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Maximising Profit Through Renovation

When done in a strategic manner, renovating an investment property can yield you a sizeable profit. These days, it has become quite a popular trend to property investors seeking ways to add more value to their properties.

Here, we will share with you a few valuable tips to help you strategise your next renovation.

Find the Right Property

Provided you have the proper tools, finding investment property renovation projects almost anywhere can be pretty easy.

When property hunting, look for those at least 20% below the suburb median price. These properties are usually those that are poorly presented and awfully unattractive such as properties with:

  • Unpleasant paintwork
  • Old-fashioned outdoor living and off-looking landscape
  • Poor street appeal
  • Old-fashioned interiors but still with good structural foundation

The bottomline is it’s ideal to look for properties that still have potential and then work on the necessary improvement in order appraise their value. Of course, you also need to keep in mind the type of tenants that might potentially take interest in your property and what you think they might like.

Get to Know the Suburb

You won’t just be looking for the right property. You also need to consider its location and the first thing you have to make sure is if it is located in an ideal suburb.

Here are the things you need to consider:

  • Demographics
  • Culture
  • Migration trends
  • Trending property features

So what should you be doing? Research. Just like when embarking on any kind of project, it pays to be well-prepared by doing some research.

Suburb Research Checklist:

  • Ongoing demand for real estate in the suburb – Find out the auction clearance rates and how much time it takes to sell the properties.
  • Median sales price – research on the price range of the properties in the area and find out about the past sales trends.
  • The property’s history – Check the ownership details, sales and on-the-market history, recent comparable sales and an estimated market value both in the property’s current condition and after renovations were made.
  • Find out the current rent of similar properties in the area

Secure a Budget and Plan your Renovation

Let’s say you have found the right suburb and property. The next thing you need to do is to set a budget in place to take care of all the initial cost needed for the property and all the repairs and upgrades you are planning to make.

Next is determining your potential profit. What you really need to look at is the difference between the profit and your investment. Make sure that the return is all worth it.

Here are the things you need to cover:

  • Deposit
  • Stamp duty
  • Renovation costs
  • Interest repayments (during the renovation)
  • Contingency fund
  • Other related costs (solicitor’s fee, pest and building inspections, etc.)

Be careful not to over-capitalise. That’s the most common mistake new property investors make in the hopes of adding so much value to their property. Know what the current estimated market value is and having an estimate of the work required to help keep you within limits.

Make a Good Impression

Before making any renovations, ask yourself who your target market is. Make sure that after all the renovations and upgrades are done, the property would still be appealing to your chosen market if you wish to sell the property.

Another common mistake property owners make is attempting to do everything on their own in order to save more. Wrong. Hire a professional contractor if need be.

Put It On the Market Only When It’s Finished

Why? Simply because the property would look unpleasant when it unfinished. Imagine prospective tenants looking at unfinished kitchens and bathrooms during inspections. What about the other renovations that you haven’t started doing? Prospective tenants would not know what you intend to do if they weren’t started yet. Bottom line is putting an unfinished property on the market will not help add to its value and appearance. It defeats the purpose why you’re making renovations in the first place.

Tax Implications

Repairs are considered as partial correction of items that have become damaged mainly because of fair wear and tear. This can help you save on taxes as they would be fully deductible in that year.

A partial restoration of a fence is regarded as a deductible repair but if you are going to replace the entire fence, it would be classified as a capital improvement which will then be depreciated over time.

There is no provision for immediate deductions for the costs of capital improvement and renovations that involve major structural work. However, depreciation (capital works deductions) can be claimed over several years.