7 Keys for Reducing Your Home Renovation Costs
Six months ago, I conducted a five-part interview with Caroline Vass, one of our Property Apprenticeship students who is also a professional renovator. Caroline and her husband work on their own renovation deals, and they also have a business consulting other property investors on how to do renovations the right way.
Once again, Caroline was kind enough to offer her expertise to the PropertyInvesting.com community to answer this all-important question: “How do you keep your renovation costs down?”
Interview With Caroline On Ways To Reduce Your Home Renovation Costs
Caroline, before we get into the nitty-gritty of how to keep costs down, can you share an example of a time that you over-capitalised on a deal? How did that impact your profit in the end?
One of my first deals is a great example of this. I bought a property with renovation and subdivision potential. The plan was to rent it out for six months during the subdivision process, and then quickly renovate it and sell both properties. It was a great plan, in theory.
In reality, however; we had a much harder time finding tenants for six months than I planned on. This blew out my holding costs from six months to 12 months.
Being my first subdivision, I didn’t understand the importance of thorough research prior to purchasing. I should have known exactly what I could build, how much it would cost, as well as what the process would entail. Subsequently, the subdivision costs were more than I budgeted for originally.
I also learned a crucial lesson on knowing the local market. At the time of my subdivision, a 300-lot golf course estate was released nearby, which meant there was an oversupply of land. In hindsight, I should have researched what other developments were being planned in the area, so I could accurately estimate my sales price.
Finally, the renovation took longer than I expected. At the time, I didn’t have any established relationships with local tradies yet, so we tried to do the painting ourselves.
A job that would have taken a painter just a week ended up taking us an entire month, because we were trying to renovate, work and raise a family at the same time. In the end, the project blew out from 12 months, to nearly 18 months.
All of these little mistakes added up fast and really hurt our profit. We had planned on a profit of $35,000, but in the end, we only made $15,000.
How have you learned to keep your home renovation costs down? Give us an overview of your top tips.
If I had to summarise the most important points, I’d say:
- Know your strategy and target market.
- Have a comprehensive pre-purchase due diligence process.
- Determine your renovation budget before you begin.
- Tailor your renovation plan to your target market.
- Shop around for supplies and be creative.
- Use reliable and good quality tradespeople.
- Manage your renovation project efficiently.
1. Can You Elaborate on Your First tip, “Know Your Strategy And Your Target Market,” For us? How Does Having a Strategy and Knowing Your Target Market Affect Your Budget?
Investors renovate for different reasons. Some renovate to increase their rental yield, while others renovate to sell and make a profit. Each requires a different renovation plan.
For example, the type of carpet you choose for a rental property may be different from what you would choose if you were planning to sell the property straight away
Knowing your target market helps you form a more precise renovation plan to reduce costs by focusing on the areas that will make the most impact. For example, if your target market is a young family, having a bath in the bathroom will be important to this group of buyers.
2. Your Second Point Was Related to Carrying out Thorough Due Diligence Before You Buy. What Dangers are You Looking Out For in Your Pre-purchase Inspections?
Comprehensive due diligence prior to purchasing is essential. Knowing what’s involved in the renovation and understanding the amount of structural work required will reduce the risk of underestimating your renovation costs.
Structural renovations can be costly and add little perceived value to the potential buyer. Re-stumping is a good example. You typically also need to repair flooring and re-plaster walls once the re-stumping has been completed. These all add to the cost, but the buyer will not visibly see the value.
Another crucial point is to check council conditions, such as heritage overlays. This can affect what you will be allowed to do in your renovation. It could add time and increased costs if you need to comply with certain conditions. I always get an expert to do a building and pest inspection, because you don’t know what you don’t know.
3. In Your Third Point, You Said to “Determine Your Renovation Budget Before You Start.” Can You Walk us Through How to Assess The Financial Feasibility of a Potential Deal?
When preparing a budget to assess financial feasibility, there are a number of key items to consider. They are:
- Your strategy for the deal.
- The current structural and cosmetic condition of the property.
- The physical work required.
- The potential resale upon exit.
All of these items need to be carefully quantified in a detailed costing. You should also consider a sensitivity analysis where you consider the following:
- Alternative exit strategies.
- Various holding cost situations.
- Varying project costs.
- Different sale prices.
4. In The Fourth Point, You Said to “tailor Your Renovation Plan to Your Target Market.” Can You Share What a Renovation Plan Looks Like and How Planning for Your Target Market Can Save Money?
As I mentioned before, tailoring your renovation plan and budget to your strategy and target market will greatly help reduce expenses and time. For me, a renovation plan is a detailed list of everything that needs to be done inside and out. I call it a scope of works, and it literally outlines each item broken down by room, from floor to ceiling.
I even include the most basic items, such as a new light globe or new street numbers. Having a detailed plan allows you to get accurate quotes, and to only purchase the materials you need; thus reducing the amount of waste.
