How to renovate a property for profit

Renovating for profit is a common strategy among both owner-occupiers and investors, but make sure you think long and hard about the location, property type and value-adding activities.Renovating for profit

You may not have to be a seasoned renovator to spruce up landscaping, freshen the paintwork or replace flooring, but knowing how to locate a renovation gem and improve the overall value of a property for a particular area and demographic demands careful research, planning and budgeting.

If you’re pursuing a ‘renovate and flip’ strategy, not only do you need to become an expert in the suburb that you’re intending to buy, but you also need to be smart about what you decide to renovate in order to generate the highest return possible.

Consulting the right professionals can help you plan and execute a renovation that will satisfy your strategy in adding value, appealing to a certain buyer and generating a healthy profit margin.

How to renovate for profit

1. Assess risks

Like any investment strategy, there are some risks that come with the ‘renovate and flip’ strategy. The greatest risk is that you may be unable to sell the property for a profit or you may not be able to sell for the profit margin that you set out to achieve. This may be a result of purchasing the wrong property type, purchasing in the wrong location or not planning efficiently.

To manage these risks, you need to be realistic not only about your budget and profit margin but also about the time and planning of your renovation project. You should enlist the services of professionals such as a tradie, an accountant, a financial planner, a conveyancer, a mortgage broker and a local agent to ensure that you don’t blow out your budget or make the wrong purchasing or finance decision.

When inspecting the property, it’s a good idea to get a building and pest inspection to identify any structural problems as this may offer you greater negotiating leverage if you decide to proceed with the purchase.

2. Define strategy

You need to consider whether you are planning to buy, renovate and sell or whether you want to buy, renovate and hold. If you’re planning to sell, you want to ensure that a quick profit margin will be guaranteed. If you’re planning to hold the property for a period of time, then you want to ensure that it will benefit from capital growth.

Again, recruiting a team of trusted professionals can help you refine your strategy from the outset.

Know where to add value

Adding value when renovating a property

Kitchens and bathrooms are important to homebuyers because of their aesthetic appeal and because they are high-traffic areas. For a cosmetic renovation, focus on upgrading areas that are visible. For instance, you may want to change the light fittings or add a splashback to the kitchen sink.

A local conveyancer and agent can help you decide which areas are worth upgrading and the likely return that they will yield.

2. Market research

Become familiar with the property price and market conditions of at least three neighbouring suburbs of interest.

Research renovated properties similar to the one you’re thinking of buying so you can estimate a realistic sale price for your property. Look at the historical capital growth rates for the market as well as demand and supply factors and the demographic of residents in the area.

You can use sources such as CoreLogic RP Data and Residex to generate suburb profile reports.

3. Property selection

Once you’ve selected the suburb for your property, you need to decide which type of property is likely to outperform the market. Speak to a local real estate agent or consider hiring a buyer’s agent to help you better understand the type of property – whether it's an apartment, unit or house – that will allow you to renovate without overcapitalising.

Inspect several properties and keep an eye out for any structural problems. Check the electrical and plumbing and look around the windows for rotten boards as these can be expensive to repair.

Ideally, you should find a property for 20% below the median price for the suburb that is cosmetically distressed (such as poor paintwork or outdated interiors) as this will ensure that it has good renovation potential. You may also want to consider a discounted property such as a deceased estate or a mortgagee auction, which can present strong buying opportunities as the vendor is often looking for a quick sale.

If you need help finding and buying a property to renovate you can also enlist the services of a professional buyer's agent.

Property selection renovating profit

4. Budget

Professional renovators recommend that you spend no more than 10% of your property value on the entire renovation. For example, if you buy the property for $550,000, then you shouldn’t spend more than $55,000 on the renovation. Make sure your budget accounts for the deposit, stamp duty, renovation project costs, mortgage repayments as well as a contingency buffer.

Your profit margin should be roughly 10-15%. You can estimate your profit margin by forecasting your final sales price and then subtracting the original purchase price and renovation and holding costs. Depending on the location and property type, cosmetic upgrades can generate $15,000 to $75,000 in 7-10 weeks.

Keep in mind that property valuers can help you allocate your budget across different areas. For instance, a local valuer may know that if you spend $15,000 upgrading the cabinetry of a property, then this may add around $25,000 in equity.

A quantity surveyor can also help you understand what you should be paying for labour and materials to ensure that you’re not overcharged. They can also provide you with a depreciation schedule to highlight the deductions you can claim in your tax return.

