Important Things to Consider Before You Start Renovating
Keen to renovate? Before you pick up that sledgehammer, you might like to consider our pre-renovation checklist to ensure you have all the boxes ticked and the right plans in place to ensure a successful outcome.
Renovating your house, whether it is a one room refurb or a more extensive remodelling is not something to take on lightly. While you may have been inspired by the many renovating TV shows showing amateurs merrily flipping properties for significant rewards, it’s also best to remind yourself of the liberal smattering of tears, arguments, budget blowouts, disappointments and even injuries that go along with these experiences.
However with careful planning, successful renovating is possible and can be incredibly exciting and worthwhile. You may like to consider some of the following important points before jumping in, workman’s boots and all.
- What’s Your Why?
There are many reasons why you may choose to renovate. Perhaps it’s to enhance your lifestyle, or to expand rooms and floorspace to accommodate a growing family. Investors may want to increase rental return. Others want to manufacture the equity to compound on top of the increasing market value, either to leverage for another loan or upsize to another property. Whatever it may be, psychologically, ‘why’ you want to renovate is key to staying motivated and keeping your plans on track. Without a clear picture of why you are undertaking the renovation, the whole situation may become a total train wreck.
Renovating purely for capital gain on investment properties has become increasingly popular and media success stories abound of how people have become financially independent by ‘flipping’ properties. It isn’t as easy as it seems but it is possible. If you are imagining yourself with a lot of free time travelling the world and enjoying the fruits of your hard labour, you need to have a clear plan of what this financial freedom looks like. The sooner you write it down and quantify it, the sooner you can reverse engineer the numbers to see how much you need to get started. Start small and don’t stop and before you know it your passive income will surpass your job and you can use your time to do the things which are more important to you.
- Seek Financial Advice
Whether you intend to finance the renovation by using the equity in your home, refinancing, redrawing on your existing home loan, or some other way, the first step is to seek good financial advice. This will help you structure a successful portfolio in the long run and will help you restructure should you require additional funds at a later date.
- Plan Your Budget
You will need to allow a contingency of 10 per cent of costings to create a realistic budget. If it is possible, focus on aesthetic improvements rather than structural changes – as long as they are not considered dangerous. Structural changes are expensive and less likely to be noted as ‘adding value’ when it comes time to rent or sell .Aesthetic changes are usually less expensive and can more easily impress a potential tenant or buyer.
Also note that loan repayments are payable even while the property is sitting vacant, so maintain a manageable timeline to ensure there are no budget blow outs.
- Time is Costly
Most Australians work well over the standard 40 hours a week so finding the time to renovate can be difficult. There is no point in rushing a renovation but it is important to have a realistic deadline. Taking too long to finish a project may result in a huge opportunity cost in the long run, such as prolonging your next renovation project.
- Do it Yourself?
You might think renovating yourself is the right way to go but do you have the right skills, or the time and expert help to acquire them? You need to be realistic about a DIY approach as there is no point in risking damage to your valuable asset as well as your safety trying to save a buck. Many people’s expectations are too high in the short-term and too low in the long-term. As US general Douglas MacArthur once said, ‘There is no security on earth, there is only opportunity’ so you need to work out where your time and expertise are best placed and which experts can really enhance what could be an amazing opportunity.
- The Know How
Many people walk away from renovations having achieved little except the experience of a stressful costly exercise. It’s actually very difficult to make a profit or instant equity on a renovation and completing one successful DIY project does not mean you will be able to repeat it given how quickly costs and the market’s appetite can change. Many people are unaware that buyer’s agents Buyer’s agents are experienced in selecting properties with renovation potential and can help highlight property issues early on so that you will be able to ask the right questions to the right people before starting a renovation. This can help avoid costly mistakes such as ending up in the Land and Environment Court over council development application issues. Buyer’s agents often work closely with a team of cost effective and reliable tradespeople and professionals such as planners and architects and can often recommend a third party who they know to be reliable and honest.
- Your A-Team
Getting the right people on board is essential. As suggested above, your A-Team may include a buyer’s agents as well as other experts such as a valuer, conveyancer, mortgage broker, banker, building and pest inspector and the relevant tradespeople. Acquiring the skills of respected professionals will help you avoid common pitfalls and save you money in the long-run. Rather than relying on online searches, ask your friends, family and relevant stakeholders for recommendations on the right person for the job. Ongoing communication and building relationships are crucial to a great end result.
- Is it the Right Property?
Sometimes it’s easy to spot a handyman’s delight, but just because there is a rundown freestanding house sitting on a big block doesn’t always mean there is a motza of money to be made. Before purchasing, property owners should spend the time determining the type of profit to be delivered. Ideally, you should aim to get $2 back from every $1 spent. It’s absolutely critical to know your market and location to gain a good understanding on comparable values. Consulting a property buyer’s agent with vast local knowledge enables investors to understand what type of property buyers or tenants are favouring. Cohen Handler has a property management team who assist with rental appraisals and have vast experience in understanding market values and demand.
- The End Game
Make sure you end up with a property that satisfies your overall investment objectives. Everyone will have a different motive and there are many ways to achieve your end goals. Some may thrive on quickly flipping properties for profits, others prefer a long-term cash cow, and some like to simply sit back and enjoy the improvements they have made. Before you renovate, considering the issues outlined above will ensure the numbers and the property add up to help you move towards a successful renovation and, if it is your goal, a step closer to financial freedom.
If you are interested in buying a residential or investment property with renovation potential, Cohen Handler’s team of expert buyer’s agents can help you find the right property at the right price. Contact us now.