3 Renovation Tips for an Investment Property
A booming property market means plenty of good things for investors and sellers alike. But for those interested in a short term investment they can flip and turn into a profit sooner than later, there are risks. The unprecedented high prices that we’re currently seeing in the Australia property market mean there is less margin for error for those who just can’t pass up the low interest rates and promise of a continued boom.
Here are three tips for renovation of an investment property that will add value and more carefully balance your investment over the long term.
Look for Cosmetic Fixer Uppers
It’s tempting to look for homes that are in severe disrepair so you can transform them into a suddenly more valuable property. Keep in mind, however, that with record high prices comes a smaller margin between homes that need a complete renovation and those that just need a light upgrade.
Look for homes that are structurally sound and only really need cosmetic updates – interior work on bathrooms and kitchens and exterior work on the lawn and landscaping. Work that cannot feasibly be done in a handful of weekends by a semi-skilled team should be avoided.
Buy Below Market Value
If your goal is to flip a property in the short term (meaning in the next 12-18 months), then you need to get a good deal at the outset. A home that is roughly market value is going to sell for about the same, possibly only a small amount more, when you put it back on the market in the future.
Aim for a property with a large enough margin to offer you a sizable possible return on investment after renovations – that means 15-25%. There aren’t a lot of properties clearing at rates this low, but it can happen if you look carefully enough and prospect new suburbs that are on the rise.
Do as Much as You Can On Your Own
The biggest potential risk in an investment property is the cost of renovation. A seemingly small bathroom update can quickly turn into a boondoggle if you don’t vet your contractors or if a bigger problem is unearthed during the project.
For this reason, keep it simple and do as much of the work on your own as you can. Having a handyman on call or someone on your team who knows their way around a tool belt can save you more money than you realize.
Preparing to Flip Your Property
To successfully flip a property and make a profit, you need to find the right combination of surface blemishes, under-market valuation, and low-cost renovations. That means sub-$10,000 kitchen updates, floor updates, $10-$15,000 landscaping projects, and simple paint jobs that all add visual appeal and can boost your return by three or four times over your investment into those updates.
If you plan on investing in property in Australia, spend some time and do your research. Make sure you have the resources and cash on hand to make these renovations quickly and inexpensively, and that the market supports the turnaround you’re hoping to make on a single purchase. If you do it just right, you can make a sizable return on your investment.