Compare quotes

Compare quotes when renovating a property

When comparing quotes, you need to ensure that you're comparing apples with apples. For instance, if you get three quotes for a tiling job, you want to ensure that all three quotes provide an estimate price for the same scope of work such as waterproofing, materials and labour costs. This makes it easy to compare suppliers when choosing the one that offers the best value for money.

To help you stick to your renovation budget, you should negotiate with tradies to see if you can get a better price. Try to find a one-stop supplier for all your materials so you can negotiate bulk discounts.

5. Organise finance

Strike up a conversation with a lender, or a mortgage broker who can give you access to a panel of lenders and negotiate for a competitive deal on your behalf. A mortgage broker can help you understand your borrowing power and help you compare different home loan products.

Rates last updated October 18th, 2017
$
Loan purpose
Offset account
Loan type
Your filter criteria do not match any product
Name Product Interest Rate (p.a.) Comp Rate^ (p.a.) Application Fee Ongoing Fees Max LVR Monthly Payment Short Description
3.64%
3.66%
$0
$0 p.a.
80%
A basic home loan with a competitive rate and low fees.
3.65%
3.66%
$0
$0 p.a.
90%
Enjoy a low variable rate with no ongoing fees and borrow up to 90% of the value of the property.
3.49%
4.47%
$0
$375 p.a.
90%
Discount off an already competitive interest rate for loans over $150k. NSW, QLD and ACT residents only.
3.58%
3.59%
$0
$0 p.a.
80%
A competitive variable rate product with low fees offered by a 100% online lender.
3.54%
3.56%
$0
$0 p.a.
80%
For new home buyers only. No refinance option. A low interest variable home loan with no application fee and free redraws.
3.64%
3.66%
$0
$0 p.a.
80%
A home loan with a competitive variable rate, limited fees and plenty of flexibility.
3.69%
3.72%
$0
$0 p.a.
80%
A low rate home loan with no ongoing fees.
3.65%
4.84%
$0
$395 p.a.
90%
A 2 years fixed platinum package that has $0 application and a loan redraw facility.
3.69%
4.86%
$0
$395 p.a.
90%
A special rate for first home buyers buying residential property and borrowing over $150K. 350K NAB Rewards Points offer available. Terms and conditions apply.
3.74%
3.74%
$0
$0 p.a.
80%
A basic owner-occupier home loan with a low variable rate that requires a 20% deposit.
3.69%
4.15%
$395
$0 p.a.
80%
A one year fixed rate offer with no ongoing bank fees.
3.39%
4.31%
$0
$0 p.a.
95%
Enjoy a low introductory fixed or variable interest rate for the first 12 months with no application or ongoing fees.
3.74%
3.75%
$0
$0 p.a.
80%
A special variable rate home loan with no application or ongoing fees.
3.68%
3.83%
$0
$10 monthly ($120 p.a.)
80%
A low interest rate home loan that allows borrowers to borrow up to 80% of the property value.
3.79%
3.92%
$0
$10 monthly ($120 p.a.)
80%
A competitive variable rate home loan with flexible features. You can earn 30,000 Velocity Points for every $100k you borrow (for a limited time, subject to eligibility requirements).
3.72%
3.74%
$0
$0 p.a.
80%
Take advantage of a 100% offset account along with no annual or application fees.
3.94%
4.88%
$0
$0 p.a.
95%
Enjoy a low interest rate and borrow up to 95% (with LMI) of your property's value.
3.72%
3.75%
$600
$0 p.a.
80%
A maximum 80% LVR home loan with no ongoing service fees and a linked transaction account.
3.73%
3.73%
$0
$0 p.a.
90%
A special limited time offer for owner occupiers. An IMB Transaction Account must be opened with this loan.
3.74%
3.74%
$0
$0 p.a.
80%
Combine a low variable interest rate and free redraw with no application or ongoing fees.
3.77%
3.81%
$200
$0 p.a.
95%
A basic home loan with a low interest rate and a redraw facility available.
3.74%
4.15%
$0
$395 p.a.
80%
Enjoy a discount of a competitive interest rate and 100% offset account.
3.85%
4.97%
$300
$10 p.a.
95%
3.69%
3.75%
$600
$0 p.a.
80%