Many renovators make the mistake of planning to their own tastes, rather than to a specific market. If your property is in a higher end suburb, the question to ask is, “What are the buyers paying more for?”
They may demand kitchen granite bench tops, or double showers or a free standing bath. In the lower-priced suburbs, buyers are not going to pay you extra for these luxuries.
When purchasing materials, it’s tempting to get caught up in the upsell of products. For example, instead of buying a quality vanity for $200, you may buy one that has the handles you like for $250. Although $50 may not sound significant, if you do this on most of your materials, your renovation budget will blow out greatly.
When renovating, you’ll always find things you didn’t plan for that you’ll need to address. With one house I renovated, I only planned to paint the front façade, but I soon realized that I needed to paint the entire building, because the color difference between the old section and the new section was too obvious. To stay on budget, I re-evaluated my plan and in the end, I decided to spend less on backyard landscaping.
5. Your Fifth Point, “shop Around for Supplies and Be Creative,” Requires a Little More Subjectivity and Intuition. Is This Something a Person Can Learn? What are Some Examples From Your Previous Deals?
For me, this is the fun part of renovating. While it may fit my personality, I definitely think this is a skill that anyone can learn.
The internet is a great resource, as people often post their creative renovation ideas on Facebook, Pinterest and other social sites. I also take photos while on my tours around the local suburbs and during house inspections. This gives me ideas of what materials I can use.
Even when I’m not working on a deal, I’m constantly looking for new designs I can use on my next deal. Last week, I was at a local business and saw a creative way of putting a screen over some pipes behind the premises to create an art piece. I instantly thought I could use this, so I took a photo and archived it.
I once bought a dishwasher for one of my deals on eBay for only $99. It was installed, but never used. If I bought it new, it would have cost about $300.
I also look for what I can recycle and sell, such as old kitchens, clotheslines and security doors. As they say, “Someone’s trash is someone else’s treasure.”
On another renovation, I used $10 lampshades as light fittings. Sometimes you just need to think out of the box. I use my downtime between renovations to build my ideas.
6. In Your Sixth Point, You Said, “Use Reliable and Good Quality Tradespeople.” What Kind of Tradespeople are on Your Team, and Exactly What is Your Measure for Quality and Reliability?
Time is money, so using reliable and good quality tradespeople is crucial. If your tradies don’t turn up on time, they can hold back an entire project.
I have a wide variety of tradespeople on my team, such as a plumber, electrician, plasterer, builder, handyman, landscaper and pest inspector. To me, the ability of tradespeople to attend appointments and submit quotes on time are good indicators of their reliability.
Another sign of reliability and quality is whether your contractors take care to protect other parts of your home while they work, like covering up surfaces, so tools don’t mark them. I also inspect my renovation each day and do a quick tidy up. This helps me monitor the quality of their work.
You should get multiple quotes and ask around to ensure you are not paying too much. I look for tradies who can take on my vision for the renovation – those who have the experience to help me see where I can save money without sacrificing quality.
My plumber is a great example of this. When I purchase a kitchen, he advises me on the best type of sink and tap wear to get that is both well-priced and that will minimise my labour costs.
If you haven’t used a tradie before, ask for references from their previous clients, so you can speak with them.
7. Your Seventh Point, “Manage Your Renovation Project Efficiently,” May Be Your Most Important One of All. Can You Elaborate on This Point by Sharing What You Do?
Good project management is the key. Time management and good organizational skills will save you a lot of money on a renovation. In my experience, no one is going to care about my project, my timelines or my budget more than I do. Successful project management is all about ensuring I get the best outcome over the entire project.
Caroline, Can You Share Anything With Us About any Deals You’re Working On Right Now?
Earlier this year, I bought a duplex that has a potential ROI of 30 percent. My plan for this property is to renovate and subdivide it. My figures indicate that I can make more of a profit by holding this property for three to five years. Because it will create a positive cash flow, it allows me to keep investing .
There are a few challenges ahead with this one, but that’s why I got it for such a good price. I could see a solution that others apparently couldn’t. I’ll be happy to come back and share more on this one later as the deal unfolds.
If Anyone Wants to Learn More About What You do, How Can They Contact You?
The best way to reach me is through my website – www.smartchoicepd.com. You can find my contact details there, as well as some helpful renovation tips and free training videos.
As we’ve learned from Caroline, where most investors go wrong in the renovation process is poor planning and a lack of due diligence. Without a solid strategy and effective project management, you’ll be more likely to spend too much, resulting in a loss of profit.
In Steve McKnight’s Property Apprenticeship course, we offer a complete due diligence system that empowers investors to buy with confidence. By equipping our clients to create processes they can duplicate, we’ve helped hundreds of investors make significant strides toward their wealth creation goals.
To read how the Property Apprenticeship course has empowered Caroline to achieve her property goals, check out her comments at the end of this article. When you’re ready to explore the course further, you can register here.
What did you learn from this interview with Caroline? Please take a moment to leave your thoughts or ask any questions in the comment section below.