Over the last 2 decades, Property Renovating has become a popular (and often profitable) past time for many Australians. But can you still make money today?

Renovators around Australia have been buying old run down properties, and bringing them back to life over the past 20 years, with often remarkable transformations taking place. Classic examples are the 'character' terrace homes, or dated 'red brick' classics. They often possess great 'bones' or structure, are in good locations, and are prime candidates for that facelift or upgrade to add value and make a profit.

However, as the demand for 'Renovators delights' has increased, so has the price, as 'The Block' wannabes scramble for their piece of the action.

When you come across a property that is being touted by the selling agent as 'huge potential', and 'renovate and profit', how do you know that you can actually make money, or are you simply better off buying a new property, or one that has already had the work completed?

A completed renovation can give the owner a feeling of satisfaction and sense of accomplishment, something they can show off to friends and family, however an investor needs to create a profit, otherwise it can tie up a huge amount of time and capital, for no gain, or worse still, incur a loss.

"The numbers never lie" is a well-used saying with professional investors, and holds true in this scenario.

Before you even consider asking the selling agent for a copy of the contract, you need to complete a due diligence on the project, to see if it is worth your while.

An experienced Property Investment Advisor should definitely be able to assist with this.

Firstly, you need to find out how much it will cost to secure the property. This is obviously the most important information, as you make your money when you buy. Your Buyers Agent will be able to find out what the logical value is, to ensure you don’t buy at an emotional level.

Then you will need to find out what work should be carried out to add the most value. Adding accommodation, living areas and bathrooms are always value adders, likewise is opening up access to the backyard to 'bring the outside in", and taking advantage of views and creating more privacy are also high on the list. Keep finishes neutral and light, to ensure you capture the interest of the largest section of the rental and buyers’ market.

Adding maximum value, while trying to do the least amount of work, is a concept that will help ensure your project is profitable.

There may be some defect with the property that needs to be rectified, so your work may include the repair of this also.

You will then need to get an estimate of the cost of the project, and other hidden costs that will be involved, also need to be taken into consideration.

These may include;

Council Development Application fees
Construction Certificate
Architect/Draughtsman fees
Engineer fees
Building Costs
Project management costs

The other crucial item that needs to be estimated is the time the project will take. Most people underestimate this, and it often turns a profitable project into a loss. Consider the holding costs for the duration of the project, such as interest, Council rates, land tax etc.

If the project is not livable, then add in the cost of renting, if it is an owner occupied property, or loss of rent if it is an investment.

If you are planning on carrying out any of the work yourself, or managing the project, then a cost has to be estimated for this also. You wouldn't work for free for an employer, so why work for free for this project. At the end of the day, your time is your most valuable asset, and it is crucial to add a realistic value to your time.

When you come to a final figure, add a percentage for unforeseen costs, say at least 10%, because they always come up!

Then you will need to add in a profit margin. This can vary, depending on the size of the project, but a developer will generally work off at least 20%, so that should be your starting rate.

You will then need to get your Buyers Agent to find out what a project, such as the one you are considering to complete, will likely sell for if it went to market.

Even if you are planning on holding the property long term, this step is crucial to avoid overcapitalising on your project.

If you can find a Buyer’s Agent that has experience in all the above, and can advise you on this, then they are worth their weight in gold.

Once you have completed all the numbers, if they look favourable, then ensure your Buyers Agent gets moving to secure the property for you ASAP !

Make sure your Buyers Agent negotiates preferential terms, such as an extended settlement, or access before settlement, to allow you to plan the project and get a head start.