How to spot a fixer-upper that's worth the investment

Before purchasing a property, spend time looking at what is available in your desired area and study the market thoroughly. This will give you the confidence needed when it comes time to purchase. Always speak to reputable estate agents in your area and brief them on your requirements - they may just lead you to the perfect property.

So, how do you go about spotting a fixer-upper that’s worth the time and cash investment? These are the most important elements to look out for:

1. It’s in a great location

If there’s one thing you can’t change about a property, it’s location. If a house is in a bad neighbourhood, an inconvenient position, or too close to an undesirable structure like a cell phone tower or ugly apartment block, you can do the most spectacular renovation and still struggle to make a favourable sale.

Good locations to look out for are homes within popular school catchment areas, close to central business districts, or in trendy neighbourhoods with convenient access to freeways and other amenities. A north facing aspect, mature trees on the property and attractive views are an added bonus.

Remember, just because an area is popular or trendy doesn’t mean you won’t find fixer-uppers on the market. You often find elderly people moving out of up-and-coming suburbs who are selling homes that make perfect renovation projects.

2. It’s structurally sound

Having the ideal location doesn’t always make a property a good fixer-upper. A sound structure is essential in order to keep renovation costs down.

Homes with serious structural faults, like unstable foundations or weathered roof beams, for example, can take a huge amount of money and expertise to repair. This is seldom worthwhile for buyers hoping to resell for a profit in the short to medium term. If you’re not sure about the structural condition of a property, I’d highly recommend getting an expert inspection performed. This is not the kind of issue you want to discover halfway through a renovation!

3. It has good layout

A solid structure is certainly an important part, but layout also can’t be ignored.

It’s a mistake to assume you can solve every design flaw by knocking down a few walls and opening up the layout. If the kitchen or bathrooms are in a weird location, or the bedrooms are all in the coldest, darkest part of the home, it’s going to be difficult to solve that problem in a cost-effective manner.

Look for homes with convenient room “clusters” – a comfortable bedroom wing, a central kitchen, dining and living area, and logically placed entrances, garden access and bathrooms.

This enables you to remove a few, non-loadbearing walls to open things up if necessary, and you won’t end up with a family bathroom in the middle of your living space.

4. It has predictable renovation costs

Building work is notorious for being unpredictable, but it’s vital to at least understand the renovation cost ballpark you’re playing in before buying a fixer-upper.

Try and set budgets for individual items or sections of the home. For example, set a price per square metre for flooring and stick to it. It can be very easy to get emotionally caught up on a project and choose finishes with your heart and not your wallet.

To make a profit on a fixer-upper, the purchase price plus the total renovation cost needs to be low enough that you can recoup your investment – with a healthy profit – not too far down the line. If you don’t fully understand the renovation costs, it’s all too easy to end up with a money-drain rather than a money-spinner.

While experienced house-flippers may be able to estimate renovation costs on sight, newbies should always consult with a construction expert before making a purchase, if possible.

If you are planning on contracting all the building workout, make sure you have chosen a reliable contractor with great contactable references. Don't choose a builder based on the lowest "thumb suck" pricing - you will regret it in the long run.

Don't forget to assign a portion of your renovation costs to the garden or green areas. This is often overlooked and can be a deal breaker if the building is beautifully renovated and the garden and outside areas are left unattended.

It’s all about going in with your eyes wide open. Naïve optimism has no place in a fixer-upper project, but if you do your homework and make sure you know what you’re getting into, renovating run-down homes can be a rewarding and profitable strategy for property investment.