Episode Details

Have you considered getting involved in property renovations?

If so, then today's show is just for you. Making a tidy profit renovating a property seems like an attractive proposition, doesn't it?

And that's why more real estate investors are turning to renovations: you know, buy low, renovate cheaply, add substantial value. That's the aim of their game.

Sounds simple enough. But it's not really that simple.

Sure, anyone can renovate, but not everyone can renovate for a profit. If you've been reading my blogs and listening to my podcast, you know that my preferred investment strategy is to add value. It is to manufacture growth through renovation and development.

So in today's show, I chat with Greg Hankinson, director of Metropole Constructions. Greg has completed thousands of renovations. We're going to give you some tips and share some traps to avoid if you're going to get involved in property renovations.

And at the end of the show, I'm going to share my mindset moment with you.

Renovations Insights and Mistakes

The BRRRR strategy

• Buy, Renovate, Rent, Refinance, Repeat
• Flips flop
  • You need to manufacture significant capital growth - upside to cover the costs and unless you do a structural renovation this is too hard to achieve – can't achieve with cosmetic renovation.
  • Patients take time, cost more, require permits and the associated costs could easily add 50% to your renovation budget.
  • With cosmetic renovations, you can't really get two dollars for every dollar you spend
  • Why they flop - Transaction and holding costs, tax, unrealistic expectations, and flipping in a fickle market

Which tasks to outsource

• Anyone can renovate, but that doesn't mean they can make a profit, so let's look at some tips to make your renovations more profitable.
• What needs licenses – the electrician, plumber, any building works over 5000 in Victoria and different in other states
• Hire a project manager; don't do the work yourself.

Mistakes:

1. Choosing the wrong location

• Do you need the right market location where there is a significant differential value if you renovate.?
• This is unlikely in cheaper blue-collar or regional areas.
• Become an expert in your location can't rely on Internet reports
• avoid Main roads

2. Wrong Property

• Cosmetic renovations – must be 20+ years old and of significant value, a lick of paint is not enough
• Structural – probably 50+ years old – must have good bones

3. Refurbish versus renovate

• What's the difference?
• The refurbishment has no direct equity creation no additional capital growth but it does increase the rental returns and possibly some depreciation benefits
• Refurbish and not renovate? When a good property needs refreshing, kitchen bathrooms are in good nick, all the basics are sound, when if you renovated it would be a risk of overcapitalizing

4. Not getting the appropriate permissions

• Check the permissions required
• Council & building permits? Owners corporation?

5. Avoid overcapitalizing

• It's very easy to find a property that needs a renovation, but not so easy to find one that will reap a profit.
• Work backward – establish a post-renovation market appraisal on the property, subtract the purchase price, associated costs, interest, and a healthy buffer and profit margin. What's left is your renovation budget. As a rule, keep the renovation budget to 10% of the market value of the property

6. Not allowing a sufficient contingency amount

• Once a budget is established, allow a contingency