SIX ESSENTIAL TASKS WHEN LOOKING FOR A PROFITABLE PROPERTY PROJECT!
This week we looked at the incredibly important task of actually finding a profitable property project. In our opinion buying the right home at the right price is 85% of actually making money on a renovation project! If you are off with your purchase by just 10% that could be $50,000 which might be more than your ENTIRE renovation budget! With that in mind please see below our seven essential tasks when looking for a profitable property project.
1. Put pen to paper!
I am sure you will have read from many other sources that writing down your plan and goals is the first step to actually achieving them. This is especially true when you are trying to make money from property. If you do not have a solid idea of what you what you are looking for and what you want out of the project then it is almost certain you will fail and in our opinion the only way to really solidify your plan is to write it down and keep checking in regularly to make sure your are on the right track!
Our advice would be to take some time to really dig deep into what you want out of your property journey. Do you want to make some extra cash on the side of your current job or maybe you want to quit your job entirely and renovate full-time? Once you have an idea of the end game you can plan how to get there. Start by working out how much cash and borrowing power you have and then finding what areas of your city you have the ability to start buying in. In our case we did not have a lot of cash when we started our property journey so we had to focus on outer north Brisbane where we purchased our first two properties for under $400,000!
Make sure you also have a clear understanding of what sort of profit you need to get out of each project in order to achieve your end game goal as this will dictate whether you purchase or pass on a project (don’t forget to work in closing, holding and sales costs as well as tax).
2. Become an expert or talk to the experts!
If you want to be able to achieve profitable property projects then you must conduct serious in-depth research on every single area that you want to buy in before even starting to research the actual property. If you are buying in your own suburb then you will probably already be an expert on the area. If you are looking at a project outside of your own region then you must have a system in place to ensure you research every single factor that might throw your project out.
Your research should include, among other things, an in depth price due diligence that looks at other sold properties around yours and compares key features with your potential project; discussions with local real estate agents regarding suburb price pockets and issues as well as other key searches on the suburb and property. A great way to become more familiar with an area is to spend a couple of weeks checking out local open homes!
3. Get your trades involved early!
This is especially important when you are starting out on your property journey, as it will always be difficult for you to accurately estimate a renovation cost. When you have found a target property and are doing your due diligence it is a great idea to get as many of your trades through as possible to quote.
This has two fantastic benefits for you. The first is that you will have a much better idea of what the costs will be so you can accurately identify the figures and project profit. The second benefit is that your trades will be able to give you advice on how things can best fit and what are the cheapest options before you lock in anything. It is important to remember though that some trades will give you poor advice so always speak to multiple experts before finalising your plans.
On our projects we will always include a clause allowing us access to get quotes on our contracts so that we can get our trades involved as early as possible. We like to get as many firm quotes as we can before we go unconditional just in case there is something expensive we missed that might make the project less profitable than we thought.
4. ALWAYS allow a contingency
This is something that every builder and advisor will tell you when you enter into a building project. When it comes to a renovation it becomes even more important because when you are dealing with an old house you never know what you might find under the wall panels or the kitchen cabinets. We have had a number of projects where issues only became obvious after the clutter and mess had been removed and the cost for the repairs was significantly more than first estimated.
Always leave a contingency of 10% - 15% to make sure that you have enough cash to finish the project. Always review your project profit as well and make sure the project still has enough profit in it even if your costs do go up 15%!
5. Be extremely cautious when estimating your sales price
We have, to date, had one project where we did not make a healthy profit. Our mistake on this project was simply that we thought our finished product would be “better” than the market comparable houses so we thought that we would be able to break the suburb record and get more money for it than previous sales. A quick piece of advice….DO NOT DO THIS!
When estimating your sales price make sure you have a system in place to compare other sales in the area that match your house with similar location, features and block size. Make sure that your required sales price comes within the band of comparable property prices to ensure you sell quickly and at a good profit.
6. Be persistent
Our final point is to be ruthlessly persistent. Just today we read an article by one of our favourite property experts stating outright that it is “impossible to turn a property over quickly and make a good profit”. We have read heaps of these types of articles over the last two years and have had many friends share similar negative comments but we did not allow this to stop us. We found projects that worked for us and we turned them over quickly and made some great cash. You need to be able to stay focused on your plan and your goal and drown out negative comments otherwise you will never even get started.
Persistence is extremely important when it comes to getting your projects over the line as well. You might spend weeks on end trying to find a suitable project and you will feel like giving up. You might have some really late nights or long weekends getting a property finished and you will feel like giving up but you have to be absolutely committed to your goal and persistent in driving towards it and you will get there. If we can do it, you certainly can!
Thanks so much for reading this week!
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