ARE YOUR RENOVATIONS PROFITABLE?

ARE YOUR RENOVATIONS PROFITABLE?

If you’re about to sell a property, every dollar you put in should be a dollar that results in profit. The same goes for properties that you intend to fix-up and sell as well.

A common error people make when looking to attach each dollar invested to profit is to renovate the kitchen. A brand new kitchen with high quality appliances could set you back around $50,000 and while this may improve the sale price it won’t necessarily increase the sale profit. The reality is that the $50,000 kitchen you renovated only adds around $35,000 to the end sale; the stress, effort and money is not worth this kind of investment loss.

It hasn’t helped that in recent years we have been flooded with reality TV shows that glorify house flipping culture. But if we look past the smoke screens of popular shows like House Rules, The Block, and Grand Designs you’ll often find that the only way contestants have avoided failing to reach the reserve at auction is to begin with a low and essentially artificial reserve.

In the real world, renovations can easily equal loss in profit if you’re not careful. But the profitable kind can easily be identified and split into two categories: works that can be done below retail cost and retail-priced works that add value beyond the cost.

 

Works below retail cost

In order to gain true profit from this type of renovation you must be able to obtain the work at a lower cost than a builder would charge their client. The amount saved can then be calculated as profit at the final sale.

Due to this it stands to reason that developers and builders reap the biggest benefits of this category. A property that is either unliveable or requires a daunting amount of renovation is their dream-come-true, but would scare off even the most seasoned DIY home renovator because they would need to pay retail price on the work required.

 

Retail-priced works that add value beyond cost

If you’re not a builder or developer you’ll fall into the retail-paying category. But fear not, there are still ways to generate huge profits! Three good face-lifts to consider are painting, carpeting, and landscaping. For instance a fresh coat of paint throughout the house may cost $15,000 but will more than likely add $30,000 – $40,000 in value.

One area of renovation we’re wary of rushing into is building extensions. On the surface it looks like a no brainer, how could a second story or an entirely new living space not bring about value to your property? And you wouldn’t be the only one to think so, the growth in specialised extension builders of late is evidence of that. However, in actuality the cost per square meter can often equate to that of a whole new house!

For a builder, an extension is rarely just a simple build, they’re more time consuming than a new home and result in less profit. So it’s not surprising that corners are cut and if you’re unable to identify the quality of the workmanship and design being offered it may be you that’s left with a hole in your pocket. Of course there’s always the potential that things turn out and all your hard work and planning result in a delightful new space that excites perspective buyers.

If you’re relying on market growth to cover your renovation costs you’re doing it wrong. A profitable renovation requires good old fashioned pen to paper planning so that you’re making sure you’re accounting for any growth in the market as a bonus.

 

There are countless stories of loss and devastation on the internet usually involving a young couple who invested everything into undertaking a renovation purchase under the guidance of a ‘property guru’. Despite the meticulous laid plan they are given and their seemingly already experienced hand, the renovations don’t turn out as easy as intended and the cost born by the couple can ruin livelihoods.

The moral of these stories is that if you’re not a professional in the building industry, then the most profitable renovations are always going to come from cosmetics. Leave the structural work and development applications to the tradies, builders and experts.

 

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