Imagine purchasing a property with the view of adding a second storey extension for the water views or extending out the back, only to later find out the local planning laws didn’t allow it. Or approaching selling agents for the property you’ve spent months renovating, only to hear the alarming news that the estimated selling price will barely cover costs, yet alone bring the tidy profit you were banking on. They’re expensive shocks that can be avoided with proper due diligence and research. Here are five mistakes you never want to make.
1. Paying too much for the property
If you pay too much for a property to start with, you’ve thrown away the best chance you had to make a good profit. That $40,000 you overpaid will have to be clawed back somehow and it won’t be easy if you’re on a tight budget or the market plummets.
2. Ignoring a major buyer objection
A location on a busy main road, overhead power lines, right next door to an electricity substation or noisy school… they’re all “buyer objections.” And guess what? If you picked the property up for a bargain because other buyers didn’t want a bar of these turn-offs, you’ll be saddled with the same problem when you come to sell. No matter how gorgeous the renovation, the busy road will still be right out front.
3. Failing to detect a major defect
If you buy a house knowing it needs rewiring or a new roof, then you can factor in the repair costs. If you didn’t know about them, then it’s an unforeseen cost you’re going to have to wear and if the problem turns out to be major, that could run into tens of thousands of dollars. Before you can even begin the visible work that adds value, you’re going to have to spend a fortune on hidden but essential, remedial work. Always get the building report or pest and asbestos inspection done.
4. Incorrectly budgeting the renovation
In order to make money from renovating, you need to know upfront exactly how much you can spend on the renovation in order to make the profit you’re after and what the renovated property is likely to sell for, based on your market research. It’s a magic set of numbers that professional renovators and developers virtually carry in their head. A sure way to overcapitalise is to spend more on the property than it’s worth.
5. Choosing the wrong style of renovation for the area
A renovation you do in a suburb full of uni students is going to be quite different to the one you choose for a leafy family-orientated suburb. Different suburbs appeal to different demographics and you need to establish what demographic prevails in your suburb. This information is not hard to get. Doing a renovation that is completely out of step with the rest of the suburb will turn off buyers and may mean you’re spending money on things that don’t matter at the expense of ones that do. Do your research and make sure you tailor your renovation to your target market.
–Cherie Barber is the director of Renovating for Profit, a company that teaches everyday people how to buy and renovate properties for a profit.