Selecting a suitable renovation candidate - Part Two
There are
a number of characteristics you should focus on when acquiring a suitable
property renovation candidate, but there are also just as many undesirable
characteristics you should look out for that may signal a poor renovation
candidate.
Some
properties to avoid include those that:
Do not meet
market demands
The lifestyle
and expectation of people twenty years ago is vastly different to that of today.
Some people may make sacrifices for some styles of home (eg a period home), but
most want a property that doesn’t constrain their lifestyle. They like big
bedrooms, ensuites, and large open-plan dining areas for entertaining.
Unfortunately properties that require major floor plan changes to make them
suitable for today, require renovations that are usually prohibitively
expensive. And although the new
purchaser or tenant may thank you for the works done, your ability to easily add
value relative to the expense is dubious (particularly for a novice
renovator).
Are not
consistent with surrounding properties
If the
neighbourhood has been compromised by ugly infill construction you should think
carefully before committing to a purchase in that area. The best prices are
obtained when people feel they “must have” a property. A compromised
neighbourhood usually turns a “must have” property in a “settle for” property
regardless of the quality of the individual property. When this happens, the
emotional attachment to a property is diminished and they are less likely to pay
good prices.
Have an
alternative highest and best use
If the
property is in a high density zoned area and is in need of renovation, you may
find that any renovations you undertake add little value to the property. That
is because the development value may continue to be higher than as a single
residence into the future, thus negating the renovations you may undertake (eg
it would be better to demolish and build townhouses or units). If you own a
property in a high density zoned area, it is probably unwise to spend too much
upgrading the property as it may still simply be worth its land value regardless
of the improvements undertaken.
Are over
capitalised
One of the
biggest mistakes renovators make is not knowing the market area and market
limits. Most localities have a price limit where it will be difficult to sell a
property at that level or above regardless of the quality of the property being
offered. This is because people prefer to substitute an inferior quality of home
for a better location, thus if the property was over the price limit they would
likely choose the alternative entry-level home in the better suburb. You may
find that the property you are considering is already close to that limit and
therefore any renovations may not add much value.
Have council
or heritage problems
In many areas,
councils have strict development control policies and heritage precincts that
severely curtail alterations and renovations to property. You will need to check
the Town Planning Scheme and the zoning in the area you are considering. You
will also need to check council policies and design guidelines. This is most
important if you are intending to make major alternations or make changes to the
front of the property. It is best to discuss your proposed alterations and
additions with the council before proceeding with purchase to reveal any
possible issues.
The lesson
here is to carefully evaluate the properties you have identified and avoid
rushing into a project. While most renovations can significantly improve a
property, there are some that should not be considered if the aim is to come out
with a profit.
For
more information on how Andrew can help you find and evaluate a great investment
property, you can contact him on 1-800-000-159 or email info@momentumwealth.com.au
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