Updated July 2024 by Stephen Cochrane
Flippers, investors, sellers, lend me your ears. The Perth property market, both commercial and residential, continues to buck national trends renovating for profit is the number one activity for those building a property portfolio in Western Australia. So let’s take a deep dive into how to maximise your sale price and how to determine your painting ROI on pre-sale renovation.
The Perth Property Market is Poised for Profit
For flippers and sellers, the key to a highly profitable renovation is using market data to estimate your potential profit, and then maximising the sale price by calculating the ROI on renovations. So let’s look at the key indicators for a profitable sale:
1. Time on Market/Demand
2. Potential Rental ROI
3. Property Market Forecasts
The Perth property market, like Brisbane, is bucking the trends we’re seeing in Sydney and Melbourne, and showing little sign of slowing.
Perth Property Average Time on Market
Right now, there’s a ten-year record low on available properties and time on the market – with the average Perth home being snapped up in just 8 days. For sellers this means that that the time to renovate and sell is RIGHT NOW. For buyers, unfortunately, it means steep prices in the market. So, property flippers must choose their potential purchase very carefully to ensure good potential ROI.
Source: REIWA
Rental Return
It’s not about whether you plan to rent the property out or not, it’s about the value in the market set by those who are purchasing a rental property. The good news for sellers is that the rental market is tight, with tenants paying unprecedented rents. This is terrible for tenants but reassuring for those buying in this expensive market, knowing that the investment is relatively safe.
Painting Renovation Adds 5% Value – Myths and Facts
This is a fun fact widely accepted by the industry, but its source is outdated. Calculating ROI on painting is far more complex than this ‘easy to consume’ statistic. The hard truth is, that it’s probably “about right” but that the current property value fluctuations could mean it’s far greater, or less. The idea of a “flat rate” ROI on painting is a bit ridiculous. Here are the key factors that will determine the ROI on painting work.
- Current State of Property. If the property has shabby paint, an outdated colour scheme, or the tenant has gotten crafty with the paint work, the ROI on the property will be far greater. The paint is actively reducing the value of the property below market value. If you’re selling your own home with dated colour schemes, you are actively reducing the value of the property below market value. This extends to “hiding flaws” in the walls caused by damage and previous renovations.
- Buyer Mindset. The street appeal of the property and the desirability in real estate imagery determines the “first impression bid”. If a home gives the first impression of being “daggy” then the buyer’s mindset is “go low”. In trendier suburbs, or in suburbs where First Home Buyers will sacrifice the “right” postcode for “a nice house” the property’s ability to impress is a pivotal factor in sale price. This isn’t just down to paint, but bad paint will harm offers.
- Extent of Paint Work. Interior, exterior, roof. If you need all three, the painting costs will be hefty but if all three carry a hefty increase in ROI, then it’s worth it. If the roof could just do with a clean, it’s much cheaper to get that done than a full paint.
- Impact of Final Result. This is the one that’s hard to ‘budget’ because the biggest impact is achieved by professional Perth painters using quality paint. The perfect, seamless paint job isn’t as simple to achieve as you think. And a rough job doesn’t just make for a ho-hum result, it can adjust the buyer’s perception – from WOW to OK, that’ll do. Which in turn, adjusts their offer and bid cap.
Minimising the variables when calculating Painting ROI
The biggest variable within your control as a seller is the impact of the final results. Once you’ve found a solid potential flipping property, or you decide to sell your current home, the best way to minimise risk is to create the right impact. This is, without question, down to the quality of the house painters and the paint that they use. As Perth’s most awarded, longest running and most reputable painters, we got here by doing a superior job. That’s what we do. We know how to make the “colour you want” match what appears on the walls (it looks very different in the tin – it takes experience to understand the light and other factors impacting paint colour). It takes experience to create a perfect wall surface. It takes experience to know when to make the paint job “pop” and when to make it “set the scene”. It takes experience to know exactly how to finish every detail correctly. That’s how you eliminate the risk of “unimpressed buyers”.
Calculating ROI on your specific Perth Property
- Get some expert advice on the potential sale price in your area for a property similar to yours.
- Using “5%” as your base line, determine if the current paint is reducing the property’s value in the market (if so, estimate an increased percentage). If the paint is “fine not great” continue working with the 5% rule.
- For premium properties, contemporary quality paintwork is “assumed”. While paint may play second fiddle to “luxe” features including property features, location and views, lack of modern decorating will hinder your sale. However, in these areas, you may wish to calculate at a lower percentage.
- Apply your “estimated” percentage to the market rate for properties similar to yours in the area. This forms your “potential dollar value ROI”
- Determine how extensive the painting renovation needs to be – is it inside, outside and roof
- Get costings on the paintwork and ask all the questions about the biggest risk – poor results. Don’t skimp on the cheap paint. Don’t hire a handyman to do a skilled tradesperson’s job. This is the fastest way to drop your ROI far below 5%. The cheapest is not going to deliver you the best ROI, and that makes it very, very expensive.
- Using your painting quote, calculate the cost of the painting renovation and compare to the potential dollar value. Is it worth it?
Premium Suburbs ROI Calculation Example
It’s true, that a Peppermint Grove palace with views for miles, will still fetch more than $3 million, even if it’s painted in graffiti. In reality though, a buyer with $3 million or more in their pocket, expect quality, contemporary interior design. The median sales price for a four bedroom home in Peppermint Grove is currently $3.4 million. If the property has an outdated paint job, let’s be generous and say it may only impact the value of offers by 2%. That’s $68,000. If the cost to paint the home is $30,000, the return on investment exceeds 200%.
Calculating Painting ROI on the Lower End of the Market
The potential for higher rental returns aside (and your buyer will ABSOULTELY be considering this), calculating ROI on lower end properties is vital, and a bit more complex. We’re talking properties for sale as investment properties, or targeting First Home Buyers OR buyers looking to flip, seeking ‘renovator’s dreams’ where the paintwork is shabby. How do you calculate painting ROI for flippable properties?
Let’s say a three-bedroom unrenovated property in Banksia Grove will sell for around $500,000. The property lacks too many wow factor features and has an out of date colour scheme and ‘warn” paintwork. Completing painting renovations on this property could increase its value by as much as 6%. If the painting work costs around $20,000 the seller can expect a return on investment of 150%. Even at a 5% increase, the seller can expect a 125% return on investment.
Top 15 Suburbs to Renovate in Perth
Property forecasters are naming these as the best suburbs to hunt down the ultimate renovator for the purpose of flipping for profit in 2024. They balance solid growth metrics and plenty of “renovator dreams”.
- Wanneroo
- Kwinana
- Armadale
- Alkimos
- Carramar
- Joondalup
- Ellenbrook
- Mandurah
- Northbridge
- Orelia
- Yokine
- Brabham
- Gosnells
- Forrestfield
Perth renovations – getting help from the professionals
Do you need some help improving your property? A professional paint job can make all the difference!
Don’t wait to get started on your renovation project. Contact AJ Cochrane & Sons, the city’s esteemed painting company proud to support renovations in Perth.
