It’s important when renovating that you don’t over-capitalise on the property, especially if you’re planning on selling. This is a common mistake I see.
People pay, say, $460,000 for a three-bed, one-bathroom property, then spend $75,000 renovating it.
Take into consideration buying and selling costs of $35,000 and they need $570,000 just to get their money back.
When most tidied-up three-bed and one-bathroom places in the area are selling for mid-to-high 500s, you have done a lot of work for very little or no return.
Doing the numbers backwards
When I used to buy, renovate and sell properties, I would work it all out backwards. I would work out the finished price I was likely to achieve for, say, a three-bedroom, one-bathroom property in an area, totally renovated.
For example, if $600,000 was the money and I worked out that renovation costs to bring this property up to scratch would be $60,000, add in purchasing and selling costs of $35k, then every dollar below $505,000 down to what I purchased the property for would be my profit.
What to fix up
The important things to renovate and where you can improve the capital value of a property most are kitchens, bathrooms, landscaping and gardens, plus a coat of paint.
These areas are where you can get the best return on your investment. Other improvements you should include are:
– Replacing rotten or fixing squeaky floorboards
– Building a new fence
– Fixing eaves and gutters or adding a driveway to a property
– Basically, fixing anything visual that can create an objection.
Of course, if you are going to do major renovation work, like moving walls or building a carport or deck, then you need to consider council(s) and other statutory authorities.
It’s a good idea to approach your local council and have a discussion about your proposal before you do it.
Work out a detailed wish list
If you are improving the place for your own personal use, then I suggest you create your own personal detailed wish list before getting started.
Spend the time to get a feel of what you would like your new home or renovation to look like.
Create an ideas folder where you can store your own photos, picture cut-outs, colour schemes, floor layouts, information on external finishes and information on internal finishes.
This information will act as a design brief for the architect.
Budgeting and finance
Establishing a budget for your renovation project is a very good idea. Many people run out of cash partway through as they didn’t put the time in upfront to work out costs in detail.
Others just don’t stick to a budget. It is also a good idea to consider the separate costs of moving in, such as new furniture, appliances, etc. to go with your new styled place.
Managing your building contract
As a carpenter by trade, I used to do 90 percent of the work myself. However, if you decide to do major renovations, you will need a carpenter or builder to project manage or do the work.
I suggest you agree upon a regular communication schedule and format within the contract, whether it be weekly, fortnightly or monthly.
It is also a good idea to agree on a process for dealing with changes in the scope of work during the construction, as there will always be variations.
– Add natural light whenever possible
– Open up tight spaces with an open-plan feel
– Plant colourful flowers
– Get rid of any clutter.
Patrick Bright is the owner of EPS Property Search and author of The Insider’s Guide To Buying Real-Estate. To purchase a copy of the book visit your major book store or www.epspropertysearch.com.au or call 1300 SEARCH.