9. Know the exit costs.

Exit costs consist of the selling agent’s commission, legal fees, and a bit of your time liaising with the agent and solicitor/conveyancer.

8. Know the entry costs.

These include:

7. Know the cost of the renovation.

Get familiar with cost estimates and timeframes for typical work such as a new kitchen, bathroom, floor coverings, internal/external paint, etc. That’s a short sentence, but a lot of work is involved in doing this. Don’t forget to factor in the cost of your own time.

6. Know the value of the start product.

Get familiar with the start product by visiting other examples of the product and seeing how much they sell for. The start product is properties that are cheap because they need a lot of work. Take photos, record sale prices, and review these details thoroughly.

5. Know the value of the end product.

Get familiar with the end product by visiting other examples of the product and seeing how much they sell for. The end product is properties that look similar to how you intend your property to look once renovated. Take photos of those properties, record their sale prices, and review these thoroughly.

4. Factor in a decent profit margin.

If you can’t find a project with high profit based on your estimates, then keep looking. Profit is the difference between the end sale price and the original purchase price minus all entry, exit, renovation and holding costs as well as tax.

Profit = End sale price – purchase price + purchase cost + exit cost + renovation cost + holding cost + tax.

Keep in mind that the capital gains tax discount is not available if your project is less than 12 months. Capital gains tax is not applicable at all if you don’t sell. But if you don’t sell, then future growth prospects are more important than the renovation.

3. Always invest in a location that has excellent growth potential.

Even if your reno is a failure, you’ll have capital growth to hold up the bottom line if you buy in an area that experiences growth.

2. Do your estimates conservatively.

Don’t be optimistic and don’t hope everything goes well. Assume something will go wrong; assume costs and time will blow out. Get crazy good at estimating everything accurately: purchase price, reno cost, sale price, etc.

1. Create a time plan for your renovation.

Factor in some big blowouts in terms of time estimates. Bad stuff happens; be prepared for it. If you’re hiring tradies to perform the work, you can save time by having some jobs completed in parallel. For example, you can have the outside painted while the kitchen is being installed.

Be sure to consider the logistics of each job, though. You don’t want tradies treading on each others’ toes. And you don’t want the carpet laid before the internal walls are painted.

9. Not factoring in the costs of getting in and out of a property

Buying and selling property has significant costs attached. The inexperienced can sometimes forget that and find that all their planned profits have been eaten up in stamp duty and agents’ fees. You need to allow roughly 5% of the property’s purchase price for buying costs. When you sell, most agents charge a commission that is about 2% of the value of the property, as well as marketing costs.