Renovation and the great home improvement effort are close to the heart for investors. Everyone loves the concept of making money while using a flair for design and their own before and after project to share.
We regularly hear there are many properties you can renovate across the country and that huge profits can be made. There are certainly opportunities, but don’t go into any purchase thinking you can throw money around and make a profit. Planning wisely is crucial, as is knowing what to avoid.
With this in mind, there are definitely some properties that you might want to consider steering clear of if it’s a renovation project that you’re considering. Here are five you want to think twice about renovating.
New, or new-ish, stock
This one should be obvious. If you want to renovate to make money, then straight away ignore anything that has been around the traps for too short a period of time. If the property is new, or close to it, then you don’t want to be wasting time trying to make improvements on what has already been improved.
While you may not want to jump completely to the other end of the spectrum and find something that is completely falling apart, you certainly don’t want to buy something where there isn’t the option to update as much as possible. It’s also important to note that properties in areas where new comparable properties are selling for the same as the amount you will need to sell for to make money may also not see a profit – when offered an equivalent price prospect, who wouldn’t choose a new home?
The money pit
There’s likely one of these in every area. It has something dramatically wrong with it, usually structural, and it tends to be something you can’t see at a glance. It’s the common mantra for renovators that you have to do things with visibility in mind – if it’s not a visible update then it’s money being sunk into the wrong area. Unless you can get the property for the discount it costs to fix this issue, perhaps extensive termite damage, then it’s often worth skipping the challenge. For some properties, it actually might be a case that it’s really a re-build that’s required.
Where the issue isn’t the reno
For some properties, it’s not the style of the property, or the state it is in that is dragging it down. Often, it’s the specific location that will always put a cap on the price – think a busy road that no careful fencing can reduce the sound of. Other things you may not be able to improve are the neighbours (you can pick your friends…), pylons, positioning in a flood area, the worst street, an unsightly aspect and often the position of the house on the block. If you can’t fix it through your renovation then you’re already on the back foot and inheriting someone else’s problem.
Let’s be clear with this, if you’re buying in your self-managed super fund then there are some things you can, and many things you can’t, do. If industry expertise is anything to go by, there are certainly repairs and alterations that can be made. However, if you want to be adding bedrooms or extensions, or doing anything significant, it’s time to get the ATO involved from the beginning to ensure you remain compliant. You are also going to find yourself up against borrowing rules and limits on what you can contribute to the fund yourself. While there may be opportunities here, be prepared to jump through some extra hoops.
Properties out of your budget
Remember, just because you can score big on a property in terms of purchase price, it doesn’t mean you’ll be able to renovate it to the standard you were dreaming of. Properties in upmarket areas demand an upmarket renovation that, while you can definitely keep less expensive than an owner occupied renovation, will cost you more than when renovating smaller properties elsewhere. If you have a $40,000 renovation budget and are looking at buying a good deal but decrepit mansion, prepare to not be able to afford to renovate the home acceptably.
This article first appeared in Property Observer.