Property Renovation is Idealistically Romantic and Frustratingly Thwart With Surprises. Think before you do!
Property Renovation is idealistically romantic and frustratingly thwart with surprises. It could be said that it mirrors life in that you can be assured of three things...
2) Taxes and
3) Cost over runs!
For a 'non-professional' home renovator, this can be a tough gig and skinny on profit if you are not handy on the tools or totally aware of just what can be involved. Your priority objective is to buy cheap, do a lick and flick renovation with minimum structural work and sell quickly for maximum profit. (Just remember your competition buyers in the market also want this too.)
Property renovation requires a totally different mind-set and action plan from that of a passive long term investment strategy
And although I have done property renovation in varying degrees of totality myself, I can vouch for being a passive property investor.
I guess I have made enough investment mistakes to consider or favour where I like my money to work hard for me with minimum grief.
However in presenting an insight into what you’re up against, here is an over view.
Do your research
Given that you understand the value of a location, one of your first aims is to make money on the buying of the property. You will be looking for something that presents poorly but will only take some dedication with a skip bin and a paint brush to make a dramatic change.
What should you look out for?
Avoid major works required especially re-stumping, major salt damp, failings in the foundations or problematic roofing. Re-stumping and foundation work not only means council permits and inspections but dead money. Dead money is what I call money that returns a 'thing' to what it should have been in the first place. Ie, you get zero bang for your buck. A foundation should be, 'a sound foundation'. Not something that you have to fix before you start your renovations that people will see and be happy to pay money for.
Be prepared to spend $500 to $1000 on expert advice
$1000 wisely spent before you spend 2,3 or $400,000 is pittance compared to having to spend $5000 on a plumbing problem that could have been detected pre purchase.
The same applies to the roof, bearers and joists, flooring, electrical and heating or cooling.
Be realistic with how much work will be involved and the cost to do so
Only when you are sure about the big ticket items can you make a judgment call on the amount of work required, and the budget and time that will be required to complete that work.
Focus on the staples of what every real estate agent will tell you with any property renovation
We've all heard it before. A nice kitchen, bathroom and toilet will sell a property. Now that does not mean granite and glass splash backs for the kitchen. Nor does it mean Royal Dolton quality for a toilet and wash basin.
What it does mean is clean, new and light in colour.
Again, it’s about being clean, new and neutral in design and colour. For all the trouble of cleaning old carpet and floor coverings, it can prove to be an excellent return on money to replace them all together and go totally new.
Please, if there is one thing that you get right, this is one of the best returns on money that you can get. Get conservative colour coordinated advise and use quality paint is the best advise that I can give you.
Heating and cooling
This will be dependant on extremes of climate. If it will be sadly noticed by prospective buyers then you'll need to make a valued judgment on whether you include this in your property renovation.
Light, windows and sky lights
Get all you can for as cheap as you can. The difference between a dark room and a light room is chalk and cheese.
Get any quotes well in advance
This includes big ticket inclusions (stove, bath-tub, carpets etc) and quotes for work that you will have to outsource well in advance and preferably before making your budjet. Be sure that any tradesman quote supplies clear specification including exactly what will be done, in what time frame and method of payment or when progress payments are to be made. (It is always a good idea to factor in a final payment on a quality control sign off that the job has in fact been done to spec.)
A good contract with any trades-person will also detail how any changes will be done to any work carried out and how to deal with a that builder or trades person who wants to extend the time taken for completing the work. It will also detail what guarantees are involved and how any dispute will be resolved. A reputable builder will have no resistance to this and quite possibly require or offer such detail.
Taking your time to obtain and cover for all contingencies (because Murphy is a part of property renovation) here will enable you to more accurately calculate all costs.
Permits are crucial. Yes some may say revenue raising but none-the-less, if you need one, get one.
Insurance is like oxygen. You only realise that you need it when you haven't got it!
Here's fair warning - Get both Now!
Do your tradesmen have them? Do you as an 'owner builder' have them? Public liability and permits are a must and be sure to see what is governed by either the State or local council. Enquire with yours to check that you have what is required.
Now the funding part
A common complaint for anyone doing any sort of renovation is: 'It cost twice as much as I thought it would.' (They normally add a little qualifier like, 'But it was worth it!'
While many will advise a 10-15% slush fund, can I say and depending on the amount of work that has to be done, that in the real world or property renovation you will use all of your 15%. So if you can write a tight budget and stick to it, great, 15% will be enough. If you can't or don’t put the planning work in at the front, then be sure to have access to a slush fund big enough to get the job done in the time frame allocated if you have to.
Finally..., ‘Off the Cuff Tips’ for your property renovation :
Avoid an ‘investment mistake’ and consider the do’s and don’t’s
*Spend money on the wrong improvement
*Turn a blind eye to something that other people will view as a problem to fix
*Overpay workmen or conversely lose good workmen due to underpaying
*Settle for poor workmanship - be sure and totally clear about the job to be done
*Fail to plan a project and then manage it to the finish no matter how small
*Rip up the old carpets before checking what flooring is underneath
*Do any handyman electricity work
*Do any handyman plumbing work
*Do work without require permits
*Forget to budget for bank holding cost interest and progress payments
*Carry a slush fund of +15% or more for unsuspecting cost over runs (even with tight planning)
*Get required permits
*Obtain accurate quotes and ask for guarantees
*Think kitchen, bathroom, toilet, light and storage space
*Realise that paint is one of the best cost returns you can do with a house
*Stick to time and budjet constraints closely
*Organise finances before you start
*Have an exit strategy (sale)
*Pre-organise your selling agent
*Clarify what you can and can't do and what you'll need to out-source
*Think about where you can get the most bang for your buck with any property renovation!
*Changing any negative perceptions about the property
*Removing any disincentives
*Adding spatial quality where ever you can
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