How To Choose The Right Unit To Renovate (Ep221)
Choosing the right unit to renovate can make or break a renovation. How do you choose the right unit to renovate that will generate you a handsome profit?
Hey guys Ryan here from onproperty.com.au and today I’m answering one of your questions and we are talking about how to choose the right unit to renovate. Alright I’ve got a question here from Sanja or San-ja, sorry I’m not a 100% sure how to pronounce it, let’s go with Sanja. They’ve actually asked a few questions, we’ve got three questions but you’re going to get three for the price of one baby, three videos answering three different questions. So let’s start with question number one, “Hi Ryan, firstly let me say I like your work. It’s concrete, straight to the point and easy to follow and understand; thank you.”
No thank you Sanja. You don’t understand how important this encouragement is to me. I do so much of this work by myself. I know what I’m doing is impacting people, I can see the stats about how many people have been visiting but this sort of stuff and this sort of encouragement really keeps me going and keeps me motivated to pump things out. This is I think this is the 11th or 12th video that I’m filming today and I do it for you guys and I do it to help you. Obviously there is financial benefit for me but this encouragement just means so much to me, so just thank you. Thank you so much, you give me the energy more than this can of V gives me the energy to go on. That encouragement; so important.
So anyway, here’s the question. “I’ve been looking for one or two bedroom units to buy, renovate and sell but my numbers just don’t work, just seems not worth doing and these kind of projects on the cheaper end of the market are the only things I can afford. Please tell me is it the market, not my bad number crunching on one bedroom units it’s 175 K median, can’t sell it for more than 205 K after renos in the best case.”
Alright, is it your number crunching? Is it the market? It could be both truthfully. I don’t know exactly what areas you’re looking in. I don’t know the area, I don’t know what the units are like in those areas but I know that you can profitably renovate units. Now if you’re renovating to flip on the lower end of the scale it’s going to be pretty difficult to make a profit. If you want to flip really quick because you need to take into account stamp duty, you’ve got all your legal costs, you’ve got your mortgage cost, you got all this sort of stuff, that if your only making a $10,000 profit, that’s probably going to be eaten up by your stamp duty and everything else so it’s going to be pretty difficult on the lower end of the scale but it can be done. You need to know the right way to renovate, you need to choose the right properties and try and get them under market value to start with.
So the first thing that I would recommend if you’re going to be renovating something is you want to try your hardest to buy under market value. Now there’s multiple ways to do that, I’m not an expert in this. A friend of mine recently bought in a really hot market and got a property for about $30,000 under market value and the strategy she used was super clever, I’d never heard of this before; I’m like asking all these questions. We were at a child’s birthday party, I’m like what did you do, how did you do it and I think she thought I was crazy because I was asking so many questions but this is pretty exciting.
What she did was, she would make low ball offers on properties sight unseen. So as soon as a property would come out, let’s say it’s on realestate.com.au on Monday or Tuesday she’d be making an offer on Wednesday and then if the offer was accepted, she would go and see it on Thursday and then basically she would close the deal before it went to open house. Now she was knocked back many times but in one circumstance she made an offer, low ball offer, $30,000 under the market of what this property would have sold for. The owner wanted a quick turnaround, a quick sale probably could have got more money but accepted it because they wanted things to move quickly. So that is one strategy you could implement yourself, don’t just look at the listing price look at a way to buy properties under market value. Maybe you can buy a property that someone is going through a divorce and they need to sell or maybe it’s an estate sale where someone’s has passed away and the family just wants to get things wrapped up.
So when it comes to investing you make a lot of your money when you buy. So try and buy a unit that’s under market value. Also try and look for areas where there’s already a discrepancy in the types of properties that are in those areas. I can see this massively where I live. I live on the Gold Coast, I’m in Billy Heads which is a pretty nice area. There’s discrepancies here, definitely in Miami which is north of me and into Nobbys Beach which is north of Miami and you’ve got these mcmansions, these beautiful houses worth millions of dollars and then you got this old shack, it’s an old queenslander that was built years ago. It’s been rented out for its entire life and it’s just in super poor condition. So when you’ve got these discrepancies between really awesome places and places that are really crappy and there seems to be a lot of opportunity to renovate and to increase the value.
