Australian Property News

Smaller unit renovations perfect in a flat market

Posted on Wednesday, July 06 2011 at 4:27 PM

Small renovation projects turned around quickly are ideal in the current market, however renovators need to calculate every decision carefully, according to experts.

In a rising market Sydney-based renovator Nathan Somerville said handling bigger projects with lengthy timeframes can be beneficial for capital growth, however in a slow or falling market it's a good idea to commit to smaller renovation projects like units, which can be turned around quickly and sold in the same property cycle, provided they’re not positioned in an oversupplied unit market.

When renovating in a flat market, it's more important than ever to ensure you eliminate as many complexities and unknowns before jumping on the bandwagon, according to Ana Stankovic of RenovateAndProfit.com.

"More and more real estate investors are finding that they now have to change their wealth creation strategies to better suit changes in the current economy," said Stankovic.

She said renovation is what many turn to when deciding to add value, however every decision needs to be more precisely calculated in a flat or falling market.

"Guesswork is what trips up most investors, which is why so many of them go over schedule, blow their budgets, or spend their efforts and money on changes that don't actually yield enough of a margin on the resale price."

Stankovic said it's not enough to just purchase a dilapidated property, add some sparkle and cross fingers that it will yield a good return.

"You need to fine tune your processes so you feel comfortable with the decisions you make and can walk into a project with your eyes wide open, knowing what you need to do, how much it's going to cost and how much profit it’s likely to make," she said.

WBP Property Group Queensland manager Daniel Lewis said caution is advised when renovating in a falling market because it could take a while to recoup money spent. "Especially if other properties around are already renovated and you’re just lifting the property to the standard in the market."

He said now it's more important than ever to look at the sales evidence of similar properties renovated and maximise aesthetics at a low cost.

According to Stankovic, in a flat market renovators need to finely tune the following eight areas:

1. Finding the best and most profitable renovation projects
2. Comparing deals and quickly being able to identify which potential property has the most profit in it
3. Know what types of renovations are going to add the most value
4. Become an expert at renovation costing, so you can work out how much that renovation is likely to cost you before you even make an offer
5. Become skilled at profitability analysis so you can easily and quickly calculate how much potential profit there is in any renovation, renovation with subdivision or renovation with development, and also number crunch your worst case scenarios
6. Re-evaluate your team of tradespeople and suppliers to help you manage your renovation effectively. Are they offering the best value for money?
7. Refine your renovation priorities to efficiently keep holding costs down, prevent rework and potential problems
8. Improve on ways to achieve a designer look while keeping your renovation costs as low as possible