Let’s face it, buying a property is one of the biggest investments you’re going to make, so it always amazes me when I hear about the spectacular purchase blunders some people make.
Either they buy the wrong kind of fixer-upper, the one that is not going to make them money, or they find the right one, but pay massively over the odds for it. Either way, it’s going to take a giant stroke of genius (or luck) to turn that lemon into a juicy profit!
If you’re thinking about buying a property to renovate for profit, here are 5 rules you should always follow to avoid a disastrous buy.
1. do EVERY POSSIBLE due diligence CHECK
There are some people who seem to put more research into buying a TV than a property worth hundreds of thousands of dollars. Crazy! A critical part of my Cosmetic Renovations For Profit course are all the due diligence checks I insist my students do before they buy. That’s because the single biggest mistake you can make is to overpay on a property you intend to renovate. If you’ve done your homework properly, you should know the most promising suburbs to buy in (think strong capital growth, good infrastructure, etc) and have a really good handle on prices within that suburb, even at a micro level… basically become a real estate expert in your chosen suburbs. The more thorough your research, the more likely you’ll pick a winner.
2. GET multiple building reports
It may feel like you’re frittering away money on needless building inspections, but discovering there’s asbestos in the eaves, or termites eating out the foundations, or a rotting roof that needs replacing… that’s information that’s going to pay for itself in spades. It may deter you from buying the property, or you may just decide to use that information as bargaining power to buy the property for less. What you can’t afford, is to skimp on all the necessary building reports and later discover the property has serious defects that will wipe out any chance of a profit. There’s little you can do about it once the property (and problems) become yours.
3. KNOW THE TRUE cost of repairs
This brings me to my next point: knowing the true cost of repairs. Okay, your reports show that the roof may need replacing. If you’ve factored the cost of that repair into your renovation budget, then it’s not a huge issue. You may have even leveraged a nice little discount on the purchase price because of it. Bonus! For any astute investor, renovator or developer, it’s all about accurately accounting for the work that needs doing and then working out if there’s enough profit in the deal to go ahead. That’s why I include calculators, checklists and other invaluable forecasting tools in my course, so you can work out the numbers on any potential deal before you buy. If the numbers don’t stack up, walk away.
4. Ensure you can do the renovations you have in mind
Planning laws differ from state to state, council to council, and even within pockets of the suburb you’re eyeing up. For example, there may be heritage pockets within your chosen suburb, and buying that cute little worker’s cottage may come with some restrictions that limit what you can and can’t do. So before you buy, be absolutely sure that the local planning laws permit the works you have in mind.
5. Go that extra mile!
Okay, so you’ve ticked off all your standard due diligence checks but what about that adverse development in the wings that hasn’t hit the headlines yet? Or the DA the next door neighbour is about to lodge that is only knowledge to the neighbouring properties? That extra bit of snooping, Googling or idle chatting to people in the street could turn up vital information you won’t get through the usual formal channels. For example, I just sold one of my properties in Sydney this week, partly because a massive tunnel is going to be built under the street! It’s common knowledge now, but two or three years ago, it was only Chinese whispers. Getting hold of that kind of inside information when you’re considering a property purchase is absolute gold.
Thorough property due diligence is absolutely critical to any property purchase. Every time I buy a property, I quickly check 64 things on a property to ensure I’m buying a diamond not a dud. Buy a lemon and it could set you years back in your property investing efforts. To learn more about my Cosmetic Renovations For Profit course, click here.