Selecting a suitable renovation candidate – Part 2

Wednesday, 4th Apr 2012

abandoned home

In our last newsletter we discussed what characteristics make a suitable renovation candidate. In this month’s newsletter, we focus on what features are generally not desired and as such may signal a poor renovation prospect.

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.

With 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.