If you’re looking to make quick profit through renovation and flip strategy, Jeremy Sheppard compiled the following list based on demand and supply to get you started with your research.
There are always going to be markets suitable for a renovation project somewhere in the country. But the best gauge of when to renovate comes from your circumstances rather than the state of any market.
- Do you currently have the skills required?
- Do you have enough money to buy and then renovate as well?
- Do you currently have the time to take on a project?
- Is it worth your time to do a renovation?
You can quickly gauge the chances of finding a good renovation property in a suburb by checking a few key statistics. These include:
High demand to supply ratio (DSR)
A market with a higher demand in relation to supply is obviously going to have better potential for growth, so make sure you take this into account when you’re doing your research.
While you may not be interested in the growth prospect if you’re renovating to flip, your potential buyer maybe very interested in the future growth.
And of course, if you plan to renovate and hold, you definitely want to see some strong growth.
Broad range of values
You want a broad range of values for properties in the market. A renovation’s success depends on finding a very cheap property among very expensive properties that can be cost effectively renovated to become like one of those expensive properties. This is not possible if all the properties are the same price.
If the properties in your target market range from $350,000 to $400,000, then it's highly unlikely you’ll be able to find one you can add much value to without risking over-capitalisation. A more favourable range of values would be from $300,000 to $500,000, for example.
Low days on market - DOM
To reduce holding costs after completing the project, you want the property to sell quickly. Markets that have a low DOM are ideal in this case. The markets in Table 1 all have low DOM.
High auction clearance rate (ACR)
You don’t want to sell via auction in a market with a low ACR, especially if the property is to be renovated to the upper end of the market, which suits sales by auction. Table 1 consists of markets with high ACR and high rates of sales by auction.
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