Looking for a “renovator’s dream”? Here’s what you need to know first

With property prices soaring it’s no surprise that first time buyers are increasingly looking at properties that need a little bit of work.

These “doer upper” or “renovator’s dream” properties offer huge potential for adding value through a renovation. However, novice investors and buyers do not want to be going in unsure of what they’re getting themselves in for.

Firstly, new buyers should look for properties that need what is called a ‘cosmetic’ renovation first. If you don’t know what this is, you can read our explanation here, but essentially it's a light fix up that doesn't require structural changes or, usually, any council approvals. These are the best projects for novice renovators and homebuyers and the least likely to see you make poor decisions.

The pitfalls around renovating can be many and they can be very expensive. From overcapitalising, to DIY-ing where you shouldn’t, you must go in with a plan in mind.

However, it doesn’t always have to cost you a fortune. Reno Kings’ Paul Eslick suggests focusing on the following areas for bang for your buck:

• A new coat of paint
• Install a fence
• Get your gloves on and do some light landscaping
• Laminate and tile paint in the kitchen and bathroom (also consider replacing hardware such as taps and handles)
• Window furnishings can make your home look a lot better, consider straight venetian blinds
• Better lighting

These simple things should help improve any lacklustre purchase.

Renovating for Profit’s Cherie Barber treats renovating as a scientific process. Here is her eight-step process that she follows to get the maximum equity out of her properties in the quickest time possible:

1. Structure and strategy
   
   - The structure in which you purchase is crucial to ensuring you are taxed efficiently at the very end of the process. Should you purchase in a trust, SMSF or company structure?
   
   - Decide on the strategy upfront: Is it buy/renovate/hold, buy/renovate/sell or something else?
   
   
2. Suburb due diligence
   
   - Investors must know suburbs down to a street level. Pointing to her target suburb of Balmain, she explained that she knows where the negative and positive price pockets are, or where the prices change, and the reasons for this.
   
   - Ensure you're targeting the right type of suburb for the renovation you intend to undertake. Middle ring and outer areas tend to suit cosmetic renovations, while inner city areas tend to favour structural.
   
   
3. Pricing due diligence
   
   - The real estate agent's job is to make the vendor money, never forget this. 
   
   - Ensure you are looking at true comparables - your suburb due diligence should assist you with this process.
   
   
4. Property due diligence
   
   - Ensure you're not purchasing a property with major defects you cannot rectify under your budget (think about the hidden problems, such as termite damage or bad wiring).
   
   - Check that the property stacks up for the majority of buyers in the area. Your demographic is crucial, and you should be thinking about a property as a product.
   
   - Calling council and a number of other local experts will save you money in the long run.
   
   
5. Acquire
   
   - The purchasing process and negotiation can be crucial for getting the price right. Ensure you enter in unemotionally and knowing the value (pricing due diligence).
   
   - There are a number of different conditions, requests for early access and similar that can be asked for at this part in the process.
   
   
6. Council approval (usually for structural renovations)
   
   - The earlier this part of the process is started the better. Investors should be prepared for councils to take longer than is often stated on their websites.
   
   - To get an idea of how long the process might take, check online and see what has already been approved and the time frames. Expect it to take longer.
   
   
7. Renovate
   
   - Get some good tradespeople and treat them well. It can often take a number of renovations to get your team selected.
   
   - Keep organised, keep timelines and ensure effective communication.
   
   - Avoid being the DIY-er unless you have done it before effectively.
   
   
8. Sell/Rent
   
   - While you should have been clear on which of these approaches you were going to take since step one, it's now important to ensure you approach the best real estate agents and property managers for the job.
   
   - Treat choosing agents as an interview process, rather than solely basing it on personality.
   
   - Ensure that at any opens, the changes you have made to that process are highly visible and communicated to potential tenants/purchasers.

You might also want to read Lisa Montgomery’s 12 things to consider before you start your home renovations.