With the increased interest in reality TV renovation shows which appear to be all the rage at present, you’d be forgiven for thinking it is really easy to turn a huge profit through renovating any run down shack you come across (as conveyancers we see clients disappointment when it doesn’t work out that way).
This week we take a look at why renovations may not be that simple after all …
1. Budget – Everything Costs More Than You Planned.
Most renovation shows don’t give a breakdown of the costs of renovations, and those few that do don’t count the cost of the team of builders and tradesmen that they have working behind the scenes.
So make sure you put together a budget before you start your reno (preferably do a quick costing before you purchase the property, that way you know the true cost of purchase).
And make sure your budget includes the cost of labour for a licensed builder and other trades, building materials, as well as fittings and fixtures. Plus don’t forget tiles, taps, and other accessories. By setting a budget you’ll know how much you can afford to spend on each item. And, as the next tip says, always add in a buffer amount so you can cover any unexpected surprises or cost overruns. We hate to be ‘doomsdayers’ but it’s worth remembering that unwritten rule of renovating – it will always cost more than you thought!
2. Surprise! Always Expect The Unexpected.
As we just mentioned, renovations are renouned for something going wrong or a job turning out to be more difficult than you had planned. It could be anything from finding termites or asbestos, to old or faulty electrical wiring, or the bathroom needing re-plumbing. We haven’t heard of anyone doing a full renovation that has come through without having to deal with problems that they hadn’t counted on, and hadn’t budgeted for! See point one for how to deal with this. Make sure you have a good relationship with your local ‘tradies’ to help when disaster strikes.
Have you noticed that in these shows like the renovations are completed in a matter of days? It gives us mere mortals the impression that we can renovate the bathroom in a weekend. What we don’t see is the hoards of tradesmen helping the contestants meet their unrealistic timeframes. Not to mention the complete sleep deprivation that the teams are put through.
Make sure you talk to your trades people to get a realistic timeframe for your renovations. Unfortunately you’ll need to factor in the ‘missing in action’ syndrome that a lot of tradespeople seem to suffer! I think I’ve only ever had one tradesman be at the job when he said he would and finish on time! We’d love to hear from you if you’ve got a great tradie who always arrives and finished on time.
4. Return on Investment. If you watched the Block in 2014, you’d have come to the realization that not everyone makes big money when renovating. Jane Eyles-Bennett, from Smart Property Investment notes that contestants Simon and Shannon Voss, the latest winners, cleared $335,000 on their $1.91 million sale. With Chris and Jenna Susetio coming in second with $310,000.
But Eyles-Bennett says that the remaining contestants earned very little for their 6 months of effort, with two of the teams making only $10,000 and $40,000 respectively.
It is really important to remember that the golden rule of property investment is to make the profit on purchase (see our chat with Heidi Alexandra Pollard about this). Do your homework and make sure you know the cost of any additional work that has to be done to get a property ‘market ready’. Look for properties that just need cosmetic improvements, rather than having to put thousands of dollars into fixing structural damage or electric and plumbing issues. Remember it needs to be cost effective. As we’ve already mentioned, set a budget and stick to it. Remember that every dollar you spend is coming out of your potential profit. If a purchase or service will not increase the value of the property by more than the amount spend, consider if the purchase is worth it.
Of course, if you have found your ‘forever house’ you may be willing to spend a little more to get exactly what you want, but we still recommend you try and not overcapitalise too much.
This article is for informational purposes only. go go Conveyancing will not be liable for any errors or omissions in this information nor for any losses, injuries, or damages from the display or use of this information.