It is romance sometimes that drives investors to think that renovations are the path to wealth. Something you can build in to add value. Well we tell you today that renovation could be the last thing you want to do. We talk to real estate expert and wealth development coach Zaki Ameer from Dream Design Property.
Kevin: We talk about adding value by doing a renovation, and sometimes it might not be the answer. That’s according to real estate expert and wealth development coach Zaki Ameer from Dream Design Property.
Good day, Zaki. Nice to be talking to you again.
Zaki: Good day, Kevin. How are you, mate?
Kevin: I’m fine. Thank you. You say that renovation is not the be all and end all. Why do you say that?
Zaki: I feel most people who buy a property whether it’s in original condition or somewhat even new condition, they believe that just because they renovate, they’re going to increase the value of the property or increase their rental income. I don’t think that’s the case in all investment properties, as I’ve experienced myself.
Some properties, if you do your research, even if it’s original condition and can do with a new bathroom, kitchen, etc., you might see that you’ve already got good value in it. So I suggest that do you research, see what the comparable properties in the areas are selling for, for a similar condition, and just have a think about “If I did spend $50,000 renovating this property, is it actually going to increase the market value?” Or even when it comes to the rental income, is an extra $10 to $20 of rental income a week going to make such a difference to go through the headaches of managing a renovation.
Kevin: Yes. As you say, not all renovations are going to return well for us. How do you know which ones to renovate and which ones not to?
Zaki: Definitely, the first thing you have to decide is “Am I making an emotional decision renovating the property?” You might want to actually question that yourself before starting a renovation.
The second part is when you know you’re doing this [1:36 inaudible] numbers, just to work out the numbers, saying, “Okay, if this property was bought for – let’s say – $500,000, and I’m going to spend $15,000 renovating, am I going to make an additional $30,000?” What I’d look at is somewhat close to doubling the value of the renovation before I begin that process.
Kevin: Of course, it’s very easy when you’re doing a renovation to over-capitalize, as well. Is that one of the other problems, Zaki?
Zaki: That’s true, and that’s the same with our clients at Dream Design Property, and that’s one of the reasons we offer that project management for renovations. We find many investors out there not really having the experience to project manage a renovation. The builders will say, “You need a new this, new that,” and then you just keep spending money because you feel like that’s the right thing to do, and before you know it, you’ve over-spent.
Kevin: One of the problems I see, too, with people who do renovations is that they renovate from the heart as opposed to from the head. In other words, they don’t really look at it as a business.
Zaki: That’s correct, and that’s a rule of investing, anyway. You have to decide that investing is a pure numbers game and has nothing to do with… Controlling emotions is everything about it, and that’s why sometimes outsourcing those positions of project managing a renovation is probably a good idea to someone who does this day in and day out for a living.
Kevin: Is it still possible, Zaki, to buy a property, to renovate it, and then flip it and make a profit, or are the margins too narrow nowadays?
Zaki: Compared to when I was investing seven years ago, 2007/2008, I feel like they’re starting to slim down, because the majority of the investors, like myself, have already got into the market, especially around Sydney’s western and southwestern suburbs, and turned in all those original-condition properties back to somewhat new condition. I feel it’s just a matter of time before you have that opportunity, again, to go in and turn it around.
Kevin: How far away do you think that timing is?
Zaki: In my view, I’d give it another ten years, especially for Sydney. But if you look at the Brisbane and upcoming areas in Brisbane, then you have the same opportunities I had back in the western and southwestern suburbs of Sydney to renovate a property.
Kevin: What sort of properties are good in the Brisbane area to be renovating right now? The Old Colonials?
Zaki: Yes, that’s it, the same thing – the properties that are about 30 or 40 years old in the surrounding areas of, say, Logan, Ipswich, [3:57 inaudible] areas, some areas around the Gold Coast. They have properties in original condition that you could buy and renovate.
But once again, you have to do your research, like we do for our clients, before you actually even purchase a property. “Is this property one that we’re going to renovate? And if we do renovate, is it going to add value to it?”
Kevin: That makes sense to me. Thanks for your time. I’ve been talking to Zaki Ameer. Thanks, mate.
Zaki: Thank you, Kevin.