Advice and Opinion

How to find the perfect fixer upper for profitable resale

While it may be easy to find a home that is in need of a face lift, there are quite a few things to consider when looking for a home to renovate and sell on for profit, according to Mike Greeff, CEO of Greeff Christie’s International Real Estate.

“The first step should come as no surprise, given that it is the mantra of real estate hunting – location, but there’s more to this in the context of renovating to sell,” says Greeff. He explains that the suburb you ultimately buy in will have a huge influence on whether or not you’ll make a profit on resale. “Look for a suburb which is known to comprise similar properties at widely varying prices,” advises Greeff, adding that a qualified agent with experience will be able to help you with research to reveal the selling prices of properties in the suburb you’ve pin pointed.

“Research selling prices going back at least 24 months, as this will also reveal if there are seasonal peaks and troughs in prices achieved,” says Greeff.

“In order to get specific data, you need to research the selling prices of both renovated and un-renovated properties of similar size and accommodation within a defined pocket of the suburb – this will usually cover a few streets,” explains Greeff. “Again, an agent can be invaluable in assisting with this data.”

Greeff explains that getting to grips with the data will help you to understand if there is in an evident disparity in prices in that suburb. You will hopefully find that renovated properties are selling for more than un-renovated ones of a comparable size and type.

Greeff offers the following checklist to assist in clarifying the property comparison process:

– Compare properties with the same number of bedrooms, bathrooms and reception rooms.
– The erf should be of a similar size, as should the area under a roof.
– Take into account any additional features, which may add value and push up a selling price such as swimming pools and or a tennis court.
– Significant value adders are self-contained flatlets with own entrance and garden cottages as well as garages.

“Study your target market if you’re going to sell,” says Greeff. A suburb that is already home to parks populated parents with young children is obviously a good location for a perfect family home. The same is obviously true for an area close to schools and sporting facilities.“If you’re targeting young executives, you should be looking in a more urban location with a predominance of apartments and easy access to public transport or motorways,” advises Greeff.

“Having settled on the area, you need to search for a home that can be cosmetically renovated within the rules and regulations,” says Greeff, adding that you should always check with the local council whether approval is required. “Of course adding another storey might create a remarkable new home, but you’ll need approval, which could impact on timing issues and you’ll need to weigh up the cost against the possible profit you’ll make. If the area is not already proliferated with multi-storey homes, you are unlikely to get a significantly higher price for yours.”

Your renovations will have to be compliant. “Ensure that you have the property inspected and from the start of the renovation, work hand in hand with reputable plumbers, gas installers and electricians so that compliancy certificates are available at the time of sale. You don’t want to complete the renovation only to find that wiring or piping is not compliant and has to be completely redone, costing you way more than you budgeted for,” says Greeff.

“Old homes invariably have a number of separate rooms. You might want to update the floor plan by making it more open plan. “Ask for the original blue prints and seek the advice of an architect before making a decision on which wall to demolish. It may sound obvious, but it’s not always easy to see which walls are functioning as vital supporting structures,” says Greeff.

Go with your gut on potential buyer objections. If you think the main road that the house is positioned on is too busy and will put off buyers, it probably will. Renovating in such a position might be a waste of time and money. A home in the shadow of power lines or cell phone masts is also likely to be slow starter, according to Greeff.

When it comes to putting in an offer, a savvy renovator will have calculated his budget in order to sell for a profit. “It’s a subtle balance though, since seeing amazing potential in a property can lend an emotional element to an offer to purchase,” says Greeff, “but if you do the research as suggested above, you are likely to come up with an informed decision on the right price for your offer to purchase,” adds Greeff.

When calculating your projected profit, consider the purchase price and renovation budget and include council scrutiny fees for approval of plans, compliance certificates, estate agent’s selling commission and Capital Gains Tax.

Subtract from your selling price. (Remember that the cost of any enhancements will be offset against the CGT you’ll ultimately be required to pay, so ensure that you keep a record of all services acquired and products purchased to that end.)

“If you’re buying at an auction, you need to keep this calculation firmly in mind and know that there is a ceiling beyond which you will not bid,” says Greeff.