Renovating an apartment to sell has as much price-pushing power as it does in free standing homes but the process requires more forward planning.
Before leaping into renovating an apartment to sell, it’s important to avoid the very real risk of over capitalisation.
Choosing an apartment with growth potential follows the same key principles as any other property and putting location at the top of the list is a good start. However, position may be even more pertinent in the apartment market because buyers expect additional lifestyle benefits in exchange for giving up the traditional backyard.
Proximity to [1] parks, [2] public transport is essential. Important though not critical is the proximity to cafes, shops and entertainment centres – within a few blocks of the front door.
Older buildings often allow more scope for growth, is stating the obvious.
See what the market is paying for a renovated or up to current market expectations and then work backwards. You should spend ¼ of your projected return on investment.
Let me explain.
- Total cost of acquisition = $700,000 inclusive of stamp duty, legal and due diligence.
- Renovation cost = $50,000.
- Total cost of project = $750,000.
- Projected return = 20% gross (before selling costs).
- Projected sale price = $900,000.
Things to look for when sourcing apartments that aren’t considered when buying freehold.
If you’re buying a single apartment, seek an apartment in a smaller block because at least it has some uniqueness. If you buy in a block of 50 apartments, at any one time there are up to 10% of them up for sale or rent. Selling within these big blocks could mean selling up to 30% below fair market price because everybody is competing against each other – in the same block.
Get into the body corporate minutes and read them. If there are structural problems, it will be in there and details about whether it has been fixed or just patched up. Look at how much money is in the sinking fund and ask a quantity surveyor what is a reasonable amount to have in the fund.
Once the property passes initial potential tests, decide on the golden rule of any renovation – focusing on the kitchen, bathroom and flooring plus a fresh coat of paint.
If you only have the interior to work with, try to create additional space, over and above the standard face-lift. Enclose a balcony is an ideal way to add an extra room and creating a hideaway laundry in a kitchen or bathroom cupboard is a sought-after advantage in apartments that previously went without an internal laundry.
