and salvage what you can
“Before you start your reno, know what changes increase your ability to significantly uplift the value of your property. Take a good look at what existing fixtures and fittings can be salvaged to save on money. When you’re renovating for profit, every fixture and fitting that you rip out costs money to put back in, so your ability to keep what’s already there and cosmetically refresh it can save you a lot of money in your renovation cost – and that ultimately increases your profit.”