Refurbishment, Design with Profit in Mind.
Are you thinking about refurbishment? The buy-to-sell property investment market is considerable. Every year, thousands of people buy a property, do something to that property to make the price rise, and then sell it on, taking the difference in profit. Not only is it an excellent way to make money from capital, but it can also be a lot of fun and very rewarding.
But there’s a bit of a problem: many people don’t understand how to renovate a property profitably. They end up spending a big chunk of money on the interiors, only to discover that they’ve spent more than the value of their property has gone up. Rather than taking home a profit, they make a loss – not good.
Refurbishing a property is a challenging task. It requires making the right choice about which areas to renovate, what materials to buy, and who to employ to do the job. Many people in the refurb business use their own time to restore a property they own to save on costs. But making a profit can still be elusive.
Tired But Habitable
According to many experts, the best properties to renovate are those that are “tired but habitable.” In other words, you want to find properties that look uncared for (and are unlikely to sell for a lot of money on the open market) but that don’t have any serious structural issues that render them unusable. These properties usually sell for cheap, because in their current state people don’t want them, but because they are generally habitable, they don’t cost a huge amount to put right.
Often those who own tired but habitable properties are keen to get rid of them as quickly as possible. The reason their houses are in a state of disrepair sometimes has to do with the seller’s lack of capital and the need to raise funds. Private sales with these kinds of sellers can be discounted in the 20% region and possibly more – that’s 20% off in addition to the already low asking price.
Find Similar Property Values
Once you have bought a property to renovate, you need to find out how much similar properties are selling in the area. If you know the value of similar properties, you’ll have a ceiling price over which you know you cannot go. For instance, suppose you buy a dilapidated but otherwise habitable property for $80,000. If similarly-styled but refurbished properties in the area sell for $120,000, then you know that you can spend a maximum of $40,000 (probably less if you include transaction costs) on renovations.
Knowing exactly how much you can spend and what you should concentrate your resources on can be a challenge. It’s a good idea to speak to an estate agent or interior designer to make sure that you’re not overspending and investing too much in high-spec features. An estate agent should be able to give you information on the kind of buyers likely to be interested in your property and what type of spec they would expect. Interior designers, on the other hand, should be able to give you all the nitty-gritty details about which kinds of material to use to save on costs, and what types of interiors buyers in your target market like most.
Seek A High-Profit Margin
Although in the above hypothetical example, an investor could have up to $40,000 to spend on refurbishments, spending all that money would still wipe out profits. After you’ve bought the house and made it suitable for sale, you want to have enough money left over to make all your time and effort worthwhile. The majority of sellers look to make a 20 to 30% profit on every home they buy and improve. So, on the figure of $40,000, this would equate to an $8,000 to $12,000 gain. Suppose a property took you two months to restore – that would imply a profitable yearly income of between $48,000 and $72,000.
Making the right decisions on a small scale is essential to get the most out of refurbished property investment. For instance, often there’s no need to replace the existing, tired kitchen units. An experienced property renovator might simply reface (or even repaint) the cabinetry to bring it up to date.
Likewise, you often don’t need to replace the carpets, especially on the ground floor. Look to see whether there are any existing tiles underneath and use them when trying to sell the house. When renovating, you can get a substantial bang for each buck.