Here’s how to make a profit on a fixer-upper
Buying a fixer-upper property to renovate and resell is great for buyers looking to maximise returns.
But a poorly chosen project could cost far more to renovate than it could ever recoup in a sale, warns Craig Mott, a regional sales manager for the Rawson Property Group.
Finding the right property is integral to the success of this investment strategy.
“Before purchasing a property, spend time looking at what is available in your desired area and study the market thoroughly. This will give you the confidence needed when it comes time to purchase.”
How do you go about spotting a fixer-upper that’s worth the time and cash? According to Mott, these are the most important elements to look out for:
It is in a great location
If there is one thing that cannot be changed about a property, it is location.
“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, you can do the most spectacular renovation and still struggle to make a favourable sale.”
He says good locations to look out for are homes within popular school catchment areas, close to central business districts and in trendy neighbourhoods with convenient access to freeways and other amenities. Mature trees on the property and attractive views are an added bonus.
“Remember, just 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.”
It is structurally sound
A sound structure is essential to keep down renovation costs.
“Homes with serious structural faults, such as unstable foundations or weathered roof beams, can take a huge amount of money and expertise 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, get an expert inspection performed.”
It has a good layout
It is a mistake to assume every design flaw can be solved by “knocking down a few walls and opening up the layout”.
“If the kitchen or bathrooms are in weird locations 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.”
It has predictable renovation costs
Mott says it’s vital to at least understand the renovation cost ball park you are playing in before buying a fixer-upper.
Investment buyers should set budgets for individual items or sections of the home. For example, they should set a price per square metre for flooring and stick to it.
“It can be easy to become 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 don’t fully understand the renovation costs, it’s all too easy to end up with a money drain rather than a money-spinner.”
You should always choose a reliable contractor with good and contactable references.
“Don’t choose a builder based on the lowest ‘thumb-suck’ pricing as you will regret it in the long run.”
Fixer-upper buyers should also remember to assign a portion of the renovation costs to the garden. It can be a deal breaker if the building is beautifully renovated and the garden and outside areas are left unattended, Mott says.
“It’s all about going in with your eyes wide open. Naive optimism has no place in a fixer-upper project, but if you do your homework and make sure you know what you’re getting into, renovating run-down homes can be a rewarding and profitable strategy for property investment.”