Some property traders and investors choose to buy property for the purpose of renovating and then selling.

This strategy can be used for both "selling for profits" and "renting for profits". In other words, there are 2 systems to renovating a property for profits.

Renovating properties is great way to generate income and some do this for a living. This type of deal is really a specific strategy and can be slightly speculative in nature if one is lacking the correct planning and fundamental considerations. In other words, you can "lose your shirt" doing this is, if you don’t know what you are doing.

Lets then look at the fundamentals and considerations that make property investors and renovators successful in this strategy.

Renovating a Property to Make Profits by Selling

The first and one of the most important things in this system is to ensure that one makes profits, it is essential the purchase price is massively under market value. This means some 50% to 70% under market value.

The first thing that one asks in this case is, "Who on earth will sell you such a cheap property?"

Well we are speaking of rehabilitating a property, which in turn means that the property is not in a very good state in the first place and this is the reason that one would sell for far below value. Some of these properties are literality dilapidating, derelict or have been neglected or abandoned for so long that re-habilitation of the property and the sale of such at market value is where the profits are made.

That said, if the property is just in need of slight renovations, it becomes more risky because the profits are slim. The price is higher and the margin may not make profits, but the effort and cost to improve the state of the purchased property to a better state to sell is there and can’t be avoided.

In simple words, this would mean that the purchase price is not low enough. When you add to that the costs of improvement and then try to sell at an even higher price, you may not be able to attain the selling price needed to make a profit, which may put the investment at risk.

This is the reason why renovating to sell a property has to be done carefully, bought at the right price at the right time.

This also means that the more derelict the property, the higher the profits, because the price between the purchase price and sale price leaves a nice profit margin if the renovations and alternation are done cost effectively.

You may have guessed by now, why most don’t engage in this strategy, even though it can be massively profitable. Buying a derelict property and renovating can be hard work and the more derelict the property the more work and cost it requires.

However, just buying a property in need of renovations is not enough to make profits. There has to be a well calculated plan of renovations and re-habilitation. Without correct purchasing of materials and the correct amount of investment in the renovations, one could see profits eroding, before it even goes on sale.

Therefore, to renovate for the purposes of making profits, the price has to be low and then the costs of renovations has to be reasonable, well planned and effective. Notice that the word "cheap was not used. This means it has to be cost-effective, not "cheap". If one does "cheap" renovations the property may not attract the right price to get the nice profits expected in the first place.

Market Conditions for Renovating Properties

The next issue to make great profits in renovating and selling is the market conditions. Though people need houses all the time, if the market is not in good condition, it may take too long to sell and the investor will carry holding costs, which will erode profits the longer the property remains unsold.

The renovator has to pay the mortgage bond for the property purchased and maybe even a mortgage bond for the cost of renovations, if these funds were used from some sort of financing.

If the renovations money was used from personal money and no financing used, then the return on that cash used will start to reduce with longer holding costs.

To better understand, just imagine a warehouse full of stock that doesn’t sell. That money sits in the stock without return to the business owner. This is true even if the business owner bought the stock from their own money and carry no financing costs. The stock needs to be sold to buy new stock and sells as quickly as possible for the continuity of the business.

Therefore, renovating or re-habilitating in the wrong economic times carries risk and can reduce profits if the renovated property doesn’t sell quickly enough.

The right market is not necessarily a time when the property market is booming, though that would be obvious. Right market is where there is demand. Even in a depressed property market there are areas where the demand is still strong. Therefore, one would need to look at both micro and macro economic conditions.

Renovating a Property for the Purpose of Rental Income

There is though another option for renovating and re-habilitating properties for long term income.

In this case, the purchasing considerations are the same and the price also has to be a low as possible. Therefore the property should be as derelict as possible and then renovated cost-effectively to rent the property to tenants.

What is different in renovating a property for the purpose of renting for income is the renovation plan and market conditions.

In this case, the cost of renovations and even materials used may differ greatly from the first strategy.

For example, in a renovating situation for rental, the investor may choose tiles only in the property to ensure that they don’t have to deal with long term cost of carpet replacements. In a situation where the property is re-habilitated for sale, that may not be a consideration but rather the trends of the homeownership style of living at that time. This means that if wooden floors are in style and most homeowners want wooden floors, the renovator will choose wooden flooring to ensure the property is appealing to a homeowner and will sell fast.

The second thing is the market conditions. To rehabilitate a property for the purposes of sale one would need a strong market for purchasing properties, but for rental the opposite has to be true.

The market has to be in high demand of rental not purchasing to make the profits.

Therefore, before buying a property, the local and national economic conditions have to be assessed and evaluated to suit the renovations strategy. In other words, if there is local demand for rental, one may want to renovate to rent rather than sell.

Renovating and re-habilitating properties for profits is a specialized area in the property sector.

The purchaser may be a trader and renovate only to sell or may be an investor and renovate to rent for long term passive income.

In both cases, the purchase price should be as low as possible. When this is achieved then all it takes is to attach the correct plan to the correct intent.

The difference in consideration would be the renovations plan and then the market conditions.

If planned correctly, with correct timing, both strategies can make huge profits for the renovator or property investor.

As you have seen, rehabilitating a property to make a sale has different considerations than renovating a property to rent the property for long term.

When you buy a property to rehabilitate you must know what you want to do with the property before you put your offer and you must know that your intentions are correct to the market conditions to ensure that you will realize and maximize profits.

If you ever thought of entering the game of renovation and re-habilitation of property for the purposes of selling them, take into consideration all the necessary points to make great profits and maximize on your returns.

To understand how renovations may affect your property strategy you may want to take the Calculating Residential Buy-to-Let Investment Deals and if you are new to property investing you may want to look at Getting Started as a Property Investor to learn more about all the strategies available to you.

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