Four Rules To Buy Renovate & Rent Your Next Property

We sold a few properties late last year that were renovate jobs. And as such, they represent quite an opportunity for people with a few DIY skills.

One way to outperform the current slow market conditions is to consider the concept of “manufacturing” capital growth through renovations/renovate. In the current market it’s really hard to make money out of a “buy, renovate, sell” strategy, but if you renovate, rent and hold, then when prices come back (as they undoubtedly will) you can certainly turn a profit.

So where do you start?

How do you ensure that you don’t end up over-capitalising, as many investors do?
Here are four rules we suggest you follow in order to make the most of a “buy, renovate, rent” property investment:

1. Determine the “right” purchase price before you renovate.

Buying a renovator’s delight at the right price is crucial in ensuring that you are going to make some money when you finish your refurbishments. If you pay too much for your property at the outset, you will be “chasing your tail” trying to make the refurbishment profitable.

Fortunately, we are currently in a “buyer’s market” and there is plenty of scope to negotiate your purchase price. And if you can’t get a particular property at the right price, you will find plenty of other properties on the market to choose from. Start out by determining what the end value of the property will be when you have completed all planned works.

You can do this by researching the value of similarly renovated properties in your area.
Once you have this end value in mind, draw up an initial project budget to calculate your approximate renovation expenses.

You should also consider getting a building and pest inspection on the property so you know exactly what you’re getting yourself into and can plan your budget accordingly.
Now, subtract all your costs from the end value, allowing for a profit margin and this will give you a fair idea of how much you can afford to pay for your property in order to make your investment financially viable.

2. Be realistic with your budget.

The truth is that the job will usually cost you more than you expect, and take longer than you planned when you renovate a property.

With today’s shortage of good labour, it’s hard to get tradespeople to quote on renovation jobs – we’ve all heard stories where “the budget blew out” and the project took weeks longer than expected.

It’s never as easy as they make it look on those TV shows. And, funnily enough, the tradespeople never look as good as they do on the shows either – we have never come across tradespeople with neatly pressed overalls!

3. Consider the type of tenant you wish to attract once renovated.

Think about the type of tenants you want to lease your property to and renovate with them in mind.

Talk to your property manager to determine the predominant demographic seeking accommodation in the area and plan your renovations accordingly.

4. Don’t get personal!

Another mistake we see investors make is that they become too personal about the renovation project they are undertaking.

Remember, you won’t be living in the place yourself, so putting your own personality into the property is not necessarily a good idea. If you keep things simple and the decor neutral – simply make the property liveable and functional – you can’t go wrong.  Renovate according to the market, not you.

Property renovation is not a license to print money. It’s hard work if you intend to do it yourself but it’s a great way to manufacture capital growth.

Quick Review of 2022

Hope everyone had a fabulous break and not even thought about the property market!

We had a refreshing break ourselves while trying hard to avoid all property-related thoughts so that we are now refreshed and ready to attack another big year in real estate.

But while we weren’t trying to think about it too much, it’s time for a review of last year, and some thoughts on what may happen next.

What A Year In Real Estate!

Property prices have certainly taken a hit, pretty much across the board, but we have still had plenty of success with sales, particularly by auction. In fact, our last three auctions last year all had between 5 and 8 registered bidders and sold well above reserve. It seems that good properties continue to sell well, but if there are any fish hooks, then buyers will be very wary.

Will This Continue This Year?

Well, it sounds like we may have a pretty slow start to the year with the prospect of more mortgage rate increases likely to keep a bit of a lid on prices. The economists are all predicting a flat market for at least the first 6 months of the year, with a couple predicting further price falls before things improve. And of course, it’s an election year, and this has traditionally meant that we have a couple of months where no one wants to make any decisions – especially in relation to property.

The biggest change we have seen in the past few months has been a significant drop in properties coming to the market compared to previous years. This of course may help to keep prices steady – after all, it’s all about supply and demand.

Should Buyers Be Out Looking Now?

We’ve said before it’s a fool’s game trying to pick the bottom of the market
What we have seen in previous property cycles is that once buyers decide that the market has bottomed out, there is a sudden rush of people wanting to secure property before prices start increasing. As soon as this sentiment appears in the market things change fast!

And remember, if you are buying to hold, even for just two years, you are almost certain to see an increase in your property’s value.

Lisa and Steve Stone
Elite Agents for Ray White
Thestones.co.nz