While it may be reasonably easy to find a property that is in need of a facelift, there are quite a few things to consider when looking for that home to renovate and sell on for profit.
While it may be reasonably easy to find a property that is in need of a facelift, there are quite a few things to consider when looking for that home to renovate and sell on for profit.Mike Greeff, CEO of Greeff Christie’s International Real Estate, says the suburb you ultimately buy in will have a huge influence on whether or not you’ll make a profit on resale. “Look for a suburb which is known to comprise similar properties at widely varying prices.
“A qualified agent with experience will be able to help you research the selling price of properties in your specific suburb going back at least 24 months, as this will also reveal if there are seasonal peaks and troughs in prices achieved.”
Greeff says to get specific data, you need to research the sold prices of both renovated and unrenovated properties of similar size and accommodation, within a defined pocket of the suburb – this will usually cover a few streets, and an agent can be invaluable in assisting with this data.
Getting to grips with the data will help you understand if there is an evident disparity in prices in that suburb, he says – and you will hopefully find that renovated properties are selling for more than unrenovated ones of a comparable size and type.
The following checklist, he says, will assist in clarifying the “property comparison process”:
When calculating your projected profit, consider the purchase price and renovation budget and include council scrutiny fees for approval of plans, compliance certificates, estate agent’s selling commission and capital gains tax. Subtract these from your selling price.- Compare properties with the same number of bedrooms, bathrooms and reception rooms.
- The erf should be of a similar size, as should the area under a roof.
- Take into account any additional features, which may add value and push up a selling price, such as a pool and tennis court.
- Significant value adders are self-contained flatlets or garden cottages, especially with their own entrance, as well as garages.
Greeff gives steps on how to find the perfect “fixer-upper” for a profitable resale:
1. Study your target market
When targeting young executives, you should be looking in a more urban location with a predominance of apartments and easy access to public transport or motorways. A suburb that is already home to parks populated by parents with young children is obviously a good location for a perfect family home. The same is true for an area close to schools and sporting facilities.
2. Searching for the home
Having settled on the area, you need to search for a home that can be cosmetically renovated within the rules and regulations, adding that you should always check with the local council whether approval is required. Of course, adding another storey might create a remarkable new home, but you’ll need approval, which could impact on timing issues and you’ll have to weigh up the cost against the possible profit you’ll make. If the area does not already have a proliferation of multi-storey homes, you are unlikely to get a significantly higher price for yours.
3. Your renovations will have to be compliant.
Old homes invariably have a number of separate rooms. You might want to update the floor plan by making it more open plan. Ask for the original plans and seek the advice of an architect before making a decision on which wall to demolish.Ensure that you have the property inspected from the start of the renovation, and work hand in hand with reputable plumbers, gas installers and electricians so that compliance certificates are available at the time of sale. You don’t want to complete the renovation only to find that wiring or piping is not compliant and has to be completely redone, costing you way more than you budgeted for.
4. Changing the original house plans
Old homes invariably have a number of separate rooms. You might want to update the floor plan by making it more open plan. Ask for the original plans and seek the advice of an architect before making a decision on which wall to demolish. It may sound obvious, but it’s not always easy to see which walls are functioning as vital supporting structures.
5. Go with your gut on potential buyer objections.
If you think the main road that the house is positioned on is too busy and will put off buyers, it probably will. Renovating in such a position might be a waste of time and money. A home in the shadow of power lines or cell phone masts is also likely to be a slow starter.
6. Putting up an offer
When it comes to putting in an offer, a savvy renovator will have calculated his budget in order to sell for a profit.When it comes to putting in an offer, a savvy renovator will have calculated his budget in order to sell for a profit. It’s a subtle balance though, since seeing amazing potential in a property can lend an emotional element to an offer to purchase, but if you do the research as suggested above, you are likely to come up with an informed decision on the right price for your offer to purchase.
7. Calculating your future profit
When calculating your projected profit, consider the purchase price and renovation budget and include council scrutiny fees for approval of plans, compliance certificates, estate agent’s selling commission and capital gains tax (CGT). Subtract these from your selling price. Remember that the cost of any enhancements will be offset against the CGT you’ll ultimately be required to pay, so ensure that you keep a record of all services acquired and products purchased to that end. If you’re buying at an auction, you need to keep this calculation firmly in mind and know that there is a ceiling beyond which you will not bid.
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