A Subdivider’s View Of Renovation
Most people know me as a subdivider through and through. Subdividing property is what got me out of the rat-race and has sustained my dream lifestyle ever since.
So naturally, people are surprised when they see me get excited about reno.
True, finding a renovation-only project that stacks up and is truly worth your time is very rare – unless you’re a builder by trade.
But as a subdivider, you need to remember one eternal truth:
Your Newly Proposed Lot Can Only Be As Valuable As The Surrounding Properties!
In other words… when you add reno as a strategy to a subdivision project – your ROI on your renovations DOUBLES – because the value is added to the vacant lot too!
And ￼that’s the kind of math I love!
OK, so now that you’re convinced you should be considering renovation as part of your next project, here comes the warning…
Don’t Lift A Hammer Before You Read This!
Just like I’ve recently done for you with Subdivision, Joint Ventures and Property Development – I went through my DIY Renovation Kit and picked out the most important things you need to know about before you start a renovation.
And here it is:
1. “How Do I Know What To Create For My Market?”
A smart renovator will identify their probable target market and renovate their property accordingly. This is true whether you are selling or renting your property out.
If you don’t know who your target market is, talk to local real estate agents or property managers to find out. Also consider what facilities are nearby to your property so you can ascertain the types of people who might buy or rent there. Are there day care centres nearby, high schools, churches, public transport or shops?
Your target market might be first home buyers with small families, professional couples (DINKys – Double Income No Kids), retirees, students or large families with teenage children. Often it’s hard to define who your target market is going to be, but it is worth the effort – even if you need to cater to more that one of these groups.
What Do People Want?
Next thing we want to work out is – what do these people want? How do they live? What sort of home are they looking for?
Young families usually want a secure place for the children to play, a bath, an indoor play area and maybe even a parents retreat.
Professional couples want all the mod cons and a low maintenance yard most often. In addition, they’ll probably want a great entertaining area, a study nook or office and a spare bedroom.
Families with teenagers see value in extra living spaces or a media room. Even things like an extra wide fridge space makes a difference – where else will they put their monstrous fridge? … You get the idea.
Think of how your target market lives day to day and do your best to cater to those needs.
If you are simply re-valuing, then this concept is not particularly likely to increase the valuation.
However, if you are selling or renting your property out, then getting your renovation right for your prospective buyer or renter, will result in hot demand and a faster, easier and more profitable transaction.
2. “Should I Be Doing My Own Interior Design?”
You’ve seen the shows on TV and thought –“mmm that looks great; I’m going to do that to my property”. Or you’ve seen a friend’s house and you’ve asked for the paint colours and got their advice on what to do on your property.
Or you’ve been to a seminar or read a magazine article to gather inspiration – and found a few interesting ideas and concepts to use.
This is a classic mistake!
Unless you’re a trained designer, then I’m 99% sure that this is how you’ve got your ideas together for your own renovation.
This Is NOT How You Should Plan Your Renovation!
Your property is no doubt different to the one you’re planning to copy – a different style probably, a different location, a different budget, a different target market.
A different set of rules from what will make your renovation a success.
My point here is that you need to look at your property in its own right. Copying other people’s renovation ideas can lead to disaster if you’re not careful.
- Using the wrong colours on your property. Even if a particular colour looked great in a magazine or on a friend’s property, it may not be suitable for yours. Be careful not to waste all that money on paint and materials in colours that are simply not right for the job.
- Renovating parts of the property that will not add value to YOUR property (even if it added value to the one you’re comparing to). This is the easiest way to over-capitalise – spending money where there is simply no return.
- Making renovating and design choices that don’t suit your property – and therefore spoil and devalue it. I see this a lot – where people suddenly become ‘master designer extraordinaire’ (sorry, excuse the sarcasm!) and add design features that simply make the property look worse, not better. Instead of asking for help, they waste their time and money on ugly, unsuitable features that offer a negative return.
3. “Where Do I Start With My Renovation?”
Unless you have a clear plan to follow for your renovation, you will over-spend and you will take longer than if you did have a plan. Simple as that.
Time-poor people often fall in to this trap. Struggling to do their day job and then trying to plan and co-ordinate their renovation often spells mistakes and ultimately loss of profits.
Creating Your Plan
You’ve no doubt heard the expression “if you fail to plan then you plan to fail”. And this is true for renovations as well.
Without an item-by-item list of what you are going to do to your property, how can you expect to:
- Create a great looking property that is cohesive in design?
- Get accurate pricing before you start?
- Thoroughly plan the implementation?
- Monitor your renovation progress and keep your trades-people on task?
- Enjoy a smooth flowing renovation
When you have a clear plan in place there is no confusion, no fluffing around and no arguments about what you need to do to your property for the greatest financial return.
In particular, spend as much time as you can on:
- Working out exactly what you will do to you property to improve it most effectively
- Getting pricing on the things you decide to do to your property (that will add the most value within your given budget)
4. “How Do I Budget A Renovation?”
You need to allocate plenty of time on number crunching. Not only will it increase your skill of assessing deals, it will help you gain confidence when talking to agents. As your confidence and knowledge base grows, the quicker you will be able to make an accurate decision. Practice makes perfect!
Now, there is no reason to complicate this process when you are in the initial stages of assessing a potential property deal. Keep in mind the ‘KISS’ (keep it simple stupid) strategy.
