Svetlana Thorpe invited me to talk about the business of renovating on her podcast, The New South Wales Property Show. We have a shared passion for property, but Svetlana thought her listeners would like to hear about the art of making a profit from buying, renovating and selling properties.
There is an art to consistently making a profit from renovating properties. I became interested in renovating when my first baby was born, thirty-four years ago, as a way to be a stay at home mom and contribute to the household finances. Even though my husband is in construction and has given me invaluable advice along the way, I have learnt how to make a renovation profitable through the school of hard knocks.
The School of Renovating and my podcast, She Renovates, are my way of empowering women. I see renovating as a really powerful way for a woman to build financial stability and have fun and leave a legacy for her family.
This article summarises the information I shared with Svetlana on the art of renovating for profit. It is a handy guide to get you thinking about how you can get involved in this exciting business model.
You Must Know These Six Things Before You Begin A Renovation For Profit
The art of renovating for profit begins with doing your homework. These are the six most important things you should consider before purchasing a property:
- Understand the market in the area you are planning to buy in.
- Does the property you are considering have the potential to deliver the outcome you want?
- Is the location good?
- Will you be able to do a “cosmetics plus” renovation? Or does the property require a lot more work than a simple makeover?
- The condition of the property. Will it require a lot of expensive work that is not going to make it visibly more profitable? You are looking at things like the amount of asbestos in the house, the plumbing and the electrics, as well as the structure of the roof and the house.
- The sewer plan, especially if you are planning an addition.
The Easiest Ways To Add Value To A Property
When you are renovating for a profit, you need to be very selective about the work you do on the property that will make it appear to be more valuable. A buyer’s perception of the property begins in the street. It is an important first step to tidy up the front of the house to improve its street appeal.
When you move inside, it is nice to be able to open up the living spaces to create an expansive living room. The cost of doing that depends on the structure of the building. If you are lucky, all you will have to do is pull down a wall, but you may have to put in a beam that impacts what you do with the ceiling.
Patching and painting are probably the biggest cost-effective value-add. Floor coverings, light fittings, and window dressings give the property a polished, cared-for appearance.
If the structure of the house allows it, you could create an extra bathroom or bedroom out of an obsolete dining room. Or, in the world we live in today, with everyone working from home, having a home office is a big bonus.
People like to be outdoors. Creating a deck off the kitchen or living area adds a lot of value to your renovation. In the case of an apartment, always look for one that has a balcony.
It Pays Not To Do Your Renovation Yourself
There is a perception that doing the renovation yourself will save you money and maximise your profit. I used to think that and spent far too many hours working on my projects in an effort to get the most out of them when I sold them.
The truth is when I quit DIY was when I really started making a profit. One of the biggest problems of doing it yourself is that you don’t factor in the time it takes you to do the work. You end up working for nothing.
One of the worst aspects of DIY is that you inevitably get to a point in the project where you feel bogged down and can’t see your way out. If you don’t have any money in the budget to pay your trades to bail you out, your project is going nowhere.
Remember you are renovating the property to improve its value and sell it for a profit. Your work needs to be of a good standard so that you don’t ruin your project. The market is more critical now than it has ever been, so shoddy workmanship is something you want to avoid at all costs.
- Bernadette Janson Shares Why She Doesn’t Do DIY Renovating
- Why is DIY Renovating Terrible for Renovation Profits
How To Make Sure You Hire The Right Tradie For The Job
Hiring your tradesmen is just like buying a property. You have to do your due diligence on them. A formal quoting process is essential. Follow these three steps to make sure you hire the right man for the job:
- Write up a scope of work for the project that covers all aspects of the renovation so that you have a written record of your agreement with the tradie you hire.
- Make sure they have insurance.
- Check the license of builders, plumbers, electricians, and air conditioning contractors.
Don’t be tempted to cut corners. Mistakes are bound to happen when you overlook things because you are in a hurry.
Once you’ve got a good trade team, look after them. Pay them on time, and communicate well with them. They need to know exactly where they stand. Don’t have them standing around, not doing anything because you are disorganised.
Getting Approval From Council For Your Renovation
It can take a long time for your plans to be approved by the council, especially if you are planning to do a lot of structural work on the property. You can find out the average time that a council takes to provide approval so that you can factor that into your timeline and budget.
This is one of the reasons we don’t do a lot of full structural renovations. The long timeframe adds an extra layer of risk to your renovation. If you have to wait a long time for your plans to be approved, the holding costs can significantly dent your profit.
There are three types of approval you should be aware of:
- Exempt development such as building a deck, provided it meets certain criteria.
- Compliant development takes about two weeks if your property is eligible for that.
- Development approval takes the longest amount of time.
I recommend that you work with an architect who understands how their local council operates. That person will be able to give you an indication of how long approval will take.
As tempting as it may be to get a head start on the renovation, don’t start any work until the property has been inspected. If you have done any work when the inspector comes around it may get in the way of your council approval.
Sticking To Your Renovation Budget: What To Do When You Spend Too Much
Things can and will go wrong during your renovation project. I would go so far as to say every single renovation budget goes over. So, what should you do to make sure you don’t have a budget blowout?
The first, most critical step is to get estimates from your trades before you even start thinking of renovating. Keep the budget tight. The more you allow yourself to spend, the more you will spend.
It is important to have a contingency plan in place so that you can absorb any unexpected expenses. Some problems with a property might only become apparent when you start working on it. I recommend adding 10% to your budget, up to 20% if you are renovating an old property.
If you do have to spend more than you originally budgeted for, it is a useful practice to think about the property market. Will it be able to bear this added expenditure? The property market is constantly fluctuating and may change when you are in the middle of a project, allowing you to spend the extra money without affecting your profit.
I have created a useful downloadable document that gives you all the information you need to keep your costs down.
Tips For Renovating Apartments
Renovating a house is quite different to renovating an apartment. These are some of the things you will need to consider if you wish to increase the value of an apartment:
- You will need to get approval from the owner’s corporation.
- Do you have to get heavy building materials up to the apartment? Most lifts cannot carry the weight of things like Caesarstone and gyprock. You would have to hire a crane to lift the materials up to the apartment.
- It isn’t always possible to move the plumbing.
- Lights can often not be moved because they are suspended in concrete.
- Your trades must be registered to work on apartment buildings.
Master The Art Of Renovating For Profit With The School Of Renovating
My purpose with The School Of Renovating is to teach you the skills you need to master the art of renovating for profit. It may sound daunting, but we have a tried and tested process that takes most of the guesswork out of renovation.
Rather than feel overwhelmed by the financial risk you are taking when you buy a property to renovate, educate yourself about the process. You will recover the cost of the courses you do very quickly when you can bypass the school of hard knocks.