Are you considering renovating your investment property to make a profit?
If you’re about to commence a renovation on your investment property, you need to make sure you avoid the disasters that come with being under-prepared. Renovation risk management is a very important part of property investment. It can be very easy to get too attached and overcommitted to the project but you have to distance yourself and remember the main objective and what tenants you want to attract. Today we will go through some guidelines to consider when renovating for profit so you’re able to minimize the risks and maximise the gains on your next project.
Going over budget:
When renovating, it’s important you set yourself a budget. If you’re into renovation shows such as The Block, you’ll be aware of the fact that, unfortunately, building and renovations don’t always come in on budget. To make sure you don’t end up spending thousands of dollars more than you originally planned, it’s well worth engaging an expert, such as a valuer, surveyor or architect, to estimate the cost of construction or renovation. This will help ensure you don’t end up starting a project you can’t afford to complete.
Devaluation of property:
Improving your home and maximising the property valuation when it comes time to sell is the goal or any renovation. If you’re renovating to sell, you need to remember that it’s not your home to live in, so don’t personalise the property. The people who are going to live there will want to do that themselves – leave your own tastes at the door. You want any renovation you undertake to be finished to the utmost quality and have wide appeal. If you want to make money you need to be thinking about your target audience and keep design choices neutral, not personal.
Overcapitalisation is where someone has issues more debt/equity than its assets are really worth. In the renovation realm, overcapitalising occurs when you spend more money on the renovations than the profit of those improvements could bring in. To avoid this problem, look for properties that are structurally sound and only require cosmetic changes such as painting, interior layout reorganisation, new kitchens and bathrooms, new carpets and a garden makeover. Such renovations are inexpensive and quick to complete, but they generate maximum buyer appeal and that will help to maximise your profit.
Seeking the wrong advice:
More often than not, people go into renovation thinking they know what they’re getting themselves into, only to realise half way through its really not that simple. It’s absolutely vital you speak to relevant experts and do your homework to avoid any surprises along the way. Making your own guesstimate will only end in tears and money down the drain. If you’re wanting to add walls, an extra bedroom or re paint the house, it’s a good idea to speak to a respected builder get their advice and quotes to avoid any delays. Also, don’t always go with the cheapest quote, go for the person/company that is reputable or even scope out some of their work before you commit. As they say, you get what you pay for.
Health and safety:
Going through a renovation process can put a lot of strain and stress on relationships and families. Anything from financial stress to dealing with shady tradespeople will only end up costing you more time in the whole scheme of things. You really have to be emotionally prepared, especially if this is your first renovation. If you’re a DIY renovator, there are physical risks such as exposure to electrical wires, falling wall fragments and slippery surfaces to be mindful of, but there are now other risks that are far more serious! Homeowners now face jail time or a compensation bill if a tradesmen is injured or dies on their property. The duty of care is a matter of law, and home owners must ensure that whatever they ask a tradesperson to do is safe. If there are any hazards, ensure you make them known.
If you are considering improving your home or are keen to get into the renovate-and-sell game, these are five risks you should keep in mind. If you have any further questions or would like some professional advice, please don’t hesitate in contacting one of our Red & Co experts. Call us on 1300 88 73 28.