Can I do the renovations myself?
You may decide you will be the one to complete or oversee the renovation. Doing the renovations yourself means you have complete control over timing, costs and scheduling as well as saving on labour costs along the way. It can be a great way to go if you have plenty of time, knowledge and skill.
However, if you haven’t renovated before there’s a good chance that you might underbudget the true costs and go well over time. Trying to learn on the job can be pretty tough and even though you can temporarily stop the job when you run out of money, it’s very hard to profit from renting or selling a half-finished property. It might even be worth less than what you bought it for.
My tip is to double your expected cost and double the time frame, and then work out if you’re still going to make a profit. Most of the time, it works out more efficient from a time, cost and stress perspective to outsource the renovation to the experts.
I once had a client who wanted me to buy him a property to renovate as a retirement project. When the time came to renovate, my client asked me to outsource big jobs like the kitchen and bathroom, as they’re best done by specialists who would do it in a fraction of the time.
We then agreed that tiled flooring was best left to an expert and built-in wardrobes left to a different specialist. Five minutes later, the only non-specialist job that he had a hope of completing himself was the painting.
What if I don’t want to do it myself?
If you’ve decided to put your renovation into the hands of the experts, finding a good team of tradespeople and other professionals can be the most challenging part of the job. They often have a different mentality and style of working to other relationships you have in your work roles, so it’s important to build a bond.
A great place to find good tradespeople and other professionals is through recommendations. Ask family, friends, real estate agents, mortgage brokers and buyers’ agents for referrals.
Recommendations from property investors who have completed a number of successful projects are especially valuable.
When dealing with any tradesperson, it’s important that you always ask for details of the insurances they hold and names and numbers of previous customers they’ve worked with. Make sure you actually check these referees to see if the work was carried out to their satisfaction. I often go and see projects that are midway through renovation, as well as ones that have been finished.
There’s also nothing to stop you asking for a guarantee: what penalty will they impose on themselves if they do not complete within a certain timeframe?
When you’ve found your team, the more you use them, the better they’ll work together, as you’ll build trust and learn to iron out little issues. If you’re doing a one-off project as an individual, finding a good team and building an instant relationship can be difficult, and in this instance it could pay to use a project manager.
What is the benefit of using a project manager to handle my renovations?
You may want to consider hiring a project manager to oversee your renovation project.
A good project manager can deal with everything from drawing plans, negotiating them through council and managing the renovation, through to ensuring the final finishes are complete. They can also take responsibility for the costings and timings, and hustle your contractors and tradespeople into gear if they appear to be lagging.
Hiring a project manager can prevent the arguments that tend to arise when you have a number of different parties all doing different pieces of the same job, by clarifying each person’s responsibility and when things need to be done.
The project manager can be anyone from a builder, interior designer or architect to a professional property investor/renovator. Ultimately, it needs to be someone who is experienced, trustworthy and has a team of reliable tradespeople.
Won’t a project manager be expensive?
A good project manager will charge 10% to 20% of the overall renovation cost, which is around $5,000 to $15,000 on a $50,000 to $75,000 project.
I’ve heard of many nightmare scenarios from clients who have struggled before coming to Empire, so I believe that hiring a project manager is well worth the investment.
Here are just a couple of the nightmare stories I’ve heard:
• “The builder didn’t turn up on the first day of the job. On the second day he reversed into the side of the building and put a hole into it. The strata managers and other owners weren’t impressed.”
• “I managed separate tradespeople to renovate the kitchen, bathroom, carpets, blinds, doors, painting, electrical and plumbing. There were so many people to manage and so many unforeseen glitches, and I learned one part of a job needed to be completed before another could start, so the project became a major headache. One person would blame another, no-one would take responsibility, and everyone took advantage of my inexperience. And the longer it took the more money it cost in mortgage payments and loss of rent. Never again!”
You might think you can save a fortune by managing the project yourself, but there are risks in managing a renovation alone.
Tradespeople will know if you’re not a renovating expert, and they may use your lack of experience to their advantage – in terms of costs, timelines and attention to detail.
