We all know there’s never just one way to make money in the property market, and it’s probably about time we looked at a method that excites many, and can involve massive profits; renovating!

Browsing realestate.com.au, there’s endless listings described as “renovators dream!” and so forth. However, it takes detailed research and investigation to ensure the property is suitable for doing up.

While we’re certainly looking for properties with opportunity for some DIY improvements, there can sometimes be a lot of risk involved when it comes to the structural quality of the building. So, it’d usually be a wise investment to have an in-depth building inspection performed by professionals before even considering a renovation project.

Alright, to illustrate my hypothetical renovation scenario, I’ve found a property at 349 Barnard Street in Bendigo, Victoria. At current, it’s selling for between $200,000 and $220,000, and receiving $210 rental income. So, even before adding any value by renovations, and going on a middle-ground purchase price of $210,000, it’s getting a gross yield of 5.2%. This isn’t quite as impressive as some of my previous analyses, but remember; we’re aiming for capital growth and increased rental income as a result of the improvements that we’re about to make.

Let’s take a fair guess and say our hypothetical investor (we’ve gone back to our original investor now, by the way, although a low-income earner could expect similar results but with fewer tax advantages) might spend $20,000 on improving the property. This is also going to affect interest payments as the investor will be using equity in their existing portfolio to foot the bill for all renovation costs instead of using cash.

Now, to get some idea of what the results of these renovations might be, I’ve found these two closely comparable properties, located in the same area. This seems to show that we can work at a rough post-improvement value of $275,000 (increased value of $65,000). I’ve also spoken to the agents selling both, and they’ve estimated around $270pw for this one at 133 Marong Road, and $290-$300 for the other at 196 Mackenzie Street. For the sake of this analysis, let’s work with $285pw as a reasonable median.

This amount leaves our investor neutrally geared, but it’s important to keep in mind that if we’ve got tenants during the renovation process, we’re more than likely going to have to lower the rent for that period as a sort of compensation – or more likely, the property will be vacant. Hopefully we’ll make up for this when rent increases as well as realising some nice capital gains somewhere down the track. Let’s also remember that the main benefit to renovations is often the increased valuation at the other end of the deal – this gives our investor more equity to play with by getting another valuation or by selling the property.

Let’s be honest though, renovation isn’t for all of us. Doing so in a regional area and managing the project from a distance also carries its own obvious risks. Though it is certainly something to look in to, as we know there are endless amounts of ways to profit from the real estate market. It all depends on the property, and the investor, so get exploring!