Renovating for profit: small changes that can vastly increase the value of your home
If you’re renovating for profit, the right changes to a property can make all the difference. Think strategically and never undertake improvements unless you can recoup twice their value at sale time, writes DG Institute founder and CEO Dominique Grubisa.
Property flipping typically involves buying a property under market value, undertaking some renovations to improve its attractiveness to buyers, and then making a profit by selling for a higher price.
It sounds simple, but many property flippers get it wrong. They buy at the wrong time in the property cycle, they pay too much for the property, or they get impatient and sell too soon.
Choosing where to spend money on renovations is another common pitfall. Flippers over-invest in renovations that don’t add significant value to a property. Or they think extremely superficial changes will add millions.
Renovation is big business. Australians spend $8 billion annually on improving properties with the average spend about $50,000. Your spend will depend on the size of and value of your investment property and the market you aim to sell in.
Renovating for profit
Before you dip your first paint brush, it’s critical that you set out a detailed budget for your project. If you’re not sure how to budget for a renovation, get advice. One commonly used rule of thumb when deciding on your budget is to aim to double what you spend in the final sale. It’s always good to add in a few extra dollars as a buffer against unexpected costs.
Once you have the budget in place, you’ll need to decide which sections of the property to renovate. Not all rooms will give you the same return on your investment, so chose a few and make the changes worth your while.
First impressions are the most important so spending some cash on the façade is one of the best investments you can make. A striking facade grabs a potential buyer’s attention and can set the tone for what lies behind it. Spending $3000 and $8000 on a single-fronted Victorian terrace, for example, in the right market could return up to three times the initial investment, adding between $10,000 and $25,000 to a property’s sale price.
Bathrooms are also one of the first places a potential buyer will look. A shabby bathroom can devalue an otherwise outstanding property. A complete bathroom renovation can be between $15,000 and $50,000 depending on the room size and quality of finishes, but you can tailor this to suit your budget. On a tighter budget something as simple as updating the tapware and storage space can modernise a tired bathroom.
Flipping houses in Australia
While the living room is one of the biggest spaces in any property, it typically doesn’t require too much money spent on it. Even a fresh coat of paint can increase the price of a property by two to three per cent. Timber floorboards attract buyers and are often cheaper than putting in new carpet.
The kitchen is the heart of the house, so it is the most important room to consider when renovating for profit. A good quality kitchen will set you back between $25,000-$35,000 but that could potentially double your return to between $50,000-$70,000. Even spending between $10,000 and $15,000 by doing things like painting walls, refacing cabinets, upgrading the sink, and installing a tile splashback can potentially give you a return on investment of around $30,000.
Finally, it’s not just fixing up the inside of the property that will result in an increase in sale value. Updating garden and outdoor spaces adds to a property’s street appeal. It can be as simple as tidying up garden spaces and mulching the beds, to laying a new lawn or undertaking some major landscaping. A simple pergola that costs around $500 could add an extra $3000 to the price of the property, and 10 square metres of paving around a seating area could give you a return of up to $4000.
So, do you homework, know your market and have a strategy. If you have a plan and firm awareness of the market you are selling to, you will increase your chances of success.
To learn more about renovating for profit, the DG Institute’s Real Estate Rescue Program teaches investors how to secure distressed properties selling under market value. Find out more at dginstitute.com.au
Lawyer, Asset Protection Specialist and Property Educator
Dominique Grubisa is a practicing legal practitioner with over 22 years of legal and commercial experience. She is a property investor and developer, an entrepreneur with businesses in Australia and Southeast Asia, a speaker, educator, writer and published author. You may contact Dominique at firstname.lastname@example.org
This column has been written for general information purposes only. It is not intended as legal, financial or investment advice and should not be construed or relied on as such.