Renovate to resell: tight margins

“There may be some good opportunities to acquire properties more cheaply in the coming months as more consumers encounter financial difficulties, but there is also a serious danger of over-capitalising on renovations,” says Bill Rawson, Chairperson of the Rawson Property Group, “and the same goes for owners who are thinking of upgrading their own properties to make them more appealing to potential buyers.”

To over-capitalise simply means spending more money on the renovations than you can recoup on the resale of the property at a later date, and it is an especially important consideration if your plan is to “flip” the property – that is, to sell it as soon as possible after the upgrade is finished, he says.

“Consequently, the prime rule for sensible renovation is to determine, with the help of a knowledgeable local estate agent, the current top values of homes in the area and then compare these to the current value of the property you are planning to renovate.”

The difference in value is of course the maximum sum that you can possibly risk spending on renovations, although if you want to make a profit, you will need to make sure that you can complete the upgrade for considerably less, or negotiate a lower price.”In addition, he says, you really should have the property checked by professionals to make sure it is structurally sound before you even consider signing an offer to purchase. “This is even more important than usual in the current market, when renovate-and-resell margins are getting thinner and one unforeseen expense to fix a major problem could really make all the difference between making a decent profit and taking a big loss.” Rawson says other potential money-pits to avoid are the needs for re-wiring and new plumbing.