Flipping properties can be profitable but do homework
Buying and renovating a fixer-upper property is a time-honoured tradition for bargain-hunting buyers looking for return on investment.
However, finding the right property is vital to success as a poorly chosen project could cost more to renovate than could be recouped in a sale.
Buyers should spend time looking at what properties are available in their desired areas and study the markets thoroughly, says Craig Mott, Cape Town regional sales manager for the Rawson Property Group.
Other important elements to look out for are:
If a house is in a bad neighbourhood, an inconvenient position or too close to an undesirable structure, like a cellphone tower or ugly apartment block, even the most spectacular renovation will struggle to see a favourable sale.
Mott says good locations to look out for are homes within popular school catchment areas, close to CBDs or in trendy neighbourhoods with access to freeways and other amenities. A north-facing aspect, mature trees and attractive views are a bonus.
“Jjust because an area is popular or trendy doesn’t mean you won’t find fixer-uppers on the market. You often find elderly people moving out of up-and-coming suburbs who are selling homes that make perfect renovation projects.”
Having the ideal location doesn’t always make a property a good fixer-upper, Mott says. A property must have a sound structure to keep renovation costs down.
Homes with serious structural faults, such as unstable foundations or weathered roof beams, for example, can be expensive to to repair.
“This is seldom worthwhile for buyers hoping to resell for a profit in the short to medium term. If you’re not sure about the structural condition of a property, I’d recommend an expert inspection. This is not the kind of issue you want to discover halfway through a renovation.”
A property’s layout must also be considered because it is a “mistake” to assume every design flaw can be solved by knocking down a few walls.
“If the kitchen or bathrooms are in a weird location or the bedrooms are all in the coldest, darkest part of the home, it’s going to be difficult to solve that problem in a cost-effective manner.”
Mott recommends looking for homes with convenient room “clusters” – a comfortable bedroom wing, a central kitchen, dining and living area, and logically placed entrances, garden access and bathrooms.
“This enables you to remove a few, non-loadbearing walls to open things up, if necessary, and you won’t end up with a family bathroom in the middle of your living space,” he says.
Predictable renovation costs:
Mott says it’s vital buyers understand the renovation cost ballpark they are playing in before buying a fixer-upper. They should set budgets for individual items or sections of the home, such as setting a price per square metre for flooring, and then stick to it.
“It can be very easy to get emotionally caught up in a project and choose finishes with your heart and not your wallet.
“To make a profit on a fixer- upper, the purchase price plus the total renovation cost needs to be low enough that you can recoup your investment – with a healthy profit – not too far down the line.”
If you are new to flipping houses, Mott says you should always consult a construction expert before buying.
When it comes to the work, ensure you have chosen a reliable contractor with contactable references. “Don’t choose a builder based on the lowest thumb-suck pricing – you will regret it in the long run.”
Assign a portion of your renovation budget to the garden. It can be a deal breaker if the building is beautifully renovated but the garden is scruffy.
“Go in with your eyes wide open. Naive optimism has no place in a fixer-upper project, but if you do your homework, renovating rundown homes can be a rewarding and profitable strategy for property investment.”