Major Renovations: Things to Keep In Mind
As a real estate investor, you’re likely to come across a home that needs major renovations at some point. Not to say that you should shy away from these, because a lot of buyers will but you can land yourself a good deal in most cases. It’s important to note, though, that major renovations are going to be a large (and probably expensive) undertaking, so even though the price of a given property may be attractive you’re going to have your work cut out for you.
This means you’ll want to know exactly what needs to be done before purchasing the property. After all, it’s not going to do you any good to lose money on the investment because you spent more than you thought you would on renovations. It’s not just an issue of cosmetics, either; getting properties up to code can be a challenge in and of itself, and if you don’t measure up, you can’t sell the property.
At the moment, we’re currently hard at work on an extensive rehab on a property we recently purchased in Atlanta. As you can see in the video below, major renovations are required:
If you’re considering taking on a similar challenge, here’s what you need to know:
Be decisive and plan ahead.
As we’re fond of saying, in real estate investment everything revolves around having a solid plan behind every action. So it should go without saying that if you want your rehab process to go well, you’ll need to make every single decision before work starts. This means having a plan in place and smaller goals that are in service of the overall objective. You honestly can’t be too detailed here. A good contractor can walk you through potential delays that might come up, but simple things and lack of planning on the investors’ part tend to cause the most issues.
A lot of times, delays are usually due to decisions about things like paint, trim and faucet selection. These may seem small, but if a faucet is two weeks late, then plumbers have to be rescheduled. Then you run the risk of something like a cabinet door hitting the faucet once it’s installed, so something small like this can easily create a few weeks’ delay on a three or four-month project. The bottom line: plan ahead and make decisions beforehand.
Once you have a plan, stick with it.
It’s probably inevitable that you’ll change your mind about something on your project. Still, consider that with every change, an updated work order and likely a change in the overall budget is going to go along with it. Although the change may seem minor, there are always added costs, even if it’s only the time spent discussing the change.
Scheduling can be affected too. Changes happen, but you need to be aware of their potential to disrupt and delay the job. In other words, stick to the plan. If you plan carefully in the beginning stages, it’s less likely that you’ll need to change anything unless it’s absolutely necessary.
We’ve had to reiterate this more than once to budding real estate investors, but as the saying goes, if you think it’s expensive to hire a professional, wait until you hire an amateur. You absolutely should not hire your buddy or your sort-of-handy son-in-law to take on a major renovation on your investment. Just don’t do it (unless, of course, said buddy or son-in-law happens to own a licensed and insured contracting firm).
You want your contractor to be reputable with plenty of references and examples of past work. Are they insured? Are they licensed? Do they complete work on time and within the budget? Are their estimates accurate? Most importantly, do they deliver quality work? You can find contractors through several databases and referral sites like this one.
Don’t buy your own materials.
Let’s just get this out of the way now: the builder is going to mark up the cost of materials and pass that added cost on to you. That’s the way things go. If you think you can get your own materials and save a few bucks, it’s probably not going to work out the way you might imagine.
For starters, a builder is going to have a better idea of the quality of materials needed and will probably have better access to them. A quality job means nothing if it was built with cheap materials. Also worth considering is that the builder may get a better price than you to begin with because they probably buy wholesale, meaning that even after their markup, you could end up paying the same price as you would if you bought the same materials yourself.
Have a contingency fund.
This is probably one of the most important things we’ll talk about in this list. You’ll need a contingency fund to cover replacements, accidental damage, or other unforeseen eventualities. You shouldn’t use this contingency fund to stretch your budget, though.
Projects can run over their budget or the desired outcome ends up costing more than the investor has set aside in the planning stages, but again, don’t eat into your contingency to stretch the budget. If you follow the first rule we laid out and make every decision ahead of time, you can probably get away with a 10 percent contingency fund if you have a good general contractor.
You can keep up with us in real time on Facebook and Twitter as we renovate this latest property! You can also see videos and photos of the process collected all in one place in our Coming Soon section along with other properties that are coming down our renovation pipeline!
– Get It Right Solutions