Run-down homes can be money-spinners, with renovators telling OneRoof that can get as much as a 200% return on investment for a do-up done right. But can first-timers do the same?
Renovations may be coming back into fashion thanks to lower house prices and the cost of materials stabilising after a volatile few years.
Property mentor Jono Frankle says a good renovation should add value to a home: his rule of thumb is spend a $100,000, add $200,000 to the value of the property.
Frankle, who won TVNZ’s renovation programme Our First Home with his wife Karen, has had a busy year, buying, renovating and selling.
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When he talked to OneRoof before the Christmas holidays, he had four projects on the go, including one in Auckland's Riverhead, where the house only had one functioning wall.
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Every renovation is different, he says, citing a nasty rental home in Otara, South Auckland, which he turned around earlier this year.
On that project, he ripped out the fireplace, which allowed him the space to open up a breakfast bar and dining room into the kitchen. The work cost around $1,000. “That fireplace took up a lot of space and made the place really dark and small. It’s hard to put an exact price on it, but we probably made a few grand profit on that part alone,” he says.
Jono Frankle says every renovation is different. Photo / Supplied
Frankle says that because a renovation is the sum of all the work done, it’s difficult to single out a single part that is the real value-add. During the open homes for his Otara property, buyers were taken with the “spongy” carpets, which felt luxurious, as well as the the look of the kitchen and bathroom. (The carpets came from Flooring Studio, the kitchen from Cabjacks and the bathroom was a mixture of fittings and products from Bunnings Warehouse, Mitre 10 and Trade Depot).
Frankle says the sale profit also depends on the location of the home - you have to buy right in the first place, he says. Unlike some traders, he doesn’t limit purchases to those in need of cosmetic work only. If they’re worth it, he will also buy properties in need of structural work.
Before: The original living room was dated and the purple carpet was smelly. Photo / Supplied
After: Frankle removed the fireplace and knocked down a wall to install a breakfast bar. Photo / Supplied
He will even move plumbing at times, which many renovators won’t touch. “We’re doing one in Massey where there are beautiful views out across towards the city and water. We’re moving the sink so that it has a view of the outlook through a window.”
Another serial renovator Mark Trafford, who owns MTP Renovations and Maintenance, has managed hundreds of renovations for property investors, owner occupiers and himself.
Trafford completed a successful renovation in Auckland’s Beachhaven in 2023. The property on Aeroview Drive, Beach Haven had a failed a building report, which drove buyers away.
The early 1990s property had plywood and batten cladding with issues, and a retaining wall that had failed. Importantly, says Trafford, the home didn’t need council consent for the work. Consent adds costs and slows the renovation down significantly.
Before: The tired three-bedroom property on Aeroview Drive, in Beach Haven, Auckland, which Mark Trafford bought for $600,000 earlier this year. Photo / Supplied
After: What the same property looked like when he sold it in August. Photo / Supplied
“I bought it for $600,000 cash. The renovation cost was $120,000, plus other costs. I sold it for $880,000. It could have sold for more, but in the current slow market it was better to make a quick profit than hold on.”
It’s the “all the other costs” that first-time flippers and renovators don’t think about, said Trafford. “There are a few simple rules. You need to know what your total costs are going to be, as well as the renovation costs. For example, you have to register for GST if you’re buying and selling [for profit] and you’ll need to pay tax. If you are borrowing money, there will be mortgage repayments. We plug in the costs into a spreadsheet and we’ll know pretty quickly whether it’ll work or not.”
Experienced renovators will do all they can within a budget to improve a home, says Trafford. But they’re not going to stomach Grand Designs-style cost overruns.
The key to success is making the home modern and clean. Trafford says the big selling points are:
- White kitchens
- White bathrooms
- Laminate timber flooring
- Tiled showers
- Black tap ware and mixers
- Soft grey carpets.
- Family friendliness, such as having baths as well as showers.
All these point executed well won't guarantee a big sale, but they offer the best return on investment for a professional renovator.
Trafford says his clients typically look for a 15% return on their total investment, not just the renovation costs. That doesn’t always happen, even for the most experienced flippers. “You need to be prepared to walk away at no profit, or even with making a loss. You just move onto the next one. It’s business.”
The bathroom Trafford installed for his Aeroview Drive project. Photo / Supplied
A successful renovation and resale requires a team around you, says Trafford. That includes a good building inspector who doesn’t miss things, a detail-oriented lawyer who is good at reading land information memorandums, a mortgage advisor tradespeople, and an accountant.
Accountant Garreth Collard, of EpsomTax.com who counts renovators among his clients, says successful flippers have one common factor: experience.
“Any successful flipper has done their research, knows what a bargain is, has a good idea of the true costs and variables, and knows what it will sell for,” he says.
“One-off DIY-ers are usually the ones who have been most likely to come unstuck, typically due to underestimating how long it takes to reno, the costs, not accounting for unexpected problems or overestimating sale price. Always expect the unexpected.”
The other question on renovator’s lips currently is interest rates. High interest rates have been a partial handbrake. They make the holding costs high. But interest rates are likely to start dropping in the second half of 2024, Reserve Bank of New Zealand willing. “I think interest rates could drop as early as mid 2024,” says Collard. “Definitely by 2025.”
Magic makeover: Jono Frankle's Otara renovation - before and after
Before: The original bathroom was smaller, tiles were cracked and the floor had rotted due to a leaky bath. Photo / Supplied
After: Frankle's team opened up the bathroom and replaced the flooring, toilet, vanity and bath. Photo / Supplied
Before: The original bedroom decor was drab and the walls sported layers of wallpaper. Photo / Supplied
After: Frankle stripped back the walls, gave them a bright clean finish and put down new carpet. Photo / Supplied
Before: The original kitchen was poky and quite basic. Photo / Supplied
After: Frankle ordered new kitchen units and appliances. All of it was done within the space of a month. Photo / Supplied
Before: The house had been a rental before Frankle picked it up at auction in May. Photo / Supplied
After: Frankle renovated the house to make it a dream home for a first-time buyer. Photo / Supplied
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