A low interest rate variable home loan with no ongoing fees.
3.69%
4.08%
$0
$395 p.a.
90%
A high maximum LVR home loan with redraw facility and additional payments.
3.79%
4.00%
$0
$10 monthly ($120 p.a.)
90%
Get a competitive interest rate for 3 years and a discounted variable rate when the fixed period ends.
3.81%
3.81%
$0
$0 p.a.
80%
A home loan with a competitive rate and plenty of handy features.
3.74%
3.74%
$0
$0 p.a.
90%
A competitive variable rate with a redraw facility. NSW, QLD and ACT residents only.
3.83%
3.83%
$0
$0 p.a.
70%
A special low variable rate for owner occupiers with 100% offset account and no application or ongoing fees.
3.84%
3.84%
$0
$0 p.a.
110%
Requires a family member to act as guarantor. Discounted rate available with family pledge loans. Family pledge loans require no LMI and no deposit. NSW, Qld and ACT only.
3.85%
4.10%
$500
$0 p.a.
95%
Apply for Easy Street fixed rate home loans and get a competitive loan with a fixed interest rate.
3.86%
3.87%
$0
$0 p.a.
80%
Pay no ongoing fees on a competitive variable rate home loan.
3.88%
4.89%
$0
$395 p.a.
95%
A fixed rate package with flexible repayment options. 350K NAB Rewards Points offer available. Terms and conditions apply.
3.96%
3.98%
$0
$0 p.a.
90%
Take advantage of a redraw facility, competitive variable rate and no application or settlement fees for a limited time.
3.97%
4.02%
$445
$0 p.a.
90%
Get a competitive rate without features you may not use.
3.99%
4.02%
$395
$0 p.a.
80%
A flexible low-rate variable home loan that lets you combine your loan with other financial products.
4.09%
4.11%
$0
$0 p.a.
80%
A low variable rate loan with no application or ongoing fees.
3.97%
3.99%
$0
$0 p.a.
90%
A discounted interest rate home loan with no monthly fees.
3.97%
3.97%
$0
$0 p.a.
80%
A competitive variable rate home loan with no ongoing fees.
3.79%
3.80%
$0
$0 p.a.
80%
A competitive rate with no ongoing monthly fees or application fees.
3.84%
4.83%
$0
$0 p.a.
95%
Get a competitive 2-year fixed rate with no application or ongoing fees.
3.69%
4.00%
$0
$350 p.a.
95%
Fix your rate for 3 years and borrow up to 95% LVR.
3.64%
3.64%
$0
$0 p.a.
70%
A basic low-rate home loan that still offers some useful features.
3.69%
4.45%
$0
$375 p.a.
90%
Discount off an already competitive 2 year fixed rate for loans over $150k. NSW,QLD and ACT residents only.
3.74%
3.74%
$0
$0 p.a.
95%
A low rate home loan with no application or ongoing fees. Note that to be eligible for this loan you must be QLD resident.
4.09%
4.25%
$300
$10 monthly ($120 p.a.)
80%
Get a competitive investment home loan rate without expensive features you may not need.
3.99%
4.77%
$0
$0 p.a.
95%
A competitive 3 year fixed rate with a redraw facility and split loan options, plus no application fee.
3.99%
4.02%
$600
$0 p.a.
90%
Take advantage of a 0.60% discount on your rate, a 100% offset account and no ongoing fees.
3.88%
4.88%
$0
$395 p.a.
95%
Lock in a discounted fixed rate with a low service fee.
4.33%
4.33%
$363
$0 p.a.
70%
A variable home loan with $0 annual or monthly fees.
4.03%
4.07%
$0
$0 p.a.
95%
Enjoy a basic home loan with a high LVR and no application or ongoing fees.
3.85%
4.95%
$0
$395 p.a.
95%
A discounted package rate for owner occupiers with the ability to package a Qantas rewards earning Amplify credit card. $1,500 cashback available for refinancers. Conditions apply.
3.99%
4.99%
$0
$395 p.a.
95%
A package home loan with fee free extra repayments available during the fixed term.
4.39%
5.42%
$300
$10 monthly ($120 p.a.)
95%
Borrow up to and fix in a 3 year home loan rate. Access your account via internet and phone banking.
3.69%
4.03%
$0
$299 p.a.
80%
Enjoy a low variable rate with no application fee.
3.88%
4.47%
$0
$0 p.a.
95%
This competitive introductory rate is a limited time offer for new owner-occupiers
3.68%
3.69%
$600
$0 p.a.
90%
Get a low variable rate along with some important basic features.
3.80%
3.81%
$0
$0 p.a.
95%
A no frills loan with a competitive rate and a maximum LVR of 95%.

