For investors looking to buy a reno property, or considering embarking on a renovation, there are a number of things you should be contemplating this weekend.
Number one of this list is working out how much it’s going to cost you. “A lot of people don’t have a budget and they should,” says Renovating for Profit’s Cherie Barber.
“A lot of people just don’t know the formulas of renovating.”
One of the formulas she suggests is 1.5 per cent of the property value for the bathroom (on a $500,000 property, that would equal $7,500 on the bathroom). This includes labour and materials.
“It’s your budget, so don’t go a dollar over,” says Ms Barber.
Generally speaking, 50 per cent of costs are labour ($3,750) while 50 per cent are materials ($3,750).
“You want to get a return of two to three dollars for every dollar that you spend. If you’re spending $7,500 at a very minimum it has to return you $15,000 in value and ideally around $22,500 in value.”
Investors should try and work through these costs to figure out where savings can be made in each room and for each alteration. Investors Choice founder Jane Slack-Smith explains that this is the method she uses.
“If it’s going to cost you $8,000 to do a whole new fit out, that’s fair enough.
“But if you can do it for $3,000 and still add $20,000 in value that’s still completely achievable.
In some cases it’s just really nice new taps and handles,” Ms Slack-Smith said.
“You can be clever and strategic but you always want to be thinking about the result and whether you have added the wow value or not.”
Tips for investors:
- Make a list of everything that can be done in a renovation.
- Put costs next to each (using techniques such as buying seconds, DIYing etc to bring down costs as practically as possible)
- Add the potential added value to each
- Highlight the “must do” items
- Calculate cost of these items
- Figure out which “best bang for your buck” items can be done using the remainder of your budget oncr these ‘must do’ items have been factored in
- Calculate your overall profit (in terms of yield or capital gains)
- Make a decision about the validity of the project