A tiler might see you in your suit, for instance, and know instantly that you’re not used to dealing with tradespeople, and increase his price. And did you know that jobs can beq uoted at different prices in different suburbs?
You may also fall prey to unscrupulous tradespeople trying to secure a job and increase their prices. The tradesperson might tell you they’re ready to start on the bathroom even while they have a number of other jobs on the go. He might try to juggle all the jobs at once, starting a job on your property, leaving his tools and not coming back for four weeks until he’s ready to begin in earnest. Because your tradesperson has started, no one else will take on the job and you’re stuck waiting.
Unless you’re prepared to be on site every day to manage what’s going on, I recommend leaving project management to an expert. Weigh up the cost of your time away from work, the chances of being charged higher prices and the likelihood of the project taking twice as long.
A project manager who does renovations frequently can negotiate with tradespeople better than you, and has better buying power for trades. They should also be good at negotiating on costs, timelines and maintaining the quality of the work on your behalf.
How long should my renovations take?
A pre-planned kitchen and bathroom renovation should take four to six weeks. Many property investors who manage the projects themselves find this impossible because they fall into one of the most common traps: choosing tradespeople based on price alone.
I don’t often use the cheapest tradesperson. I choose those that can do the best job in the shortest amount of time. The cheapest will often do the job in their own time, but the faster the tradesperson, the quicker you will place tenants in the property.
You could pay $1,000 to get some students to paint your property, you could pay $2,000 to get a painter or you could pay $4,000 to get a master painter. There will be a guaranteed difference in the quality of the finish. Which one is right for you to use will depend on the type and quality of the property you’re renovating, your budget, and the potential benefits you’ll receive when a potential renter or buyer falls in love with your property.
What are the types of profits I can generate with a quality renovation?
The results can be seen in cold hard cash. On a typical project we might buy a two-bedroom unit for $600,000, invest around $75,000 into a four to six week renovation, and then get a valuation of around $700,000 to $720,000, generating a healthy $25,000 to $50,000 profit.
On a block of units we bought for $1.9 million, we renovated for $600,000 and four months later, the bank refinanced at $3.5 million – giving us a whopping $1 million profit in under four months.
On another job, we applied to council to add two penthouses to a block of units and the architect has managed to squeeze a second block of units in the back garden, and that’s in a prime position almost opposite the beach. At times, we’ve been overseeing a dozen renovations at one time and had teams of tradespeople working with a smile on their face, even through Christmas and New Year’s.
Delegating or outsourcing your work is a key ingredient to successful property investing. It took me my first few projects to build relationships, negotiate fair prices and balance our communication styles, but now a system has been built. I now receive a daily call from my project manager with an overview of what’s going on, any issues or decisions to be made and when they are due to be completed. I have so much confidence in my team that I only need to turn up on site when the job is completed.
My clients don’t receive any calls from tradespeople as everything is managed on their behalf. Instead, they prefer to receive a financial report before and after the renovation. This tells them how much money they’ve made. After all, it’s a financial decision, not an emotional one.
There are a few quick and easy changes you can make to boost the price of your property with a low-fuss renovation:
• Clean – it’s amazing how a thorough clean increases the appeal of a home.
• Paint inside and out.
• Re-carpet or polish the floorboards.
• Tidy or landscape the garden.
• Change the light fittings, switches and sockets.
• Instead of a new kitchen, simply change the kitchen cupboard doors.
These further renovations are more expensive, but can increase the value of your home significantly:
• Replace the kitchen and bathroom – this is usually the best way of increasing a property’s value.
• Extend out the back or into the roof space.
• Convert the garage into a living space or bedroom.
• Build a carport.
• If you can, subdivide and add another residence or put a granny flat in the back garden – two incomes are always better than one.
For a handy renovations checklist, helpful information and other tips to keep your
project moving forward, visit “What’s the best way to renovate?” at yourempire.com.au/in-the-media-journal.
Check with your local Fair Trading Office to see what licenses your tradespeople need, and check that their license is still valid. You can find more details on the website for your state office of fair trading.
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