Avoiding overcapitalising

By Jamie Johns

Trading, flicking, renos, The Block. It feels like we’re inundated with tales of quick riches made through doing up property. What we don’t see so much, though, are the investors who lose money, or who invest in renovations that don’t pay adequately for the risk.

We don’t generally recommend trades or ‘flicks’. We prefer buying to hold. Most of our clients buy properties that are already fit for purpose, or that need very little work.

Having said that, there is the odd property that comes up that is a potential gem but needs a renovation to make it work for the client and for their tenants. Here is our advice:

Do your research

Find out what the area price ceiling is. Work out what you want to do to the house (e.g. new bathroom? New cladding? Convert a dining room to a bedroom?) Ask a valuer or a real estate agent what the house would be worth after the renovation. Talk to potential tenants. Would the renovation be worth extra rent? How much? Would it make the house more tenantable?

Do your sums

Do a renovation budget.  Factor in contingency. Also factor in holding costs – how long will you be paying mortgage without receiving rent? Make sure the renovated property will repay your money and repay you for the time and effort. You are putting your hard-earned capital at risk, so make sure there will be a pay-off – either in increased rent, increased potential sale price, or both.

If your sums don’t add up – drop it

Just because it looks like a great project, doesn’t mean it’s a great investment. Don’t get emotionally involved – other investments are waiting for you!  There are many fantastic opportunities available right now. 2015 is presenting us with the lowest interest rates in recent history, a nationwide under-supply of property and strong economic fundamentals.

Talk to us about options for growing your personal portfolio.


Sky Accountants Ballarat & Bookkeepers Ballarat Office

Phone: 1300 328 855
Office Address: 902 Howitt Street, Wendouree, Victoria 3355, Australia
Postal Address: PO Box 2234, Bakery Hill, Victoria 3354

Sky Accountants Sunbury & Bookkeepers Sunbury (Melbourne) Office

Phone: 03 97444522
Fax: 03 97447004
Office Address: 45 Hamilton Street, Gisborne, Victoria 3437, Australia
Postal Address: PO Box 270 Gisborne Victoria 3340

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