I remember seeing this back in New Castle when I used to lived there couple years ago in a place called Mayfield. There was properties that were selling for really cheap, in a high probably $200,000’s and then there was fully renovated properties that was selling in the low $400,000’s, so it doesn’t take much to put two and two together and to realize that you buy cheap property, you fully renovate it and you sell it. A lot of it is about choosing an area out where there are those discrepancies, it’s a desirable area where people, more and more wealthy people are moving in there and they’re going to be willing to pay for that.
I think after watching so much Property Ladder, I would say if you haven’t watched that show get online and watch it or buy a disc. It’s pretty hard to find actually for free online. Not that I would ever do that, never. Anyway what I’ve seen is people who are renovating for the first time, it’s very difficult for first time buyers to make a profit if the market isn’t going up. You know there’s just so many expenses you don’t account for, you expect it probably to sell for more than what it’s actually going to sell for. So it’s pretty difficult in the beginning.
I would suggest again going back to the drawing board looking at a bunch of different areas. I’ve got this thing that I call the two hour rule you and that is start where you live and go two hours in every direction and look at the towns in the areas around there because you say you can only afford that low price bracket around maybe $200,000 or less. Well if you’re in, I don’t know where you live but if you’re in Sydney, go out you can find properties pretty cheap two hours drive away. If you’re in Melbourne you can go two hours, if you’re on the Gold Coast go two hours you can find a lot of great areas in great places that it’s very cheap to buy a property and you could buy a house that’s run down and do that up.
When it comes to your renovations I would recommend that you learn more about it and how to do it cheaply. When I renovated my parents place and took that for about $730,000 and ended selling it for $825,000 we did some really smart things with that renovation. Don’t under estimate how much a lick of paint will change your property. Get the current design magazines, workout the correct colourings for houses what is in chic at the moment and paint your house that colour. You know my sister God bless her, she wanted to paint the house a certain color but it wasn’t really in season at the moment and so I kind of fought against her and said, “I know you don’t like this colour and definitely probably wasn’t her taste but this is what we need to do to get this house sold for the best price,” and so and you need to know that when you’re renovating try not to renovate to personal taste try and renovate to what the market’s doing. A lick of paint can do amazing things. You can paint your kitchen cupboards, white is a great colour. Stick with white, white it will do wonders. Paint your kitchen cupboards white, paint your bathroom tiles white if you got a dirty ugly bathroom that’s pink.
The house I live in at the moment, they’ve actually, this is a fully reno recently renoed house and I’ll just show you the floor, a bit of a mess on the floor but this is actually painted concrete. So they’ve actually painted it white and that’s how they’ve done it up. So they could’ve put carpet in; floorboards probably will be more expensive but painting it white was a really simple solution to make it look really nice to rent it out for a lot because it’s a shake house.
Another thing that I would consider Sanja is can you purchase a property, renovate it, but for the renting it out so creating your own positive cash flow and getting a higher rental yield your property. Anyway when I’m reaching about 10 minutes on the video and that’s probably as much detail as I can go into. I think it could definitely be the market that you are looking into; it could be your number crunching because I don’t know what number crunching you are doing, how much you’re thinking of spending on renovation because smart renovations don’t have to cost loads and loads of money. If you’re willing to do some hard work, if you’re willing to paint, if you do smart things with the kitchen and bathroom you don’t need to rip out the entire kitchen, maybe you replace the door frontages and the handles and so it looks new but it’s got the same structure there so you’re not paying for all new kitchen. Do smart things that will save you money or potentially purchase renovate to rent out.
Anyway I hope that has been helpful to you. If anyone else is out there listening to this and you have questions that you want answered, please email me [email protected] or go to onproperty.com.au/contact and fill in the form there to get access or to send me a question. Thank you so much again for listening again Sanja thank you so much for the compliments, thank you for your questions. This is video one of three so I’ll be creating two more videos for you so you can look out for them. Until tomorrow remember that your long term success is only achieved one day at a time.