Renovating your first property to sell or hold long term can be a real adventure! It’s a crash course that can be an expensive lesson if done wrong, even for people experienced in buying and holding investment properties.
Unless the house is already in pretty good condition, forget the idea of just spending a few thousand dollars and “flicking it on”. Unless the property market is already very hot, this just isn’t an option!
You may find that after purchasing a property and “getting stuck in”, essential work will inflate costs. This is why it’s so important to make sure that there is plenty of fat in any buy and sell property.
I once renovated a house where I was pulling fossilised half-eaten meat pies and cigarette butts out of the holes in the walls. I wondered how the tenants had managed to keep their tenancy for the past 8 years as I filled up two huge jumbo bins of rubbish that were removed from the property using an excavator in the back yard. The frazzled and mummified rat I removed from the wiring in the hot water cupboard were good topics of conversation when the tenants requested the return of their bond money!
Here’s a few tips and suggestions for first time proper traders and investors.
- Understand the area and know the potential. Just because it’s a “do-up“, it doesn’t mean there’s a profit in it and just because it’s a “bad” area, it doesn’t mean there’s less room for improvement.
- Don’t rely on real estate agents’ advice, they are not working for you!
- When working with key tradesmen, use written instructions, set deadlines and make sure they understand what your required standards are. Don’t get caught out by the “it’s just a rental” attitude. Paying for cheap labour is only cheap if it gets done well and on time!
- When working out your expenses, don’t underestimate the interest payments. Work out how much interest you may end up paying if the house doesn’t sell when you expect it to. Interest can eat away your profits faster than anything!
- Don’t be afraid to ask for quotes from multiple trades people and haggle on the price.
- Ask yourself: “Can someone else do this cheaper, faster and better than me?”. While it may be fun to do the painting yourself, if you’re not experienced, it will take you twice as long as a pro.
- Will the sales price improve with the best carpet/taps/kitchen bench?There’s no need to have the best of the best if it doesn’t fit with the house or the area.
- When selling, it’s the buyer’s perception that counts, not yours. Don’t be put off by negative feedback, they may just want to buy it cheaper!
- Remember that you can sway buyers’ attitudes to the property by the way you market it. Buyers have different criteria so treat them all differently.What is important to single retired person may be different to a family with 2 kids.
- Don’t put all your faith in that one “keen buyer” and stop marketing the property. I discovered that the “keen buyer” that approached me the day I started work on the house and was in contact throughout the process had still not approved their finance by the time I sold it! Tyre kickers are everywhere!
- If you’re going to sell privately, put “no agents” on all your advertising or you’ll be inundated with calls from real estate agents. Selling privately can be stressful, time consuming and expensive (if it takes too long) so if you don’t think you can “sell”, then give it to an agent and factor the cost into your calculations.
- Get your structures right. In New Zealand, No GST registration before purchase means no GST claim on purchase price! Don’t forget you pay GST on sale and don’t go in with too little money and put pressure on yourself to sell! The same goes for other countries. Make sure you get expert advice on tax issues BEFORE you start.