Originally posted by L Bernham
It was ages ago now but I remember something like 5 or 10 years ago the opinion on renos seemed to be how $2 spent tends to add only $1 in value. This was during the flat stage of the market anyway. Does this still apply?
No it doesn't. And it didn't apply 5-10 years ago either
Generally speaking an average renovator should be able to achieve at least 3x the investment in return, quite often higher. We work off minimum multiples of 5x & there have been people on the forum who has had value increases of 20X plus (on small renos).
It's all how you pick your properties, and what you do to them
It is true that many people have no idea how to add value to property & so lose money on renovations - but that's their failing not the market's. In most cases these people are renovating their PPORs for personal comfort and not trying to increase their equity.
I sometimes wonder how much of the increase in value after having done a bit of a reno has come about as a result of property prices having moved up during the holding period.
Certainly this is the case - particularly during a boom. But it's easy to work out by looking at the comps. Our last reno about 30% of the value increase was due to market movement...over about 4 months (exchange to competion) The rest was due to reconfiguring the property from the low end to the upper end of the value band for that type of dwelling.
It must to an extent because I've heard stories from RE agents about unrenovated houses selling for more than very similar renovated one due to peoples craze for renos. Or is this just a spiel they use when sellling a renovated house (ie to make the buyer think they can get a bargain)
Both. Some people (influenced by the media) believe they can buy any unrenovated property, do it up & realise a substantial return. Also many people we have spoken to have unrealistic expectations as to the cost of renovations using third parties or their own skills to do the renovation themselves.
We have seen several properties bought as a 'doer-upper' then dumped back on the market once the buyer realised that tradie costs were significantly higher than they budgeted. We are also watching the progress of one renovation which has taken them 8 months so far & still is less than half-done. In the same time we have completed 2 1/2 major renovations.
RE Agents often talk up unrenovated places because they want to sell them! They encourage people to add their own stamp on the property or make a huge CG by buying and renovating.....as usual this is only true in certain circumstances.
L Bernham, I suggest you stay away from renovations for profit. Like other areas of property investing you have only a flawed theoretical understanding of the area & would not realise what I would consider even an average return.
Cheers,
Aceyducey
