The Most Profitable Way!

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Buying a property and renovating is one of the most popular methods to add value and make money when it comes to selling later. 

There is a multi billion dollar industry in NZ of ordinary people like you and me - buying old houses, doing them up and selling for a profit. A lick of paint, new carpet, bathroom / kitchen, etc and it is on-sold or a profit (the goal is anyways)

Why does this create a profit?

A renovated and well presented property creates more emotional appeal, it rises above all obstacles that buyers face and complain about, things like ... 'too much work' 'house smells' 'didn't like the colour' , etc. 

Also a lot of first-home buyers don't have the capital or the equity to borrow money to renovate, so if they don't want to live in a 'run down' house, they will need to buy renovated and put that cost all on the mortaged sale price.

It can also create a profit, via effective renovation cost management. ie; if you get a $20k kitchen for $12k, through negotiating trade prices, doing some of work yourself, etc. Then you will also make profit on that too.

An emotionally appealing property also generates more buyer interest and thus creating a higher sale price via competition also.

What else should I consider when buying a Do-up?


1. Scope your location

As is the case with buying any type of property, deciding on the right location is usually your first step towards finding the right property.When it comes to buying a property to renovate and sell, there are a couple of considerations. Primarily, you’re looking for a location that has steadily been increasing in value, or one that shows signs of increasing in value in the very near future.

2. Investment in infrastructure

Are there new shopping centres, stores, entertainment, or recreational centres popping up in the neighbourhood? This can be a sign of investor confidence. More stores, shops and community centres will lead to more jobs and pushing up the demand for local properties (due to local population growth).

The biggest tangible improvement in the region at the moment is the Transmission Gully.

3. New transport facilities

If you are not a expert in market trends, keep an eye on your local government’s activity. When local councils approve of ‘growth’ in an area they almost always look at the capacity of local transport facilities. 

So if you see proposals for new/expansion/refurbishment of bus terminals, train lines, etc - this will be an indication that there is an expectation of greater use in the future (which means the expectation of more population in the area)

Historically, areas where ‘new’ transport proposals have significantly reduced commute times - have made a big impact on house prices in that area. Just look at the prices of the North Shore in Auckland after they put in that bus way… in Wellington we’ve got quite a large motorway being built…. enough said.

4. Quality schools and childcare

Families are willing to move and pay top dollar to be within the catchment areas of quality public schools and childcare facilities. Every city has ‘those schools’ that families who put a large value on primary/secondary education. These families are usually also keen on giving their family the best possible living environment as well.

So renovating properties in this area will yield great results.

5. Decide how long you’ll hold the property while you renovate and sell for a profit

If your plan is to renovate and sell the property, then the question becomes, “How long do we hold it for?” The answer really depends on your local market. So do your research.

When looking for properties, ask real estate agents about the local market and how it’s been tracking over the last few years and their thoughts on what’s contributed to any increases in property values.

Keep also in mind of your government laws around selling for profit. You may need to live there for a set amount of years before progressing. 

If you’re buying a home that requires a lot of work, but is in a great area, it might make sense to sell as quickly as possible after renovating, especially when considering holding costs.

If you buy in an ‘up and coming’ area, it may mean you need to factor into your budget the time it takes for the area to increase in value.

If you are planning on living in it and holding for a while… you may just want to add a little bit of personality to your renovation plan. After-all…. you need to enjoy your life too! 

6. Understand any government /council restrictions and compliance

Once you’ve found and bought the perfect property, the next thing to do before you even consider possible renovations is to get familiar with any codes, restrictions and compliance involved in renovating the property.

Most government websites will have sections dedicated to information on building restrictions, so make sure your plans comply.

One of the main issues people have are around bathroom / kitchen locations / remodelling. If in doubt - ASK!

7. Plan your costs

Like any renovation, costs can blow-out really quickly. That’s why it makes sense to budget not only for the cost of the purchase and renovation costs, but any potential holding costs and any costs which may be unforseen. A good rule of thumb is to budget 20 percent more for contingency.

8. Decide to do it yourself or employ contractors

A lot of my clients plan on ‘doing most of it themselves’ so save some coststhe reality is… they end up renovating their house for 10 years and by the time it is finished it is time to move.No doubt it has saved them some money, but I know I wouldn’t want to live in a ‘work-in-progress’ home for that long.

Doing a lot of the work yourself will certainly save money initially, but make sure it’s something you can realistically take on. If it’s something you’re not confident you’ll be able to complete to a high standard or on time, it will only cost you more when you need to hire a professional to come in and redo the work.

The best scenario is one where you break tasks into those you’re positive you’re able to do yourself and those best left to the professionals.

Note also that some things need to be left to the professionals by law, like any electrical work for example, so make sure you’re across these restrictions before starting.

One of the most common DIY disasters I see, is actually a ‘simple’ job of painting walls. It is very easy for buyers to spot a DIY paint job, so please don’t underestimate the task or overestimate your skill. 


 

Lots of risk goes into buying a house to renovate and sell for a profit, but with careful planning, research, and budgeting, it can also come with some pretty great rewards.

Team YIP offers a free renovation consulting service, we can also help you project manage your renovations as well! 

If you are thinking of renovating or buying a ‘renovator’ feel free to get in touch for a chat! william.yip@harcourts.co.nz

Happy house-hunting everyone!