Renovating for profit is all about boosting the overall value of a property, then selling it to an interested buyer for the profit margin you seek, or renting it out for a steady flow of income.
It is an attractive investment strategy ⸺ no wonder many real estate investors get involved in property renovations.
Renovating for profit is super popular. People show how to do it on television and they make it look and sound so easy. They say all you need to do is buy a property at a low price then spruce up the place to improve its value.
The truth is, renovating for profit is not that simple.
Anybody can renovate a house, but it doesn’t mean they can profit from it. This kind of project comes with risks. There are cases when the renovator can’t sell the house or can’t find tenants, hence they can’t get a healthy profit margin.
It is going to be a challenge, especially for beginners, but you can seamlessly do it.
Here’s everything that you need to know when you are renovating for profit or renovating before selling:
Planning and strategizing
Making a profit buying and renovating properties is a business that requires a hefty investment. You need to have enough money to buy a property and to cover the renovation costs. You need to obtain finance for your renovation project and spend money wisely.
Strategies also differ when you renovate to sell (flip house) versus when you renovate intending to keep the property and put it up for rent.
- Flipping houses, when done right every time, can give a real estate investor enough profit.
- Keeping the renovated property and putting it up for rent allows you to attract tenants and receive a consistent rental income stream. Renovating for short-term or long-term rental properties is a great financial strategy.
Assess the risk of your plans. Make sure that you buy homes at a good location, renovate the right property, and work with a complete set of plans. Be realistic with your renovation budget and your profit margin as well.
Prepare for unexpected costs as well. A lot of things can go wrong during the renovation ⸺ and when they do, you want to have enough funds to get these things done.
Looking for a property to renovate
The success of this investment depends largely on the location of the property you plan to renovate. it is crucial that you research local property markets to identify the attractive price points and the profiles of the home buyers nowadays.
It would help if you also researched about the up-and-coming residential areas, dream neighbourhoods, and the suburbs with the biggest profit potential.
After deciding where to invest, zoom into finding and buying the right property.
Look for a fixer upper, ideally one with a versatile and functional layout and doesn’t require major structural work. This way, you get to fix the property without having to fork out on a costly reno.
Look for a house with a promising facade too. A little exterior renovation will boost its street appeal. Curb appeal lures buyers into the house and marks a great first impression.
It is also okay to invest in the following:
- Properties erected in a small land – A small plot of land is not an issue especially when the house is in a great neighborhood. Renovate to make the most of the space it has to attract more buyers.
- Properties with asbestos issues – Older Australian home styles are likely to have asbestos issues. Opt for a quick and cost-effective asbestos removal service. Read this guide about safely removing asbestos in a house.
- Properties with a unique design feature – We’ve seen homes with secret doors that lead to a massive room, a moving bookshelf concealing storage, and a courtyard in the middle of the floor plan. Many are afraid of buying homes like this in fear that this might not appeal to buyers, but when fixed properly, these unique spaces make the house special.
- Properties without a view – It’s awesome when you find a fixer upper that has something beautiful to look out to, but window views are not always a deal-breaker for buyers. However, make sure that your renovation places all windows in the right places.
In most cases, you can purchase these fixer uppers at a lower or discounted price.
However, we discourage buying cheap properties in a rush. Not all cheap properties make a good renovating-for-profit project. Only invest in fixer uppers with a potential to deliver a decent profit margin.
Once purchased, you can start planning your renovation immediately.
Sign up to Dreamspace to plan and coordinate your project. Our project coordination dashboard has everything you need to kickstart your renovation.
Dos and don’ts when renovating for profit
Here’s a list of the things that you should and shouldn’t do:
DON’T: Underestimate the costs of renovation
There are a lot of stories of inexperienced renovators who underestimated the costs of renovating, then ran out of money towards the end. They blew their budget and stopped the construction. To recoup their investment, they move forward to find buyers and tenants, but no one would pay top dollar for an unfinished space. The renovators end up incurring a loss.
When you go over budget, your profit margin diminishes. It’s difficult to earn back the money you lose from making this mistake.
There is a way to avoid making this mistake and suffering the same fate:
DO: Prepare a budget and stick to it
The key is setting a budget, preparing a detailed breakdown of expenses, and sticking to it. A detailed budget breakdown includes:
- how much you bought the house
- the total cost of the building materials used to improve the property
- stamp duty
- insurance
- demolition costs
- site clean up costs
- financial safety buffer for hidden or surprise costs (10%-15%)
Proper budgeting and planning are essential from the onset. Draw up a detailed budget and expenses breakdown to avoid overcapitalising.
DON’T: Implement a strategy that ‘suits all’
Many inexperienced renovators fall for this trap. There is no strategy or plan that fits all kinds of renovation projects. One project is always different from another. What worked for one is not guaranteed to work on the next.
DO: Have a clear plan for your renovation and establish a clear scope of works
Outlining a clear renovation strategy should come after finalising the budget.
