Renovation TV shows are hugely popular at the moment. It’s addictive to watch the transformation of properties and ponder how you’d do things better yourself.
Many people are tempted to believe that they can renovate an older property and get a good return on investment when they sell. The reality is, unless you really know what you’re doing, you probably won’t make a profit. There is a world of difference between watching someone renovate a home from the comfort of your couch and doing it yourself.
Overcapitalising in a renovation property is a common trap. If you’re determined to give it a go then doing your research will really pay off. Try not to spend more than about 20 per cent of the property’s value on renovations.
Look at the location, the type of property and who the potential buyers might be. Speak to local real estate agents, and take some time looking at other properties on the market, and then renovate with your target market in mind.
There will be other costs in addition to the renovation. You can’t expect renters to want to live in a place that’s in the process of being renovated so unless you plan to live in it yourself your property will be sitting empty. Not only will it not be earning you an income, it will be costing you money through the normal expenses of council rates, water and insurance and mortgage repayments.
Then of course there is the cost of your own time and sanity. People often underestimate the commitment required to renovate, and the toll that it will take on their relationships and equilibrium.
The bottom line is that unless you’re an adrenalin junky leave the renovator’s dreams to people who know what they’re doing. The peace of mind you will have from investing in a property that doesn’t need significant renovations and can generate immediate rental income is priceless.