Profit from renos

What $10k, $50k, $100k & $750k gets you

Money Magazine Australia - - FRONT PAGE - EFFIE ZAHOS

IN­VEST­ING IN PROP­ERTY COM­MER­CIAL v RES­I­DEN­TIAL POWER BILLS THE CHEAP­EST PLANS ON OF­FER PREPAY & SAVE FUEL, PARK­ING, AIR­FARES, CAR HIRE

Some 213,000 kitchens and 429,400 bath­rooms were in­stalled in Aus­tralia in the 2015-16 fi­nan­cial year, re­ports the Hous­ing In­dus­try As­so­ci­a­tion (HIA). If you are go­ing to ren­o­vate, these high-traf­fic rooms are the ones to work on as they are likely to give more bang for your ren­o­vat­ing buck.

The ren­o­va­tion mar­ket is in re­cov­ery after 10 years in the dol­drums – last year marked just the sec­ond con­sec­u­tive year of growth. But these strong num­bers show Aussies are not afraid to spend money to im­prove the value of their homes and rental prop­er­ties. And why not? Debt is cheap and prop­erty prices, with the ex­cep­tion of Dar­win and Perth, re­main strong.

HIA’s Ren­o­va­tions Roundup pre­dicts that ren­o­va­tion ac­tiv­ity will in­crease by 2.5% this year. Growth of 1.7% is fore­cast for 2017, fol­lowed by 2.8% in 2018 and 2% in 2019, bring­ing the to­tal value of projects to $33.3 bil­lion.

After ren­o­vat­ing two prop­er­ties, I can vouch that there are good prof­its to be made but it’s cer­tainly not easy. As Paul Eslick, one of the three ex­perts who make up the Reno Kings, says, “It’s more dif­fi­cult now than in my paint-and-profit days, due to the low stock of good-qual­ity homes suit­able for ren­o­va­tion”.

Their plan – to sub­di­vide an 809 square me­tre block, shift the house to one side, sell the cre­ated va­cant lot to pay down the loan on the re­main­ing house and then hold a pos­i­tively geared rental prop­erty – isn’t a sim­ple reno job. It’s what the Reno Kings like to call an “RDC” – a ren­o­va­tion-de­vel­op­ment com­bi­na­tion. All up they es­ti­mate their strat­egy should bring them a $131,000 profit.

If this is a lit­tle bit too much to take on, you can take com­fort in know­ing that even small renos can add big prof­its. In­te­rior de­signer and TV pre­sen­ter James Tre­ble shows how a $10,000 en­trance makeover can add three or four times that to the home’s value. He says while it’s dif­fi­cult to pin­point the ex­tra value that this one job, part of a big­ger project, has cre­ated, the

As rule of thumb, ev­ery dol­lar you spend should re­turn at least $2. Al­low 5%-10% ex­tra for con­tin­gen­cies

“dra­matic change to the look and feel of this home has added between $35,000 and $40,000”. That's a re­turn of about $3 for ev­ery $1 spent. As Tre­ble says, “the en­trance is one area that's al­ways worth pre­sent­ing at its best”.

As a rule of thumb, ev­ery dol­lar you spend should re­turn at least $2. If you're do­ing a cos­metic ren­o­va­tion then spend no more than 10% of the pur­chase price. Al­low 5% to 10% ex­tra for con­tin­gen­cies and al­ways have an end goal in mind about how much you want to make. A good way of work­ing out what may be achiev­able is to com­pare a newly ren­o­vated home in your area with yours to see what price spread you have to play around with.

What­ever your bud­get, this month's cover story shows you how profit can be achieved even when you do blow your bud­get – see the $500,000-plus makeover. Our ren­o­vat­ing ex­perts re­veal how they man­aged their projects and share what they have learned about the best ways to cre­ate value.

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