9 steps to increase cash flow through renovations

When you’re shopping for renovation real estate, it’s important to have a vision for what the property could be, rather than what it is. This is where you can lean on your team of experts, such as building and pest inspectors, architects and real estate agents, to work out the most appropriate renovations that will get you “bang for your buck” and suit the demographics of the area.

If you’re in the process of establishing your buying rules to help you identify a property with huge renovation potential, keep these 9 golden rules in mind:

1.   Buy at a discount. In a competitive market, aim for 5-10% below market value; in a stagnant market, aim for 20-25%.
2.   Do your due diligence. This will help you to identify growth areas with strong renter appeal.
3.   Don’t be afraid of old, ugly properties. Just be sure to buy the worst house in the best street.
4.   Consider your target market. Transform to the tastes of the market, not to your own personal tastes.
5.   Look for low-maintenance, high-impact renovations. Go for properties that need low-cost cosmetic improvements only, not large-scale, expensive structural changes. This means you should avoid adding rooms or installing pools unless it’s integral to your strategy.
6.   Buy a moderately priced home. By purchasing an average-sized property that is below the median price in area, you’ll appeal to the broadest range of tenants.
7.   Set a renovation budget. Spend less than 10% of the purchase price on renovations.
8.   Maximise your tax benefits. You can get a double bite of the depreciation cherry by getting a chattel valuation before renovating.
9.   Once the renovation is complete, revalue the property (or sell, if it fits with your investment strategy) to realise the new equity.

Until next time, happy investing.

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