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What you must consider before buying a renovator
Victor Kumar

What you must consider before buying a renovator

renovation
1 minute read

What you must consider before buying a renovator

March 28, 2018

Here’s a fact: No renovation project goes smoothly. When people renovate, they expect everything to fall in place. Unfortunately, that rarely happens.

The thing is, very few renovations go like clockwork because you’ve got so many different moving parts — tradies, the property itself, market expectations, etc. That’s why so many people are afraid to renovate or become paralysed in the beginning.

That’s certainly what happened to me at the start, and I lost a lot of opportunities until I realised I didn’t physically have to do the work. I realised that expertise could be bought.

Renovation extremes

When you’re looking at a renovation project, there are two extremes. One is people who are paralysed by fear because renovating requires rapid decision making, which most people find stressful. The other extreme is, people get too gung-ho because they’ve watching one too many episodes of The Block.

They falsely believe it’s easy to turn an ugly ducking into a swan. The truth is, they don’t understand all of the ins and outs of renovating. They especially dont take into account their own time costs because most people forget that time is valuable, too. 

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Those are the two extremes, but you want to be somewhere in the middle.

One of the ways to do that is to get educated on the process and understand that renovating is purely project management. Everyone actually manages on a daily basis in their jobs, regardless of the type of occupation. We generally follow a procedure to get to an outcome.

Its the same with renovation, which should involve following a procedure to get to an outcome. So long as the procedure is well developed, the only other thing you need to understand is your strategy, such as increasing the appeal of the property for renters in soft market conditions. Or perhaps youre renovating to increase equity, including through cash flow via higher rents or your property being rented faster.

The right reno market

The gung-ho renovators often renovate when the market is hot, which is another sign that they dont know what theyre doing. When the market is strong, youll start to see more “renovators delights” listed for sale, and people jump on them thinking theyll make money.

However, when you reverse-engineer the price, a property that doesnt need a renovation — and is perhaps $20,000 more than the other property — might be the better buy because theres less time, less stress and less uncertainty. 

In a hot market, people tend to pay a premium for renovation-potential properties. However, the best time to undertake a renovation, in my opinion, is during flat market or a peaking one.

Thats because you will be forcing extra growth through a renovation or you will improve your cash flow from higher rents or less periods of vacancy.

Before you buy a property to renovate, though, you must also consider the streetscape because if you cant change it, the project may fail to achieve solid profits. Thats because first impressions always count.

The only caveat to that is units, which means you must make sure the complex is neat and tidy to start with.

Far too many novice renovators get fixated on picking up a hammer and beginning the project rather than conducting property selection. They confuse activity with the result.

Unseen money-suckers

Another aspect that you must consider before you buy is the unseen money-suckers. These are the repairs that wont add value to the property but are required to make it safe or compliant.

A good example is a property with a rusty, tin roof. Of course, you have to replace that roof because a tenant expects a roof on their house, but it doesnt add any value to it whatsoever.

Another money-sucker is your wiring, especially old black wires, because you have a duty of care to replace them, which can cost between $5,000 and $7,000, but you will not increase the value of the property at all.

Plumbing is another money-sucker because everyone expects to turn on a tap and get water, so replacing pipes, again, doesnt add value.

These are all of the costs that you must consider before you even consider making an offer on a property.

Its far too late once youve signed on the dotted line and youre lumped with a dud because you havent done your research early enough. You must lock in your profit when you buy, not try to get to the profit by renovating an inappropriate property. And in a hot market, dont renovate. Let the market do the heavy lifting.

At the end of the day, you want to be a lazy renovator whose job is to select the best property and then project-manage the hell out of it.

About the author

Victor Kumar

Victor Kumar

Victor Kumar is the author of 'Supercharge your Property Portfolio' and the founding director of Right Property Group.

Victor and his wife came to Australia from Fiji in 1997 with just $4,500 in their pockets. They worked hard as radiographers but realised this was not the way to prosperity. Victor embarked on a process of building wealth through property. He has amassed a substantial property portfolio, and is still actively buying and renovating property. His recommendations are based on what works in today’s market, not what used to be effective a year or more ago.

Victor’s experience, finance background, and financial planning qualifications mean he is well equipped to negotiate with banks – helping them find ways to say “Yes”. He has also invested significant time and money in learning from other property investment experts and knows how to make a portfolio work.

Of course, Victor has made a few mistakes along the way but these have made him wiser – and he’ll let you learn from his mistakes so you don’t need to make them. His goal is to help you achieve your financial goals by sharing his extensive knowledge about financial structures and investment property.

Victor is now sought after as a keynote speaker at several property investment seminars and is acknowledged by his peers as an expert in the industry.

http://www.rightpropertygroup.com.au/

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