Working in Sydney Real Estate we see so many people considering property development. Either on a small, personal scale and buying a run down property to renovate as their home; or a larger scale where they’re thinking of buying, doing up and selling purely for profit. As a Sydney Real Estate Agency we have seen the successes and the failures in equal measure.
It can sometimes feels like Australia has gone reno-crazy! With reality TV shows like The Block and House Rules filling people with inspiration and belief that they too can do it. Unfortunately, the reality is actually a lot more difficult than these shows would have you believe. However, when done properly, the rewards of seeing your run-down building turned into something quite spectacular know no bounds. Whether you’re just giving a facelift or knocking down and starting from scratch, here are some very important questions to ask yourself before you begin:
Why?
What’s the reason for you to embark on this journey? Is it going to be your family home or an investment? Whatever it is the approach and outcome will be very different. For instance, if you’re building your family home, your choices will be about comfort and heart. However, if it’s for an investment you have to focus on costs first. Every decision you make comes back to your bottom line and the financial margin between what you spend and what you could make.
Do you know enough?
Any renovation can be an exhausting and extremely stressful experience. Put that on top of the pressure of financial margins and it’s easy to see why some people can walk away no better off than when they began. Be aware of which jobs need to be done and if any require council permits. If permits are required, do you know how the application process works with your local government authority?
Good, detailed planning is essential to your success. Now, of course there will be curve balls thrown – you certainly can’t plan for everything, but you need to have a good foundation. Things such as project viability, risk assessment/mitigation, time/cost management, contingency planning, coordination of tradespeople and various building processes. If this is your first, it’s definitely worth considering engaging a properly qualified builder or project manager to oversee your renovations.
Can I get the finance?
Once you’ve finished your plan you should have a good idea about how much you’ll need. Whether you’re starting from scratch or you have existing equity in property investment, it’s worth crunching the numbers and ascertaining whether the funds are available before you go any further.
Have you got the right property?
Ok, so this is a decision that’s majorly affected by whether you’re renovating to make a home or just some cold, hard cash. If it’s your home, then listen to your heart. You’ll know. For the latter, there’s a bit more pragmatism involved. You don’t want to overcapitalise by paying too much for somewhere before you’ve even picked up a hammer. Start by understanding the location and getting a good handle on comparable values. A good benchmark to begin with achieving $2 for every $1 spend on cosmetic improvements.
Speak to us or your local real estate agency to find out what buyers and tenants are expecting from properties in the area. This will help you decide whether the property you’re considering will earn you a nice profit.
Who do I want on my team?
If there’s one thing The Block has taught us, it’s the importance of a great relationship with your tradespeople. When you find “the ones” you want to cling on to them tightly and never let them go. Ones you can trust, that deliver quality workmanship at a reasonable price. And this is one place where cheapest is definitely not always best. The best way to start is by asking friends and colleagues – at least then you’ll have some sort of idea of the quality of work and reliability. Next port of call would be your local hardware store. They’re bound to have ongoing relationships with local tradies and will have a sense of who’s more reliable. But, if those two avenues don’t work and you’re still flying a bit blind; pop into nearby worksites and ask for business cards. At least you’ll be able to see them in their working environment.
What’s my budget and timings?
This is something that comes with time and practice. For you first project it can feel a bit like you’re pulling stuff out of dark places and just guessing. However, as you start to do more you’ll start to understand how long things take and how much they cost. It’s always good to allow a contingency so you aren’t caught out. We would advise around the 10% mark.
Don’t forget to factor any loan repayments to pay whilst the site is vacant. If you’re renovating your house, how much can you afford in rent? Always approach your decisions with your end goal in mind – if it’s purely investment you need to really consider whether structural works are needed or whether focusing on aesthetic improvements will give you just as much of a return.
Don’t overstretch yourself. It’s very likely that little (or sometimes very large) hiccups will appear along the way. Allow yourself time for these delays that may occur, just like the contingency in your budget.
And lastly, are you ready for the dust??!!
Good luck and enjoy!
Laing Real Estate are a local real estate agency based in Sydney.