The cold hard facts about renovating and how to beat them
You’ve probably heard people telling you how much profit they’ve made from renovating and others who say it’s been a complete disaster.
Who’s right? Well, both can be right.
From our experience, renovating can be a steep learning experience (otherwise known as a minor disaster) and a huge success. If we hadn’t made some mistakes along the way we wouldn’t have learned and moved on to success.
However, there are a few hard facts that you need to know before you embark on your renovating project. These are things we’ve learned through experience and we’re still learning.
Purchase under market value
You may have heard the phrase “the profit is in the purchase” and this is so true! You need to know the market so well that you’ll know a bargain when you see it and specifically when it’s under market value. Being under market value allows you to add extra value very easily.
Holding costs
Incredibly important to your success!!! and can often be overlooked. This is how much it will cost you to hold the property while you renovate i.e. interest payments on the loan. Know how long the renovation will take, allow for this in your calculations and work towards this. If not allowed for in your calculations this can be a killer.
Work your calculations backwards
Why go backwards? This is an easy way to work out the maximum price you should pay for the property. Simply, know how much similar renovated properties have sold for in your area, take off the cost of the renovation (remember to include holding costs) and that’s the maximum price you should pay to make a profit.
Don’t be afraid to make low offers
You should know your market well enough that you can make an educated offer. This means you know what has been sold recently in your area. When you know this you can validate to an agent why you’re making the offer. And if you’ve worked backwards for this price then you can be confident that you can succeed. We’ve had agents look at us in shock, but what’s the worst that can happen? The vendor says no. It’s all comes down to knowing the maximum you can pay on a property to make a profit. Remember there are loads of opportunities out there and if you miss out on one, you’ll soon find another one.
Does the property value up?
Here’s the thing…a vendor can put any asking price on a property that he/she wants but it doesn’t mean they will get that price and the bank may not value the property to that price. If the bank doesn’t value the property to that price you’ll be left with a shortfall and where do you get that from? Again it falls back to knowing the market well enough so you can make an educated offer that the bank should value to.
Speed of renovation
And the faster the better! This is where you will make some of the profit so you need to calculate how long it will take and work towards that target date. If you trundle along taking your time, you’ll end up with horrendous holding costs and lose any profit that you would have made.
Expenses on selling
When selling your renovated property without it being your principal place of residence you’ll probably be liable to pay some sort of tax. It’s OK to pay this, just be aware of it and know how much profit you’ll be happy making to make the renovation worthwhile.
Your time spent on the renovation
Assuming you’re working full time and want to renovate the property yourself, be aware that it will take up a whole lot of your after work time. Especially if you plan on a quick renovation, you can potentially work after your day job and on weekends. Know what you want to achieve and you’ll do fine.
Remember to eat healthy!
A simple and often neglected need during renovating is eating properly. Admittedly, we’ve had our fair share of take-away food during projects however it’s not healthy and can have an adverse effect in the longer term. Your aim should be for quick, simple, healthy meals and you’ll feel a lot better at the end of the renovation. If you’ve got time, you can cook a few meals and freeze them. Better yet, you might know someone who can cook some meals to freeze for you and all you have to do is thaw and reheat. How good would that be?
Renovation is a messy business
There’s no way to tiptoe around this one, renovating is messy, especially when you start playing around with structural aspects like demolishing internal walls. And it’s even worse if you’re living in it. Set your finish goal for the property (and each room if this helps) and keep your focus on this and you’ll be fine.
Trades and connections take time
At some point you’ll need to involve trades – electricians, plumbers and may want to connect things like gas. Remember that these things take time to arrange and your job isn’t the only one the trades are working on. Try and book them in as early as you can to minimise delays.
This isn’t an extensive list as there’s always something new to learn.
Hopefully this list and explanation has given you a greater understanding and a more full picture of what you can expect from a renovation and how to succeed.
Tell us what you think?
