Debbie Shankar - 19 Jul, 2013

Should You Buy a Property That Needs Renovating?

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Renovating, over the last decade, has become a viable option for homeowners to have the home that they desire for a more affordable cost. Plus, it has also given many younger home buyers a way of purchasing a home in more established and expensive areas. Statistically speaking, some 58 percent of Australian homeowners state that some form of renovation has been carried on their property over the last 10-years, and, for many, this has added value to their homes over the years that they have lived there.

But, does this mean that property renovation is for you?

It can be, providing that you are committed, prepared to get your hands dirty, and don’t mind doing a lot of homework before you buy. If, however, you can’t finish what you’ve started, prefer someone else to do your dirty work and you don’t like weighing up the pros and cons, then buying a home that is already in tip-top condition may be a more viable option for you.

The Reality of Renovation

Reality programs such as ‘The Block’ and ‘House Rules’ have generated a new wave of enthusiasm for home renovation. This, in turn, has heightened the age old argument that buying the worst home on the best street and then throwing your heart, soul and back, as well as your chequebook into the mix, can create your dream home and the ideal investment that will increase substantially in value.

Now, while this all sounds fabulous in theory, the reality is a little more complex. Yes, renovating the RIGHT property can bring the investor a higher rental return after renovations have been carried out. Renovation can also increase the equity in a property and its capital value when it is eventually sold. But, if you fail to follow the ground rules, then renovation can leave you out-of-pocket with an unfinished money-pit that has little or no real capital value.

The Renovation Ground Rules

You need to buy wisely. You need to think with your head and not your heart. Plus, you need to factor in all costs, before you even consider taking out a mortgage on a property that needs to be renovated.

The basic ground rules for buying a property that needs renovating are as follows:

Property Location is a Must

All property is an asset, regardless of whether you are looking for an investment property to rent out or to live in yourself. When you buy any home you should always consider re-sale value, so make sure you look for the right location. Consider areas with growth and progressive councils, look at the best suburbs and neighbouring areas and also where amenities, such as schools and medical facilities, transport and the community hub are situated. The closer these are, the better.

Renovation Needs to Be Viable

While it’s wonderful to have a vision, it’s not always cost-effective or going to give you a good return on your investment. So, before you consider buying to renovate you need to consider all costs. Work out exactly how much you’ll need to spend to bring a property up to good specification. Add this to your buying costs. Then, consider your return.

Your Return on Investment

For every dollar, you spend renovating you should get a return of between $4 to $5. Therefore, if you spend $20,000 on renovations, you should get a return of $80,000 to $100,000. Using this formula will prevent you from over capitalising and spending too much on a property.

If In Doubt, Seek Professional Advice

If you’re unsure of what your return on investment will be, then hire a local property professional to assess the property before you buy. Let them know what you’re thinking of doing and ask them for a professional appraisal of the property now and after renovations are carried out. If the costs outweigh the return or you’ll make very little, then the renovation is not viable.

If you’ve considered all of these points and the property still looks to be a good buy, then renovating may be right for you. Just make sure you know who is doing the work and when. Set yourself milestones and goals, and make these realistic. Then dust off your hard hat put on your work-wear and get down to building your vision.

Are you looking to buy and renovate? Then contact eChoice before you buy and find out more about your options TODAY.

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