This Simple Insider Renovation Secret:
Can Guarantee Success with Any Renovation Project!
Do you want to know an insider secret that is a tried and proven foundation for renovation profits? Median price is the key reference point to drive your strategy for renovation and manage resales risk.
So what is it and how does it work?
What we do is take the median price which is the price of the middle property of all the properties sold in a suburb over a period of time to inform our decision.
If we take Eastwood in Sydney with a median price of $1.6M and 61 houses sold in the year; it is the price of the 31st property in this group when they are arranged in order of sales price.
The successful renovation projects use this strategy. They target median price as the resales price. This is the value most people are willing to spend in that suburb. If your renovated property targets this figure, you have a significant group of potential buyers already coming to the suburb looking to buy what you have created. Simple advertising is all that is required.
By comparison, if you were to take an existing median priced property and renovate it to a value significantly above median price you have a property that fewer people looking in that suburb can afford. You need to advertise more broadly, to attract buyers with sufficient funds, to specifically come to see your renovation project.
This usually also means it takes longer to sell, further eroding your profits through holding costs. This is a much higher risk renovation strategy than targeting median price.
Professional renovators target the sale price of their renovated property at, or below the median price.
If you target a resales price of below median price, your renovated property should sell very quickly. However, you have left profit ‘on the table’ that could have been part of your success? As a professional property renovator you want to take the best returns from the property that are possible for your budget.
Renovation is a higher risk strategy and the some of the risk can be well mitigated by buying a property with a median price resales strategy.
So how do we go about finding a property suitable for renovation? To be consistently successful we need a strategy that includes establishing ‘Where to Buy’, ‘When to Buy’ and ‘What to Buy’.
This means most people are coming to buy free standing houses and we may have to engage in more advertising to attract the buyer we need. This can increase the holding and selling costs leaving less money for the actual renovation.
Once we have established these parts of our strategy we can focus on a specific property. This is where median price is vital. We need find a property well below median price. There needs to be enough room for us to buy, sell, hold and renovate for profit.
If we identify a property at about $200,000 in an area with a median price of $300,000 this sounds good. Our costs are going to be about $6,000 for stamp duty, $6,000 for selling costs at 2%, about $4,000 for legal costs to buy and sell plus holding costs at about $9,000 for 9months on the $200,000 purchase price. In total these costs add up to $25,000.
Most renovators want a 20% profit or $40,000 in this example. That means we have $35,000 for our renovation. Do you know how to increase the value of a home by $100,000 by spending $35,000? There is an art to that and we will cover that in a future blog post.
"if we can deliver our project and it meets homebuyer expectations, we have a great strategy to achieve profit when we resell."
However, if we can deliver our project and it meets homebuyer expectations, we have a great strategy to achieve profit when we resell. Home owners are already coming to the suburb to buy property at the price we are selling. Ours has a fresh new look and that may just be the thing that lets it sell faster, saving holding costs, or maybe sell for a little more.