Renovating Houses for Profit: Things to Know
By RIFO
2022-12-29With the price of properties moderating, perhaps it might be a good time to start thinking of ways to profit from the gloom & doom forecasts and inevitable rebound. Renovating houses is one of the many ways to make money during these circumstances.
There are several important steps to be taken and information to learn prior to embarking on this exciting journey of making house flipping profits. Also, just how profitable is house renovation, and will it be a worthy use of time and money, especially given the increased borrowing rates and cost of capital? Today, we are going to cover some of the bases of house renovation and discuss profitability.
The basic money making method used by the renovators is to buy a cheap fixer-upper, do the work on it that needs to be done either by themselves or with a trusted sub-contractor (the one that gives you a good deal), add some modern enhancements and sell the house for more than what you paid for it. Sounds easy. According to Canadian Real Estate Magazine, the aim is to sell the house at a price that will win the renovator 10% or more once costs have been subtracted. The timeframe involved in house renovation can vary greatly depending on your plan and your abilities. Specifically, it is estimated that a house can be renovated and turned out as fast as within a year. But remember, with interest rates where they are, turn around has become more and more important.
When estimating your timeline, there are several things to consider. First, you cannot forget about closing time, which can range from a week to around a month if accelerated. Also, it depends on what exactly you plan on doing with the house. If subtle polishes to the property are all you think the house needs, then obviously it won’t take as long. If you want to tear down walls, redo plumbing, add another floor, you should carve out several months, and possibly a year, out of your schedule. Also, are you going to use this property as your main residence, or will you rent out to tenants while it undergoes the work? A standard lease in Ontario is about a year. Overall, the timeline of your project is relatively customizable. Many people do underestimate timelines, so Flipping Prosperity recommends mentally doubling however long you think it may take.
So, is renovating properties a sure way to gain profit? Short answer: it depends. Mike Bolger suggests targeting properties in high-demand areas in order for your selling price to be highest. You also need to have a precise plan for your renovations. Will the property sell at a high enough price for the renovations you planned to be worth it? Are these renovations necessary given the costs? Canadian Real Estate Magazine suggests doing some research into the demographics of the area. Knowing who is likely to buy your property will allow you to plan desirable renovations accordingly. Is this an area with lots of kids? If so, what would young families value in a home?
Renovators are not advised to take control of things alone. First, a real estate agent with extensive knowledge of the area is highly recommended. Not only will their knowledge of real estate trends in the area be essential, but they can talk you through some of the wisest renovations to make given the area and help you budget with regards to what gives the best chances of profit. Also, hiring a contractor may make the difference between a house-renovation flop and a success. Contractors can help you with your budget, timeline, and recommend the best renovation projects.
Overall, house renovation can be profitable if you play your cards right. The main theme in successful projects is working with knowledgeable partners and making the right big decisions. (You can mess up on the colour of the bedroom paint, but don’t miss your budget in a complete kitchen or basement reno.) With the real estate market still going through a period of adjustment, interest rates at a higher level than we’ve seen in the recent past, and the possibility of an economic slowdown on the horizon, the margin for error has slimmed. But the opportunities are there for those with courage and a great plan.
