Patrick talks to Tim Webster on 2UE about his latest book The Insider's Guide to Renovating for Profit as well as the risk renovators face of overcapitalising on their property.

Click here to listen.

The silly season is just around the corner and many people who have been looking for a new home or investment property for months will put the search on hold till the new year while they focus on getting things organised for Christmas. For sellers though, December is an important month, particularly if they have had a property on the market for at least a month already.

Make no mistake, the majority of people with a property currently on the market have a strong desire to sell their property by Christmas. With less than a month to go it’s very likely they are of the mindset to accept a little less and in some cases a lot less then they may have a few weeks ago just so they have closure going into the new year - particularly if they have purchased elsewhere already...

Beware the profit killers – In this edited book extract, experienced investor Patrick Bright shares his tips for finding, buying and renovating residential properties for a quick windfall.

Renovating residential investment property is a great way of building wealth quickly. It’s a relatively low risk strategy if executed correctly and will allow you to manufacture capital value and increase rental returns without relying solely on market conditions.

Back in 1999 a friend of mine wanted to sell a house his parents left him when they passed away. Since he knew that I knew a bit about real estate he asked for my help. The house had been neglected for 18 months and was in very poor condition. A few local real estate agents gave him valuations between $320,000 and $340,000...

In a wise move the NSW Government is tightening up the stamp duty exemptions - after all the savings are essentially passed on to vendors though increased sale prices rather than helping out the buyer. Come December 31 and exemptions and subsidies for first home buyers on existing homes under $600,000 come to an end.

With just over seven weeks to go until the deadline, first home buyers are likely to come out of the woodwork as they try to beat the cut-off and save a little cash. Investors would be wise to tread cautiously in this climate to ensure they don’t get caught up in an emotional bidding war...

Patrick's interview on Real Estate Talk with Kevin Turner

Buyers agents tell us that they are getting enquiries from buyers motivated by the recent spate of TV Renovation Shows. Unfortunately they have an unrealistic view about renovating and making a profit. We get a good grounded view from two buyers agents who tell it as it is. Click here to listen to interview or read the transcript below.

Full transcript:

Kevin Turner: You’ve heard us in the show talk about Buyers Agents from time to time. There’s a buyer’s agent in Sydney by the name of Patrick Bright who is a good friend of mine, we’ve had him on the show a number of times he’s written many, many books and is very knowledgeable about the market.  His company is EPS Property Search and I was taken by a comment he made the other day about shows on television may be misleading people about the cost of renovations.  He joins me...

In a strong and/or rising real estate market pretty much anything sells even properties that are not well located, well designed, or built to a high standard. However in a flat or declining market only quality A and B grade property is highly desirable. It’s important to keep this in mind when you’re looking to buy. My advice to my clients is that it’s always better to pay fair money to secure a well located, quality home or investment property rather than buying a property that, well...simply just isn't...

According to figures just released by SQM Research there are 22% more properties available for sale nationally than there were 12 months ago. In Sydney that figure is 18%. My team and I have certainly noticed this surge in available property stock when searching for property for clients. At the moment we are spoilt for choice with the amount of real estate currently on the market. In addition there has been a noticeable drop in the general public’s appetite for taking action (particularly over the past few weeks due to global share market fluctuations), so we are seeing a lot of vendors being much more flexible in price...

For “The Block” enthusiasts, Sunday night’s finale was a flop with only one of the four properties selling under the hammer. Instead of popping bottles of champagne contestants were crying on each other’s shoulders. The program highlighted some important points and plenty of warnings that would be renovators should pay attention to as it goes to show that renovating and making a profit is not easy to do, even with significant resources and support…

This week on the Channel Ten show called The Renovators (episode 3) we saw two teams battle it out to renovate a terrace each – but they only had a 12 hour day to do it! The challenge was designed to see which team could add more value to their property based on ‘before’ and ‘after’ valuations. We saw skilled renovators hard at it all day investing in new kitchens, renovating the bathrooms, painting in and out, installing plants, putting up back yard fences, landscaping…. you get the idea it was a complete makeover.

But the big thing that stood out to me was that after all their hard work the post renovation valuations barely increased relative to the work that was done and once you factor in the cost of labour and materials they lost money. This is a great example of how easy it is to overcapitalise even when you’re supposed to know what you’re doing. Renovating is not just about making the property look good it’s about adding significant value to the bottom line or, I have to say, why bother?...

Now is certainly a good time to add value to your property, particularly for investors who are looking to manufacture equity and increase their rental returns allowing them to add to their property portfolio sooner rather than later.

If you’re going to renovate then the first decision to be made is if you are going to manage this process yourself or engage a project manager. If you decide to go it alone rather than hiring an experienced project manager then you need to make sure you’re prepared. Here are a few tips to make sure you start the project with a realistic outlook…

The strength of the Australian dollar against the US and other currencies has seen many expats, who are paid in US dollars or other foreign currency, put the brakes on buying Australian property. Understandably they don't like the fact that their money isn't currently giving them the advantage it did when those currencies were far stronger.

However, is this ‘wait till the dollar drops’ strategy the right move for those who are planning to return home in the next few years...

