Renovating homes for profit - what you should consider

​We regularly hear of people buying houses, renovating them, then selling them at a profit. They’re called ‘flippers’. It seems an easy way to make money. There are even television programs about this topic. Often it is easy, but there are perils along the way. 

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Profiting from your home renovations

What you should consider before buying an old house and embarking on a renovation project which you plan to sell at a profit:

• Ensure you fully understand all the costs. These costs include:
  • The transaction costs – which are agent costs, settlement fees and taxes.
  • The holding costs – which is the cost of the money required to purchase and renovate the property, for the time it takes to complete the design, obtain permits, do the renovation and finally sell the property. This period could be twelve months or more. If you’ve borrowed the money the interest bill on the loan can be considerable.
  • All the renovation costs as previously discussed.
  • Taxes that you’ll pay on the profits you make.
• Understand your potential buyers, which includes knowing:
  • What buyers are looking for – how many bedrooms, bathrooms and garages, size of property, architectural style, finishes, etc.
  • What buyers are prepared to pay – particularly in that area.
  • What will appeal to buyers.
  • Which neighbourhoods and suburbs are sort after.
• Prepare a realistic schedule so you know how long the project will take from the purchase to finally selling it again. Allow sufficient time to sell the house. You don’t want loan payments falling due before you’ve sold the house.
• Carefully research all aspects of the project so there aren’t unexpected costs or delays.
• Put you own emotions aside. Think what buyers will look for and like.
• Don’t only think of your profits. Remember there are no profits if potential buyers don’t like what you’re offering, so skimping on costs which delivers a substandard product will ultimately cost you money if you can’t sell the house.
• Think through everything that will be needed to make the house sell-able to the buyers that you’re aiming for. So, as in the previous section, turning a house into a luxurious house requires work on a number of elements. Missing an element could bring the value of the whole house down. Consider the total package, including the garden, driveway, outdoor living areas and the boundary fence or wall.
• Understand the opposition – what other similar properties are available which could be competing for the same buyers you’re aiming for.
• Not be overly ambitious, particularly with your first projects. Don’t commit to projects that require major work or complicated renovations.
• Not purchase the first property you see. There will always be other houses available. Sure you may miss one opportunity, but you could also be avoiding a problem.

Of course, having said this, some houses can easily be transformed at minimal costs if they have the right bones and don’t require large structural modifications. In a future blog I'll discuss some simple ideas to transform your home.

Conclusion - fixing old houses can be profitable, but there are pitfalls

It is possible to make money by buying old houses and renovating or remodelling them. But, buying the wrong house, paying too much for the property, turning the house into something you want to live in rather than what prospective buyers are looking for, or planning ambitious renovations may leave you facing a loss rather than a profit.
​Next week I'll discuss other important considerations for your renovation project. Top tips to avoid your renovation project turning into a disaster.

​For more valuable home design and renovation tips and advice read: 'An Introduction to Building and Renovating Houses - Volume 1 Hiring Contractors, Managing Construction and Finishing Your Home' and 'Volume 2 Finding Your Ideal Property and Designing Your Dream Home'

​This is an extract from: 'An Introduction to Building and Renovating Houses Volume 2' by Paul Netscher. Available in paper or eBook from Amazon.com, Amazon UK, Amazon CA, Amazon AU and all online bookstores. To read more

​© 2019 This article is not to be reproduced for commercial purposes without written permission from the author.

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