OK, I have a dirty little secret – I actually really like reality TV shows, and to be perfectly honest one of my favourite shows is Selling Houses Australia.
I love everything about it. I love how some simple yet smart renovations can make hundreds of thousands of dollars of difference in the sale price of a property and I love the difference a simple clean out can change how the property presents. But, what I don’t love is how they make it look so easy. The host Andrew Winter will roll in on a sunny Friday afternoon, tell the home owners how rubbish their home is, get Shayna and Charlie to poke around and then half an hour later, without even breaking a sweat the home is completely transformed and sells for a few hundred thousand dollars, more than when they started.
Unfortunately for us mere mortals, this isn’t how renovations work in real life. On TV shows like Selling Houses Australia, Better Homes and Gardens and The Block, the hosts and their cast of thousands spend weeks, sometimes months planning the renovations. As they are doing work renovating or improving properties every week, they have contacts in the industry to keep costs down and have a deep understanding of what is achievable within the time frames – which is where I have seen people make countless mistakes. So today we are going to look at the Reality of Property Renovations, and the 8 worst Mistakes to Make (plus how to avoid them)!
Mistake 1: Failing to plan
As the saying goes, failing to plan means you are planning to fail. Without having a crystal clear plan on what your renovation will involve, breaking down into the individual expenses and deciding which tradespeople are required, you will have MASSIVE cost overruns which ultimately mean you will not reach your original objective. If you are working with architects or draftsmen for designs, you need to make sure you go through all of the detail up front – a good way to go broke quickly is to keep changing the plan. Make sure you spend a little bit extra time up front and set a concrete plan which you stick to!
Mistake 2: Underestimating the cost
Again, the devil is well and truly in the detail. I commonly see people giving broad estimates on what they would like to spend on the renovation ‘We would like to spend $50,000 on the renovations’ but without breaking down the costs individually, this is, at best, a broad guess. In my experience, the most successful renovators will have detailed costings before proceeding down the path of renovating. They will understand if they want to replace or keep doors, if new vanities are required or even if they are keeping the existing light fittings and what the cost implication of this is. Gather as many quotes as possible before you start this process can help you firm up any unknown costs in your feasibility.
Mistake 3: Not doing a feasibility or profitability analysis
So once you have a better understanding of what the project is going to cost you, the next step is to work out how much profit it is going to make. Because if you aren’t going to profit, you are falling straight into the overspending and over-capitalising mistake which we will cover below. A lot of renovators struggle to crunch the numbers up front and understand if they are going to be profitable before starting this entire process, which ultimately leads to losing money or walking away with a negative return. To avoid this, it is best to take into account all project costs including purchasing, holding, labour, selling and lending costs. Being able to do these numbers will quickly show if your planned renovation is a worthwhile venture.
Mistake 4: Building a great product, but in the wrong suburb
Just because you can buy a house for $70,000 doesn’t mean you should. I recently had a new Sydney-based client who enquired about purchasing a property in Longreach (which is located 700 km West of Rockhampton). The client wanted to buy there and renovate a property just because it was cheap, but didn’t take time to think about the costs in getting tradespeople there, her costs of getting there, overseeing the project and even gaining an understanding of how that market is performing (median house rental is down 10.72% year on year according to Real Estate Investor.com.au). The point is you should stick to the suburbs you have researched and that you know. The best property renovators I have worked with stick to 2-3 core suburbs that they know intimately and leave anything else.
Mistake 5: Dodgy & inexperienced tradespeople
The age old trap of getting what you pay for definitely applies in renovation and especially with tradespeople. If you try to cut corners and get cheaper contractors who don’t have the skills to complete the work to the standard you require, your entire project can become unstuck. This will only cost you more money and time to fix. It is imperative that you only work with tradespeople that are licenced and experienced, which you can find out before employing them to complete your job.
Mistake 6: Overspending and over-capitalising with the wrong renovation
As covered in Mistake 2 and 3, if you have a detailed understanding on your costings and know you are going to make a profit from the project (and of course you stick to your budget!), it is difficult to overspend on your project. From my experience, the reason many renovators over-capitalise outside of the above is because they start the wrong type of renovation. This really comes down to research and understanding the final outcome. For example, if you are renovating an investment property it might not be the best idea to use 3-inch thick marble bench tops in the kitchen, bathroom and laundry. You could look at installing french doors which cost about half as much as putting in bi-fold doors but add approximately the same amount in value with most properties. If ever you are unsure, speak with local real estate agents who are great sources of knowledge on the local area and what is selling to different property buyers and renters.
Mistake 7: Not valuing time, and limited organisational skills
In property, time will take your money but money won’t buy time. In any property project, from renovations to full on property developments, time is one of the most critical factors that people usually don’t think about. If you have a rental property you are renovating, every extra day renovating is one less day the property is rented. If you are renovating your home, every extra day is money from your pocket into the tradespeople’s. All this comes down to organisational and management skills in getting the project planned and completed as quickly as possible. Remember that even a fairly standard 5-6 week cosmetic renovation can take up to 5 months from start to finish; and a 6 month build plus structural renovation can take up to a year once you factor in the purchase settlement period, renovation tender and build process, marketing the property for sale or rent and then the settlement period or time to find a tenant. It is always important to factor in extra time contingencies so you aren’t caught out.
Mistake 8: Confusing fiction with reality
So if you are anything like me, and love those reality TV shows, you need to give yourself a reality check and remember – they aren’t a good reflection of real life! You need to take into consideration all of the above points and know that renovation, while it is a very rewarding experience, can be extremely stressful and taxing both financially and emotionally. Overall, I still think it is worthwhile if you complete all the right steps and put your project in the best possible position from the get go!
If you need help determining whether your project will work financially make sure you speak to one of our team members at Red & Co. You can speak with the Finance team to look at what you can afford and if the numbers work or our Rentals team to get a full understanding of the impact your renovations will have to your end rental income!