Separating The Wheat From The Chaff
You can expect to look at a lot of deals before you actually buy one, so you need a simple method to sort the good from the bad. Complex spreadsheets and calculators can come later, get the basics over the line first.
Mostly, people decide what improvements they want to make to their property and
then get quotes on those things.
However, you must do this the other way around. Work out your budget first and THEN figure out how you are going to improve your property within that dollar value.
There are a number of schools of thought about how much to budget, but I like to work on approximately 7-8%.
So, if your property is valued at $500,000 you should aim to invest $35,000 – $40,000. If your property is valued at $300,000 you should aim to invest $21,000 – $24,000. And if your property is valued at $700,000 you should aim to invest $49,000 – $56,000.
These Numbers Are Not Set In Stone
For instance, I would increase that amount if the property is in a good growth area. And I would decrease that amount if the property is not in such a good area. And if you’re planning on a structural renovation then this value would need to increase significantly.
You can also decrease that amount if you are experienced. And increase that amount if you are inexperienced to allow for overspending and errors.
For example, let’s imagine you have a $400,000 property in a low growth area that you want to renovate for profit. I would aim at 5-6%.
And if you have renovated your home before but never an investment property you might allow for 6-7% in this example to take into account your inexperience.
The bottom line is you need to know your numbers before you start renovating – then fit your renovation specifications within that budget.
5. “How Long Should A Typical Cosmetic Renovation Take?”
So let’s assume you have had your offer accepted and picked up a perfect little run down home 20% under market value – well done!
The clock is now ticking so it’s critical to get your budget, and schedule, rock solid and into place.
Renovations are notorious for going over budget, so it’s important to get hold of this from day one.
Let’s face it, you would rather have your renovation completed much sooner than much later. No one wants a renovation to chew up more of their spare time than necessary.
So What Do You Do?
Not only will a renovation time ‘over-run’ take up more of your personal time, it will eat up a fair chunk of your profit in unnecessary holding costs (unless you are living in the property yourself).
Having a clear action plan is essential for completing your renovation on time:
- Know exactly what you are doing to your property and can plan in advance accordingly
- Get accurate pricing from trades-people and product suppliers up front so you know your renovation will come in on budget
- Pre-order materials and products so they are ready when you are
- Buy everything at once to get considerable discounts
- Start work on the project without a hitch
- Minimise the amount of one-on-one communication necessary with each trades- person. With a clear renovation plan written down, everyone will be working to the same ‘script’ and therefore minimise gaps and over-laps which will cost you mistakes and loss of profits. Print your Renovation Action Plan © or “Borrow My Brain” Summary and leave it on site for all trades-people to refer to
- Experience a stress free renovation that finishes on time
It’s also important to give trades people the space to do their work without being on top of each other so be realistic when building your schedule.
6. “Should I Be On The Tools To Save Cost Or Employ A Builder To Do The Work?”
In my experience, it’s so much better to employ a builder to manage the project for you. Unless you have expertise in the construction industry, it’s just not worth your time trying to complete tasks that you are not good at.
I know there are a lot of people out there that want to give it a go themselves and that’s fine if you have the time. If you don’t have the time, leverage off others. Even if you do have the time, are you going to waste money in holding costs by doing everything yourself?
Check Your Emotions!
if you are still having problems handing over or letting go of the project, then choose just one or two tasks that you feel would be appropriate with your skill level.
For instance, I’m a bit of a green thumb so I like to do some of the landscaping. It saves he project a bit of money and allows me to get my hands dirty and contribute to the finished product.
Having a builder on-site means that you don’t have to be there every day to manage trades. A renovation is very time intensive and requires someone on-site constantly to make decisions as the project progresses.
A good builder will keep this process as efficient as possible and will be happy to keep you in the loop via phone to manage the many and varied challenges that crop up.
Time Is Money!
Remember that your time is money, so it’s important to choose a project where you can control the time. By this, I mean don’t choose something that requires any council approval; council applications are an unknown factor in that you could be waiting months before you can start the actual improvement.
Likewise, stay clear of structural renovations; these are not only costly, but also often go over budget due to the nature of the process. Best to stick with projects that a simple cosmetic renovation will that add value to.
7. “What About Home Staging?”
This is a relatively new concept in Australia but has been going for many years in the United States. It’s a critical component of your renovation strategy and you should be allocating time and money to this final part of the project.
Typically by the end of the renovation, funds are short but home staging can add tens of thousands to the bottom line of your project.
The cost can range from two to ten thousand dollars depending on the scale of your project. In essence, you are employing a home stager to come in a help you turn your house into a home. They’ll do things like:
- Show you how to remove the clutter and open the rooms up
- Provide hired furniture, wall prints and various trinkets to jazz up your home
- Ensure the home looks modern and suits the current buying market
- Ensure the house has an emotional connection to the prospective buyer DIY
All these things add to the experience of someone buying your home, and by investing a few thousand dollars you will not only get top dollar for the sale but you will most likely sell the property quicker too, saving you money in holding costs.
Discover 3 Key Strategies To Make A Pile Of Cash On Your Next Renovation… Even When The Market Is Plummeting!
Hopefully I’ve done a good job in getting you a little bit more excited about the opportunities that property renovation brings to the table. And if you want to master this skill, here is the best place to start:
It’s the #1 resource for learning how to make money while eliminating risk on a renovation project. If you’ve even blown a budget or know someone who has – this is your “insurance policy” and your step by step guide.
Check it out now – and I’ll see you next week with another killer post! 🙂