Although renovating a property can seem like a fun thing to do or a great way to get the house of your dreams (which is true), the two key reasons that people should consider renovating their home is to easily add value and also put themselves in a position to mitigate risk when financial disasters occur personally.

Now I'll say up front that not everyone is in a position to renovate, and it might not be appropriate, but for those it can work for, let me explain my two key reasons.

When you renovate a home, there are many things you can do that can have a dramatic impact on the value. Situations where you are putting in $5,000 and getting back $25,000 of perceived value. For example, landscaping a courtyard or re-spraying a kitchen for $5,000. The skill is not in knowing that you can easily add value through renovation though, but it is how you do it that is the real skill. So basically, what renovations are you going to do that will lift the value the most. On a larger scale, if you can make the right call on a few key fundamental items within the home, you can add phenomenal value. This is then value that you can either leverage off for more properties or realise this added value through a sale. It provides those people that have less capital (often first home buyers) to complete a renovation project and be in a fundamentally different spot to purchase and take a massive step up into a larger property. Yes, a lot of the success of what I am speaking about is in selecting the right asset.

The second reason I mentioned that I like renovation for my clients is that they are able to mitigate risk for their own personal financial situation. We all have seen in Melbourne over the past few years how the market can be up and down and very weak or going backwards at times. Having a property that requires a renovation is a potential mitigation tool in a bad market or when you're forced to sell. This is because you have purchased a property with this untapped value within it, so when you have to sell or if the market is going backwards, you are more easily able to chase back the funds you paid for the property and then some. In this situation, it is not about making the most profit, but limiting losses most of the time - this is worst case scenario stuff, but you have to be prepared so you can sleep at night more comfortably when financial stresses exist. Think about it, basic high-level numbers, you purchase a property and it costs you $1 million dollars, and then the market dives and your value drops to $900,000, you need to sell for personal reasons, but selling at a loss and not being able to pay the bank back is not an option. Then you renovate, you put in $50,000 and the property is now worth $1,100,000...even in a bad market, and you've come out of it much better than if you had a property you couldn't renovate. You may be saying, Craig, this doesn't sound so good, but again it's about limiting your loss when the perfect storm comes, not making a huge unrealistic profit margin. Compare this to someone that buys a home for $1million, ready to go, brand new home, the market crashes, they can't add any value, it's worth $900,000 and that's all they're getting, any money they put into the property would be wasted as there is nothing to upgrade.

Hopefully that's all making sense to you. It's all about maximising the upside by being able to add plenty of value, and covering your downside - all through the use of renovation.

Selecting the right property is vital when you complete a renovation strategy, there are millions of reasons why a renovation won't meet the two key reasons mentioned, so you have to get the right advice. For example, buying a completely derelict house for the "renovation potential" is not necessarily a great idea, if you are forced to sell, you may be holding a highly unsellable property that needs far too much work. You have to get the balance right.

If you're thinking about completing a renovation or purchasing a property where renovation is require, feel free to contact me on 0400 122 081 or craig@nicholbuyeradvisory.com.au, and I'd love to help.