- Are you going for a cosmetic or a structural renovation?
- What parts of the house are you going to fix and renovate?
- How involved do you want to be during construction?
Having a clear plan from the beginning is one sure-fire way to keep you from changing your mind. Variations cost time and money!
DON’T: Think DIY projects cut the costs of construction
A lot of rookie renovators fall into the DIY trap in pursuit of saving money and cutting costs. Taking on DIY projects is alright, as long as you can perform these tasks thoroughly. However, if it takes you twice or triple the time it would have taken an experienced tradie, consider engaging an expert instead.
DO: Engage experts and specialists
It is tempting to cut costs through DIY projects, but it is wiser to hire experts and specialists for the complicated jobs.
Hiring experts and professionals will save you time and money. You are sure that they will do it better and accurately.
DON’T: Settle for poor floor plans
Ignoring the house’s need for a functional floor plan is a rookie renovation mistake. Many focus all their attention on colours and finishes, whereas a well-planned and well-conceived layout truly adds value to the house.
DO: Come up with a sensible floor plan and be sure about the exact look you want
Renters and buyers assess the functionality of the spaces and how foot traffic flows inside the house before they decide to invest. They also care about details such as door and window placement.
A house with a sensible floor plan is easier to sell. Spend time and ponder on this during the planning stage. Think of how you can make it easier to move through the space and maximise the available space.
After coming up with a floor plan, it’s time to plan the look and feel of every room. Save images on your Dreamboard to get a sense of the look that you want to achieve.
It also pays to have a skilled and talented building designer to help you out with these. Working with a building designer whose approach lines up with your goals and strategy can make a huge difference in your renovating experience.
DON’T: Choose the cheapest contractors
Renovators often make this mistake when they are trying to keep the costs down.
Always remember that the cheapest quote/bid isn’t always the best option. The builders might charge for more down the track. Worse, you might shell out more money to fix mistakes or to redo poor work.
DO: Seek out the builder who understands your vision, and offers a good quote
The cheapest bid is attractive, but you have to check what the quote covers. Get at least three quotes and compare them in detail to understand why it’s affordable.
You can easily source builder quotes through the Dreamspace project coordination dashboard. Our support team is also available to help you compare those quotes.
It also pays to choose the builder whom you resonate with more. Seek a builder who understands your vision and builds it so it looks the way you wanted. In the end, you’ll be grateful that you’ve dealt with a professional.
DON’T: Not researching about building materials
The building materials needed in your project will take a huge chunk of your budget. Neglecting to research affordable but high-quality alternatives to luxury items often lead to budget blowouts.
DO: Research the market
Spend time researching various material options for your project. Factor in the aesthetics, price, sustainability, eco-friendliness, durability, and other pros and cons. Use the information you have to find the most suitable materials and finishes for your project.
It is also important to order all the materials you need for your project at the right time so they arrive in time for construction. It’s difficult to store building materials in the construction site.
Renovation projects with the biggest return on investment
Here are the projects that appeal to both potential buyers and tenants:
Kitchen, bathroom, and laundry area renovation
These are the areas that will sell your house. Make sure that the kitchen size is adequate for the size of the house, and there is a bathroom on every floor. It’s nice to have a dedicated laundry room, but when space is limited, squeeze this in another area instead.
Façade
The exterior design of the house is the first thing that your potential buyers and tenants will see. Fix it, repaint it, and adorn it so it makes a statement. A façade renovation and facelift offers the biggest return on investment.
Outdoor space
Surround the house with a low-maintenance but beautiful landscape, fence, and a stylish letterbox. Highlight the outdoor space; this space appeals to people who like to entertain friends and family at home.
Professional tip:
Renovating for profit excites a lot of real estate investors, and many rookie renovators make the mistake of spending more money than they could recoup in added value. Avoid splurging so much on fixtures and frills to avoid blowing your budget. Spend money on things that will matter to your buyer and tenant. Fixtures and fittings do not need to be expensive, but try to avoid cheap and low-quality ones.
Try not to save money on professional services too. Prospective tenants or buyers will notice bad construction works, and it will not appeal to them.
Decorating and styling tips
If you are strictly renovating a property to get tenants, you might want to decorate the place a bit. Avoid overstyling. You want the house to be warm and inviting, enough for the tenant to picture their life in the property. Keep the colour and material palette neutral. A simple, clean, and uncluttered look appeals to the greatest number of people. Lastly, place flowers and potted plants around the house just before you accept people for viewing. Greeney freshens up the place and makes it more lively.
Register to Dreamspace and access the free project coordination dashboard
Renovating for profit is easier and better with Dreamspace. Use our project dashboard to plan and coordinate your home renovation, then start building your real estate investment piece-by-piece. From one simple dashboard we make it super easy to:
- Plan a successful home renovation
- Find inspiration
- Monitor the progress of your project
- Coordinate with the professionals onboard
- Get quotes
- Manage your project from design through to build.
