5 BIG LESSONS WE LEARNED FROM REAL WORLD RENOVATIONS!
In this article I wanted to take a look back at our projects over the last 2-3 years and put together a list of the five biggest lessons we have taken away from our experiences because what better way to learn than from real-world examples!
1. Always leave a contingency in your estimates!
We are sure you have heard this piece of advice before when discussing building and renovation projects but we cannot stress how important it is, especially for new renovators. When we look back at the five renovations and two sub-divisions we have completed over the last 2 years it can be seen clearly that we ended up going over our initial budget on every single project. When you are dealing with an older home there will always be unknowns and if we had not allowed ourselves a contingency we would have been in big trouble! When looking at a project even the most experienced builder will allow a contingency so if you are a new renovator please allow at least 15-20% and make sure your project is still profitable even if the price goes up otherwise walk away! 2. Never try to outsell the comparable properties!
This probably the hardest lesson we have had to learn because it was a lesson that came with the only loss we have made across all of our projects. Our third project was a well maintained low-set house in North Brisbane. When we reviewed the property we observed that the layout of the house was what we considered "better" than the competing low-set houses with a small laundry and a small deck. We made the decision to purchase the property and try to do a high-end renovation and we thought that with the fancy finishes and the slightly better floor plan we would be able to break the suburb records for this type of house. This turned out to be a mistake and the property ended up taking around 3 months to sell and although we did break the suburb price record we did not do it by enough and we walked away with a small loss and a lot of tough lessons learned!
3. Don't be afraid to walk away from a deal!
This one sounds obvious but it can be very hard to do. We have had a few potential projects where we have spent weeks scouring the web and late evenings doing due diligence and everything looked great and then when we started to get quotes the renovation costs went through the roof! We found ourselves trying to find reasons to buy the property because we were already so invested in it and had already seen ourselves completing it in our own head. This is a HUGE mistake. Although you might have spent a lot of time on a project you should always have the mentality of trying to talk yourself out of proceeding with it and not the other way round. What I mean by this is that you should be looking for objections to buying the project every step of the way. If you get to the end of your due diligence and the project still looks like a winner, despite your search for objections then you know it will be profitable. If you find yourself trying to make excuses to buy the project then run for the hills!
4. Pay special attention to the area surrounding the house!
This comes down to the idea of looking for potential objections again. When you go to view a prospective project you need to put yourself in the shoes of your eventual buyer. In general you will be in an area of old houses and you will be selling a newly renovated home. When you are selling your property at the end of your renovation you will be selling a "premium" product for that area so you need to make sure the surrounding properties do not scare off your target buyers. On one of our first projects we had two blocks of land to sell on a decent street but what we didn't realise when we settled due to us not having a proper system in place to review the area was that there was an abandoned house on the street that actually had some graffiti and broken windows, on top of this there was an electrical sub-station around the corner. We would have lost at least five or six potential buyers on these lots due to the neighbouring blocks!
5. Do not always assume you will fetch the premium price!
Our last point is just a word of warning. When you are doing your project feasibility and evaluating the post-renovation sales price make sure you do not base the feasibility on your property achieving the absolute premium sales price for the area. When selling a property there are many different factors that affect the price and you can never fully understand the story behind a comparable sale. What we have found is that, when estimating your sales price, you should analyse 4-5 comparable properties and as long as they are similar to yours then you should aim for a sales price in the mid-high range of the comparable properties. This should allow you to achieve your target sales price and also to sell the property in a short timeframe. If you need to achieve top dollar in order to make profit you may end up sitting on the market for months!
Thank you so much for reading this week! Hopefully these points will help make sure you don't make the same mistakes we did!
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Have a great day!