Ugly House = Big Profits: Finding a Positive Cashflow Property

Ugly House = Big Profits: Finding a Positive Cashflow Property

Buying a renovator’s delight and enhancing it to a positive cashflow property may not be everyone’s cup of tea. However, given the current investment climate, investors need to be a little more creative in the way they find the right properties.

One way ‘non-renovators’ can do this is by having access to the right builder, who understands positive cashflow investments. This can add another string to your investment bow – turning unfeasible deals into winners.

This article looks at 5 “must do’s” when you’re looking to buy and renovate to create a positive cashflow property.

1. Select the right area

There’s no shortage of literature about how to identify growth suburbs. Infrastructure, new government initiatives, geographic spread of capital growth patterns (ripple effect) and industrial boom of some kind, etc all create a stronger growth environment.

However the benefit of a "buy a dump and renovate to add value” strategy is that it allows you to enter markets that were previously too expensive or created cashflow negative property investments.

If you can find an ugly duckling in a growth area, you’re a chance at achieving both strong capital growth and a positive cashflow property using a makeover.

2. Do a letter drop

Friends of mine always laugh when I tell this story, but it works!

Looking for my first house took forever. We’d cautiously stalked properties, agents, vendors, financiers and specific suburbs for months but then when we were finally ready to bid, got beaten at auction.

Completely frustrated, I stewed on it all night and awoke the following morning with a plan to letter drop about 300 houses in four specific streets we’d decided to target.

After a couple of hours letter dropping, I’d received three phone calls from motivated vendors. Two of the properties were renovator’s delights. We bought one of them for about 10% less than market value.

I like this approach because the vendors are motivated and you’re the only likely buyer. The laws of supply and demand are in your favour. I’ve used it many times since and it continues to be a winner.

3. Undertake comparable analysis

Make sure you understand comparable values for both sales and rents in the area. Without this information you cannot develop a robust feasibility study. You’ll probably also pay more for the property than you should.

4. Get an early access License

Getting access to the property before settlement to undertake a light renovation will provide a massive boost to your property’s cashflow.

It allows tenants to move into your property the day after settlement.

A solicitor can draw up the agreement but just make sure you negotiate it BEFORE you sign the contract, while you still have bargaining power.

5. Use a registered builder

If you want to roll up your sleeves and go commando on the DIY front – go for it.

However, if you more interested in being an investor, make sure you engage a registered builder to undertake any enhancements. This is because only registered builders can offer the insurances and consumer protections that are required by law should anything go wrong with your project. See 10 Questions To Ask When Choosing a Building Contractor.

To find out about improving your very own ugly duckling contact us or call 1300 768 464.

About Richard

Photo Richard ArmstrongRichard Armstrong is a Director of Melbourne firm The Makeover Group which provides the RentBuilder service that delivers Positive Cashflow Property Makeovers.

He possesses over a decade of property makeover experience and post graduate property qualifications (RMIT), having researched what property enhancements give the best returns in the Victorian property market.

A Registered Builder (DBL37456), he is the author of the books RentBuilder – An Experts Guide to Cashflow Positive Property Makeovers (soon to be released) and Sell Your Home For More in Any Economy.

Richard is an active and experienced property investor who contributes to Australia’s leading property publications and websites. He has helped hundreds of clients add millions of dollars (collectively) to their property returns.