24 February 2012

Investment Property in Perth: The Commercial Side of Renovations

There is no doubt love Australia with the renovation, a fact that the producers of reality TV renovation television jumped on. Although these types of shows provide great entertainment and possibly help revive interest in the property market, the reality is they do not get into detail when it comes to enjoy the exercise.

As a viewer, you're in dangerous territory if you think it is easy to make money because that renovation of these shows promote is not quite reality. At the end of each of these shows, although some properties appeared to turn a profit, it is extremely unlikely that a property is actually a true "paper" profits. That is, if you or I were in their exact same shoes as a private investor and not the money at the end of the day, we would be walking away with a loss.

It may seem that I am against the renovations, but it is far from the truth. However, I think if you go to integrate the renovation in your investment strategy, then you need to know what you do or you will end up in the same boat as these competitors. These shows do not communicate the real costs and the underlying fundamentals of the renovation of the property for a profit.

They tend to ignore other costs involved such as stamp duty, sales agents' commission, interest and other costs of ownership and capital gains. Not to mention, most of the candidates on these shows have won awards as a pool or on the packaging of devices or had the help of free labor, which would not have factored into the bottom line or when an alleged "break-even" point was cited for the properties. If these very real costs were taken into account, the financial result would be even worse.

Renovation success is more than the sweat and tears to turn an ugly duckling into a swan that's what these shows focus on. In the real world, not every candidate is a dilapidated house renovation and good it all comes down to crunch the numbers accurately before you even think to pull out your checkbook. Experienced renovators know that there are three figures that stack - (1) the purchase price, (2) the total cost of the renovation and (3) the expected sales price. If any of these figures is off the mark, any potential benefit will quickly close the gap.

In the case of renovation of these shows, the results of lackluster sales are most likely due to errors in one or more of these three areas. If too much was paid for the properties (note: they do not need to be overvalued, market prices, even may be too much for a renovation project), even if they got the other two aspects right, they would probably still be up for a loss. This information is something we are generally unaware of when it comes to reality TV so that we can only guess if it were a contributing factor.

I think a lot of properties that went wrong by spending too much and overcapitalising on their renovations. As an investor, you should spend what you have to spend to meet the needs of the market and make a profit, not to meet a pre-determined budget. In some cases, candidates may have found that spend less and do a renovation dates back more compared without costly structural changes could have done some of these properties profitable.

The final area that has worked against some of the candidates had their last sale price estimates. It became clear that many of them were over-ambitious expectations, with some even predicting their house would break records for the region (a risky strategy in the best of times, let alone in the market TODAY ' hui). It is a sign that the competitors have started to become emotionally involved in their project, a big no-no. You never get what the market is willing to pay and in almost all cases, it was nowhere close to their estimates. This is not just run away from your profit, but the belief that makes you spend more money on your renovation, which can aggravate the situation.

If these renovations shows Got You excited about starting your own project, then that's fine. But remember that renovating property successfully is not as easy as picking up a tired old property, slap a little fresh paint on the walls, turning it into a modern masterpiece, and then selling out for a profit. Reality TV is entertainment not get your education and inspiration, but be sure to mix it with a healthy dose of "real" reality.