I was speaking with a finance broker last week and he was telling me a story about one of his clients who purchased a property for $661,000. Ok, so there’s nothing unusual about that but here's where it gets interesting. The finance broker knew the area as he lived close by and thought that $661,000 was a lot for a two bedroom apartment in that location so it must be something special. As per standard practice the bank ordered a valuation which came in at $661,000 (the purchase price). This surprised him as he was sure the valuation was going to come in well below that figure.

In sharing the story with a co-worker, they discovered that a different client had asked the co-worker to help them with a re-finance against a two bedroom apartment that they owned in the same street. As it turned out it was the same property and the valuation came in at $500,000...

Do you find that sometimes when you ask a sales agent a question you get the feeling they might as well have hired a parrot to answer you? Well, the other day one of my team members emailed a sales agent to ask for a price guide on a property as it was listed for auction. The email answer he received was "buyers feedback has been $XXXXX". My team member was laughing so hard that he literally fell off his chair. I asked him what the joke was about and he replied “how do you get buyers’ feedback on a property that has been on the market less than 24 hours and is yet to have an open!”...

With the end of the financial year fast approaching it’s a good time to sit back and analyse your financial position in the same way that a small business does (or should!). Regardless of whether you have 1, 3, 5 or more properties you need to treat them all like a business. Undertake regular reviews, no less than six monthly.

As a stocktake here are a few things that you should ask yourself...

If you ask experienced sales agents how to attract a crowd and virtually guarantee a sale over fair market value then they will tell you to market the property as a "deceased estate".  People want a bargain and the promise of one is guaranteed to spark interest, in fact very strong interest! 

The problem is that most bargain hunters are so focused on securing the ‘bargain’ on offer that their ability to rationally and objectively assess a property’s true value in such circumstances often goes out the window in much the same way it does when a home buyer falls in love with a property.  They think that whoever buys the deceased estate will have bought a property below market value (the bargain price) and so their strategy is simply to be the winner by offering or bidding the highest amount rather than basing their negotiation or maximum purchase price on unemotional research...   

Every year Australians have at least a few months of sweltering conditions that make them seriously consider moving to a colder climate or at the very least installing air-conditioning! There’s no doubt that an air-conditioned investment property will be particularly attractive to the rental market especially in the hotter months. So how do the numbers stack up...

I read an article in the Sunday Telegraph on the weekend which featured a property up for auction that was riddled with termites. The story called “$800,000 for Sydney termite 'dump' with no floor” went on to describe how buyers got carried away with the bidding process to purchase this so called ‘renovators delight’ which is currently in an unliveable state...

The devastation that homeowners and business owners have experienced in the flood-affected areas in recent weeks is unfortunately likely to continue for some time. The harsh reality is that property values in most of these areas (particularly in Brisbane) will drop quite significantly as they did in areas affected in the 1974 Queensland floods. I have spoken extensively to one of my Brisbane real estate contacts who was working in real estate in 1974 and he tells me that most of property which was affected at that time dropped in value by between 20% and 50% and in some cases even more.

Because of this the banks may choose, or essentially be forced by their mortgage insurers, to have flood-affected property revalued. The results can be overwhelming for property owners where their property is revalued significantly lower than it was valued just prior to the flood event...

We’ve all seen the horrendous images coming out of the devastating Queensland floods and our hearts go out to those who are about to go through the painful process of cleaning up or rebuilding their properties. For many this rebuilding phase is going to be emotionally heartbreaking and if they are not covered by the correct insurances, financially as well. It’s an all too real reminder to make sure that you are all fully aware of the risks when buying residential or commercial property – particularly for those people buying in an unfamiliar area where they don’t know its history...

Finally further progress is being made towards a fairer playing field in the real estate market which in my view will be beneficial to both buyers and sellers! The Review of Vendor Disclosure for Residential Property Sales in New South Wales headed up by Matt Brown MP is something I have strongly supported.

The review has recommended that vendors who sell their home via auction be required to provide a pest and building inspection which, by my estimates shared at the forum in Parliament House on the 15th of September, will save buyers in excess of 40 million a year on duplicated reports for the same property in NSW alone preventing thousands of buyers from going through this expense when there’s no guarantee of a purchase...

Believe it or not but there are only five weeks until Christmas which may send a few of you into a panic. Many prospective property hunters set themselves a buying timeline and a lot of them choose the end of a calendar year as their end point. For people who have looked but not found for the better part of 2010 the pressure to purchase may be starting to build as 2011 looms - even more so if you have sold your current home...

Eight months of patience and negotiation certainly pays off. We inspected a quietly-listed property earlier this year which my clients loved. We made the vendors a fair offer through their agent however we then discovered the vendor wanted a silly price, much more than the selling agent led us to initially believe so we said "we like it but not at that price".

The agent said “it’s worth it” and I just smiled and said “do you really think that?” He went silent for a minute and then told me that perhaps it wasn’t worth quite that much but that it was a great property with loads of potential.... Upon further questioning I gathered that the vendor had formed his wanted price based on the feedback from several selling agents on what they said they could get for him if he gave them the chance to sell it...