Have we missed anything in the comparison table? Tell us

Compare up to 4 providers

Want to compare more home loans? Take a look at our home loans comparison guide

6. Timeframe/planning

From area measurement to concept agreement and execution, finalising your renovation project timeline is critical to ensuring project success.

During this stage, you need to determine the scope of the work and break down your timeline and budget into itemised projects. You’ll also need to decide whether you’ll manage the renovation yourself or whether you’ll hire a project manager (for major structural renovations).

You’ll need to factor in the time taken for any administrative requirements for the renovation, such as seeking council approval.

What are some easy projects that can generate profit?

  • Painting. A quick paint job can make a property feel fresh, spacious and modern. This is a low-cost and quick way to add value to a property.
  • Kerb appeal. This is another way to enhance the value and sellability of a property. Enhancing your kerb appeal may include activities such as basic landscaping, installing a modern letterbox or paving the walkway to the front door.
  • Door handles. If you don’t want to replace the cabinetry within the property, you can simply replace the door handles of the doors and cupboards, which can give it a more modern feel.
  • Lighting. Replacing the light fittings is another simple and affordable way to change the aesthetics of a room.
  • Window furnishings. Replacing window furnishings can make a space feel more contemporary and open.

Tips for renovating painting

Tips for renovating for profit

  • Do your research. Undertaking extensive suburb and property research is critical to a successful ‘buy and flip’ strategy. The location, the property and the type of renovation are all important factors that determine your ability to generate a profit.
  • Be realistic. During the planning stage, you need to be realistic about your renovation timeline and budget. You also need to be realistic when estimating your profit margin as this could make or break your profitability.
  • Consult professionals. Build a team of licensed and trusted professionals who can help you follow your project plan and budget.
  • Buy below market value. You should generally purchase a property that is 20% below the median market value if you want to renovate for profit.
  • Cosmetic upgrades. Avoid major structural upgrades and focus on cosmetic and visible upgrades.

Common mistakes when renovating for profit

  • Paying too much. The amount you spend on your property will largely determine the profit that you make from the property. To avoid overpaying for the property, try not to make decisions based on emotion. Recruit a team of professionals to assist you with the buying process.
  • Over-capitalisation. Blowing out your renovation budget can create cash-flow problems down the track. To avoid over-capitalising, use a professional valuer to help you fully understand the kind of activities that will add value to your property. You may also want to hire a surveyor to help you understand any tax or depreciation items that you can claim. Another way to avoid over-capitalising is to have a buffer of funds in place – normally 20% of your overall budget – for any contingencies that may arise.
  • DIY projects. Don’t cut corners with DIY projects. While it may seem efficient and cost-effective at first, if you don’t complete the work correctly, you may end up having to pay more in future to repair the job.
  • Ignoring future buyer. Consider what will appeal to your target audience. Pursuing neutral designs and enhancing your kerb appeal are some ways that you maximise the sellability factor of your property.

Learn more about common mistakes made when renovating for profit.

What are the tax implications of renovating for profit?

According to the Australian Taxation Office (ATO), if you’re renovating one or more properties, you need to decide if you are a personal property investor, undertaking profit-making activities from the renovation or carrying out a business of renovating properties.

Generally, you can claim renovation costs and purchases associated with the sale.

For more information about the treatment of tax when renovating for profit, visit the ATO website.

Belinda Punshon

Belinda is a journalist here at finder.com.au. Specialising in the home loans and property sections, she is passionate about helping Australians improve their financial wellbeing.

Was this content helpful to you? No  Yes

Related Posts

Ask an Expert

You are about to post a question on finder.com.au:

  • Do not enter personal information (eg. surname, phone number, bank details) as your question will be made public
  • finder.com.au is a financial comparison and information service, not a bank or product provider
  • We cannot provide you with personal advice or recommendations
  • Your answer might already be waiting – check previous questions below to see if yours has already been asked

Finder only provides general advice and factual information, so consider your own circumstances, read the PDS or seek advice before you decide to act on our content. By submitting a question, you're accepting our Terms and Conditions and Privacy Policy.
Ask a question