What percent return can you expect once you’ve made on renovations?
Buy-to-renovate investors should always do a feasibility study before spending any capital on an investment. The return that one can expect from an investment in renovations is dependent on many variables, such as:
- How necessary the renovations are: A R100 000 injection into an already established home will have a reduced effect when compared to a less established home.
- How much is invested: In most cases, renovators will see diminishing returns as they increase the value of their renovations.
- The neighbourhood: Each neighbourhood has a limit to the value of its properties; there is a maximum that buyers are willing to pay in order to live there, no matter how lavish the home’s finishes are.
- What you are renovating: A higher return will come from renovations focused on kitchens and bathrooms, or adding an extra garage or room. If you are adding a pool, there will likely be no return.
If we took a home in a high-demand suburb valued at R1 million, where other homes are selling for R1,5 million on average, and wisely invested, say, R100 000 in renovations, the investor could see a return of between two and three rand for every one rand spend. That’s between 200% and 300%.
What are some of the problems you may experience if you decide to do the renovations yourself?
DIY can be risky if you don’t know what you’re doing. Anyone considering taking this route should do their best to assess all possible risks.
Some issues that can arise are that you underestimate the task at hand and are unable to complete it, or that you cause damage to the property due to a lack of knowledge.
For example, you could drill into a water pipe can cause huge problems, such as flooding and damp and rot in the walls and floors. It may also happen that the work turns out differently to what you had imagined, which may mean that you make less profit than you expected.
Finally, your DIY fixes may prove inadequate, especially in the cases of plumbing and electrics. Living in a home where plumbing and electrics are not always functioning properly can be very stressful, demoralising and sometimes dangerous.
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