Renovating, also known as ‘rehabbing’, is a manufactured growth investing strategy where an investor seeks to value-add via cosmetic and/or structural property upgrades.

The task of turning real estate trash into treasure seems pretty straightforward, and has been made popular by TV shows like The Block. However reality TV – which is done for ratings – is often a far cry from investing reality – which is done for profit.

If you want to become a master renovator for profit, then the golden rule to remember is, was, and always will be:

To add more in perceived value than actual cost

 

 

 

Your reno profit margin is the difference between your improved property’s perceived value (i.e. what someone is willing to pay for your upgraded property), less your property’s actual improved cost (i.e. cost of acquisition plus cost of improvement).

Anything you can do to add more perceived value than actual cost will inflate your profit margin. Conversely, any time you add more cost than perceived value then you’re diminishing your reno return.

The reno investors I know have the following four traits in common:

  1. They have a good idea of what the property’s improved value will be, before they buy
  2. They have a specific idea in mind for what they will do, and a budget for what it will cost
  3. They complete the project quickly
  4. They don’t do it themselves

If you’d like to know more about each of these points then watch this short video.

Do you have an experience you can share, or perhaps your own words of wisdom about what to do, or not do, when it comes to renovating or rehabbing? Please take a moment to share it below.

Until next time, remember that success comes from doing things differently.

– Steve McKnight

Comments

  1. Kerry King

    Simple wisdom Steve which is not always easily understood. I like the comparison to ‘reality TV’ and ‘reality’. Do Dean and Elise still offer their reno tool box I wonder?

    • Profile photo of Steve McKnight

      Thanks Kerry.

      Unfortunately, Dean & Elise’s Reno Toolbox is out of print, but they have told me they’re working on a new product that is due for release in the next six months.

      I am trying to get Deano back to speak at next year’s mega conference in Melbourne.

      – Steve

  2. Ben Frawley

    Thanks, I’m about to embark on our first reno of a rental property. I’ll take all your advice except for the dont do it yourself. I”m good at doing renos, have done for years) I have given myself a month to do it, and will employ some tradies, but not all.
    I guess the balance is how much to reno if you intend to rent it out for a few years. I just want to be generous to our renters and not give them bare minimum, even if it means a profit reduction. :)
    I guess I’ll be too soft to get rich from this game.

    • Profile photo of Steve McKnight

      Hi Ben.

      Thanks for making a comment.

      As mentioned in the video, doing one (or maybe two) renos yourself can be beneficial to learning the ropes.

      That said, investors are usually smarter swapping labour savings (by doing the work themselves), with scale (by having multiple projects running).

      Regards,

      – Steve

  4. Keith Lai

    I think the point about scaling and not trading one job for another is something that needs to be given very careful thought as scalability is where the true income potential lies. It also reminded me of getting back to the ‘why’ of any scenario or decision I’m faced with. Thanks for the timely reminder and encouragement!

  5. Marguerite

    Having done a reno with some partners, I would firstly recommend that all responsibilities of the two parties are fully agreed upon before you go into any deal. We made the mistake of assuming that since we’re the money partners (but willing to help out on the weekend out of goodwill), it would mean just that… and that our partners would do the work during the week. We were sadly mistaken and had to give up weekends for three months to bring the renovation to a semi-successful conclusion. In the end we ended up with some profit but with the time we both spent “on the tools”, it ended up being approximately $36 per hour for the work we put in. Ties in with Steve saying not to trade one job for another!
    And for any Queenslanders out there wanting to renovate – the QBCC laws have been updated, thus you can no longer be a project manager of renovation but need a builder’s sign off, which will potentially add considerable cost to the project. Definitely something to bear in mind.

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