SCC Chartered Accountants

Renovation Potential or Money Pit?

Planning to buy a renovator’s delight but unsure what type of property will be best?

Terms like “Renovator’s dream” and “Ripe for renovation” often fire the dreams of home buyers (and those buying a second home). The dream of renovating an old house and turning into a welcoming home and savvy investment has been given national exposure in recent years, thanks to a rash of reality TV and home makeover programs.

But rising building costs, competition for suitable properties and flat house prices can turn a renovator’s dream into a nightmare. Naïve investors are at risk if they think any old property will bring them renovation riches. The key to getting it right is to do your home work, find the right type of property and renovate in tune with the building’s style, location and potential buyers.

Find The Right Property

The ideal property will depend on your renovation plans – do you want to do a quick makeover or are you planning something bigger and more extensive. Whatever your plans, the same home buying rules still apply. Identify the best street and suburb for your type of do-up and capital growth potential.

Do your research, including typical renovation costs, and set a firm purchase price. Given that you will be investing your time and money on the renovation, it is imperative not to pay too much.

Speak to local real estate agents to find out the features and types of properties that consistently sell well.

Experts generally agree that extra bedrooms or living spaces are the safest ways to add value. This means land size can be an important factor. Remember also that it’s cheaper to extend a house outward than upward. Look for hidden quality and uniqueness in a property, such as period features that can be restored.

Professional Help

The cost of renovating will depend on the property’s condition, so get a professional building inspection. It also pays to get architectural advice, like a Renovation Report. For a fixed fee, you’ll get an assessment and of the feasibility of your plans. Check with the local council to ensure that any planned structural changes do not violate planning regulations.

The Budget

Your budget should cover every possible cost, including the purchase price and associated purchase costs, legal and other fees, renovation expenses, interest on loans and sale costs. Having drawn up your budget, add 15% to protect you against the unexpected. An all-inclusive budget is the best method of assessing a project’s viability. After all, if the total cost outweighs the likely sale price, it is probably time to walk away.

What to look for in your next "Renovator’s Dream":

1. Structurally sound and in good condition
2. Good basic layout that will suit conversion to modern living
3. Timber floors and/or period features
4. Potential to create city or water views
5. Space to extend without incurring opposition and delays from neighbours
6. Rarity value (location, style of property, architect design, landscaping)
7. Well sited (preferably north facing) on a good street.