With a substantial outlay expected on renovations across the country this year, investors must be wary about overcapitalising in a softer market, warns a renovation expert.
While renovations can be a profitable way to boost equity, Tradebusters’ Laorence Nohra warned that investors need to look very closely if they are to choose this path, particularly with a softer market affecting investors' ability to realise a profit.
The Housing Industry Association Economics Group Report, released in May 2013, predicted a national $29 billion outlay from homeowners across the country on renovations, proving it’s still a popular pastime for property owners.
Ms Nohra explained that despite this, “The most important question renovators need to ask is 'How can I save time, money and stress and still maximise profit in today’s market conditions?'”
A major factor impacting renovation profits is the stagnant, “or at best slow” property growth being experienced by many suburbs.
“With slower capital gains on houses and apartments, it has become much more difficult to generate the high profits we have seen from renovations in past market conditions. The next wave of renovators will need to be even more strategic and savvy to generate solid profits,” Ms Nohra said.
Considering all the costs associated and undertaking a true profit analysis is crucial for every investor.
Ms Nohra recommends investors look to their short- and long-term plans, know the selling price of the renovated product, select tradespersons carefully and think carefully about DIYing before they go ahead with any renovations.
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