Renovate for profit

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With a little research, an eye for potential and a lot of patience, renovations can still be a great way to make sizeable profit on your property investment. Kate de Brito reports.

Remember the spate of ‘home renovation‘ programs that filled our every TV channel a few years back? When people realised the profit that could be made from a quick lick of paint and some new carpet, a renovation boom swept across the country leaving virtually no suburb untouched. A few years later, no doubt there are some renovators sitting on a handsome profit and others sitting on a still-to-be-finished deck. Investment renovations certainly aren’t for everyone – it not only takes the ability to see the potential behind an ugly facade; it also takes a lot of patience, and the resilience (and good humour) to live without a kitchen or bathroom for the foreseeable future. But while the initial fervour of home renovations may have cooled in recent years, there are still plenty of do-it-yourselfers who not only enjoy getting their hands dirty but who are using the profits from their savvy renovations to help pay off their mortgage. Two such successful makeover masters share their ups and downs and top tips for a profitable renovation.

Michelle Lever is a colour consultant for a major paint company and has been renovating and selling homes for fun – and profit – for more than 20 years.

It’s no great surprise Michelle Lever is a passionate home renovator. While her school friends were riding their bikes, Michelle was busy learning how to swing a hammer. “I was brought up in the building industry; my grandfather was a builder and my parents built their own homes,” explains Michelle. “We all had our own hammers and nail bags when we were kids,” she adds.

Michelle bought her first house, a $62,000 postman’s cottage in the Victorian town of Cockatoo, when she was just 19 and fresh out of university. “As soon as I bought the house my passion for renovating just became part of my life. It was everything I wanted to do,” says Michelle.

Over two decades Michelle has renovated a range of properties from a derelict farmhouse to cute Federation homes in Australia, Victorian terraces in England and her most recent project – an ugly 80s brick veneer in Ballarat. “On the first job, the steepest learning curve was probably just the process of buying a house. I bought it with a boyfriend and we had no trouble getting a loan, even back then. But we didn’t make a lot of money that first time,” explains Michelle. “Looking back we probably sold prematurely, but we did build up our tools and our skills. We didn’t have much between us when we started so a lot of the profit went into the equipment. But I have never lost money on a house since,” she says.

After recently separating from her husband, Michelle began rebuilding her assets through renovation. She admits some people have been driven to despair by renovations, but her innate organisation skills and love of challenge have helped turn her passion into a profitable enterprise.

Michelle’s daughter Rachael, 12, has grown up amid the rubble of home renovations and blithely accepts the lack of a kitchen, bathroom or bedroom at any given time as a normal part of life. “She’s been bathed in plastic tubs in the backyard and is used to the fact we might not have a kitchen – just a microwave or electric wok to cook on,” says Michelle. “I don’t ever recall her complaining. In some ways she’s had a lot of fun with it. Sometimes in all the chaos we’d make a cubbyhouse for her to sleep in for the night,” says Michelle. “I’m very organised and methodical, so even when it’s chaos I can find things. But it’s not for everybody,” admits Michelle. “You either love it or you hate it. I think I thrive on it.”

This long-time renovator says planning and research have been the essential components in making a profit from her home renovation. Michelle decides on the area she will buy in based on forecasts for growth, purchasing in areas that have yet to take off. She also contacts the local council for information about public work projects in the area that might increase the value of a home.

Importantly, Michelle lives in the properties while she renovates – cutting the cost of managing two homes – and does most of the labour herself on weekends and at night, only hiring tradespeople for electrical or plumbing jobs that need qualified workers. “I think some people get into trouble when they’re renovating because they don’t plan ahead and don’t know the right time to get in the plasterer or the plumber or the electrician, so time and costs blow out,” she says.

Michelle generally looks for less-attractive, but structurally-sound houses that will improve dramatically with simple cosmetic work. “When people walk into something ugly, most walk back out. Only a certain percentage can see through it, and see the potential,” says Michelle. “You can often get a bargain that way. And you do have to try not to stretch yourself to buy something too expensive and then not have enough money to renovate,” she says.

“If you can’t take change and upheaval, you’ll struggle with renovation. But I’m adaptable and it means I never get bored,” says Michelle.

What the experts say

Catherine Lezer tells the women attending her Rich Chicks financial empowerment seminars there is no quicker or more effective way to make money quickly than by renovating and selling their own home. “I teach women how to buy, renovate and sell to pay off their mortgage,” says Catherine.

She believes even people with minimal experience in renovating can make minor improvements on their home that will add to the resale value. “I advise people to research homes of the same size in their area and see what the really run down ones are selling for compared to the really ‘done-up’ homes. Then they’ve got to work out what they can do to turn their homes into one of the really ‘done-up’ ones without spending too much money.”

Catherine says people overlook the difference small changes to a home can make to its value, such as dressing up cupboard doors in the kitchen, painting and adding mirrors. “There are three ways to make money with property: buy a bargain, add value and take advantage of the market going up,” she says.

Most recently she bought an apartment for $428,000, and spent a hefty $200,000 on renovations, but sold it for $940,000 two years later. “And that’s how you pay off your mortgage,” says Catherine. “After a while you get good at it; you learn how to live in a bedroom for a week while the painters are there.”

Catherine says home buyers should educate themselves about the market and the financial implications before they buy. If the house is an investment property, owners will pay capital gains when they sell, but not if it’s their primary residence.

John Hopkins, founder and CEO of the John Hopkins Group, a company specialising in investment property assessment, is more modest in his expectations of renovating for profit. Unlike Catherine, he believes people should regard it as a career, rather than a short-term investment. “The big trap many people make is thinking they can just buy real estate and make money out of it quickly,” says John. “I see people who do really well because they love doing it. But to do something well, you’ve got to learn a lot about it.”

John agrees renovators need to have a solid understanding of the property market as well as the costs of renovating, planning fees, consultant costs, selling costs and stamp duty. “I’m not trying to make it sound too hard, but I’ve seen it go wrong,” he says. “I think if people want to do a renovation but haven’t renovated before they should get lots of information and start out small with a property that only requires cosmetic changes.”

Photography: Andrew Lehmann. Hair & make-up: Ruth Sebire.