First and foremost, you must understand where your profits will come from. Simply, your profit margin is the selling price of the property, less your purchase price and your renovation expenses.
Your goal is obviously to maximise your profit margin, which relies on two major factors - the purchase price of your property and your ability to grow its value without overspending on the renovation.
First, you need to purchase a property for a reasonable price in a growing market. You'll achieve this only through conducting thorough research of your area.
Assess the recent selling prices of similar properties - both pre and post renovation - to set a good baseline, and identify markets that are on the upswing. The old share-trading adage of 'buy low and sell high' applies here.
Next, you need to maximise the value your renovation adds to a property, while minimising its costs. But more on that later.
STEP TWO: ASSESS THE RISKS
Before you settle on a property, however, you'll need to assess the risks. Like all investment opportunities, renovating for profit isn't a fixed game and it's quite possible to lose money on the deal.
It's important to assess your risk profile before you commit to a property and have a clear understanding of exactly how much risk you're willing to assume in your current financial situation.
If you have a healthy portfolio of properties, it's easier to lay off the risk of a new high-margin property - a dilapidated inner-city terrace, for example - against your other investments.
However, if this is your first time at the rodeo, you might be more comfortable with a simple project - a small apartment, for example - that offers a lower profit with less risk.
STEP THREE: KNOW YOUR TARGET MARKET
Avoid renovating to your personal tastes, and consider the needs of the market that presents the most lucrative opportunity in your area.
Just like a company conducts market research to ensure their product is most appealing to consumers, so you should know your target market and plan your renovation around their needs.
For example, safety rails might be an excellent selling point in an area that attracts downsizing retirees, however it will quickly turn off professional couples.
Likewise, polished concrete floors might be popular in inner-city hot spots, but might not play as well in the suburbs.
STEP FOUR: PLAN YOUR BUDGET
Now that you know the needs of your target market, you can ensure your renovation is targeted around providing high-value appointments, and that you're not wasting money on additions that will not increase the value of the property.
However, even targeted renovations can spiral out of control if you don't keep your budget on a tight leash.
Ensure you base your budget on real quotes, not Google 'guesstimations' and collect at least three quotes for each job to ensure you're getting the best deal.
It's also important to build a little extra into your budget to allow for any unexpected costs that may be uncovered during the renovation without taking a bite out of your profit margin.
STEP FIVE: CALL IN THE PROFESSIONALS
Craftsmanship counts. Remember that your potential buyers will be looking to make perhaps the largest investment of their lives in purchasing your property so will be giving it the white glove treatment.
Poor finishes and DIY disasters will not go unnoticed and could threaten to derail your project altogether. If buyers sense a low-quality renovation or feel they'll have to redo any of your work, you can wave goodbye to large portions of your profit margin.
