To understand average values in your area, attend as many open home inspections and auctions as possible, and collect all media clippings and property advertisements. This will also help you to understand the local buyer market and identify any properties in under supply.
Other property due-diligence actions include:
- Local council search
- Legal search
- Building and pest inspection
- Development Application check
- Land zoning verification
- Heritage listing search
- Services plan check
Crunch the numbers
As a rough guide to deciding whether the property is a good deal or not, use the following formula for calculating the property’s future resale value.
Cosmetic renovations should amount to 36% of the property’s purchase price, while structural projects should cost around 81%. See below for a breakdown of costs (excluding taxes).
Add the anticipated project cost to the property’s purchase price to calculate the future resale value. See below for some working examples.
Purchase price x 136% = Minimum resale value
$500,000 x 136% = $680,000
$750,000 x 136% = $1,020,000
Purchase price x 181% = Minimum resale value
$500,000 x 181% = $905,000
$750,000 x 181% = $1,357,500
Is your calculated resale value around market average? Will buyers in your suburb pay this much for a renovated property? You may need to work backwards to calculate a more reasonable purchase price and negotiate with the agent.
Hot value-adding tips
The number one renovation trick is to add more in perceived value than actual cost. With the information gleaned from assessing your target market, you will know exactly what kind of property will appeal the most and can then renovate accordingly.
For example, if your suburb is a family-dominated market, a four-bedroom, two-bathroom home with open-plan living and dining, and a low-maintenance backyard would be ideal.