2 rising risks that might make you rethink a house flip
As the market softens, certain risks for property investors can increase if they’re looking for a quick turnaround on ...
Once through with the initial steps of property investment, the more sophisticated investors jump onto building and renovation as their next wealth-creation strategy. How do they find the right builder for their project?
As in all investment strategies, property investors are encouraged to engage professionals in order to maximise opportunities when building and renovating.
According to Smart Property Investment’s Phil Tarrant, renovating properties stands as one of the best ways to manufacture equity, increase the capital value of the property or improve its overall rentability, be it cosmetic renovations or major structural renovations.
However, it can also easily be a minefield for many investors, particularly those that come unprepared.
“It can be a minefield for many investors, and I’ve heard a lot of horror stories of investors getting this absolutely wrong, such as the wrong builder at the wrong time, with the wrong strategy, with the wrong finance.”
How can investors get the most value out of their renovations?
Builder Finders’ co-founder Lynette Manciameli strongly encouraged engaging professionals when building and renovating, as in all investment strategies.
The property expert laid out questions that investors are advised to ask themselves before ultimately bringing in a property builder into their investment journey, based on her own process of vetting builders for her own clients:
First and foremost, investors need to make sure that the builder has an active licence.
“Make sure that they have a current licence and make sure that it is not expired. Sometimes, they may have it, but it may well have expired or lapsed,” Ms Manciameli said.
“You want to just make sure they’re licensed. That’s 100 per cent number one.”
Next, trusted builders would not hesitate to give references from their previous projects. Refusing to provide references is a clear red flag, according to Ms Manciameli.
She advised looking at past clients for a period of five years, as well as current clients, suppliers and tradies, in order to get a good grasp of how the builder works.
“If I get an electrician telling me, ‘Yes, I’ve been working with that builder for five years, 10 years, plus 20 years,’ that’s a really good indicator that they’re maintaining a stable crew around them and they’re working well together,” Ms Manciameli highlighted.
“Do they build on time? Can they build within your budget? Are they a member of a building association like the HIA or the Master Builders Association? Because that indicates that there’s a degree of professionalism and they’re agreeing to a code of ethics and a framework for working fairly with the client.
“References can tell you all those things.”
Builders must also be able to provide verifiable identification, apart from their current licence.
According to Ms Manciamelli: “You want to make sure that that person you’ve met, Joe Blue, does actually own ABC construction company and he is a director or the nominated supervisor of that company.”
“Sounds like really basic 101 reference checking, but you’d really want to know who you’re actually dealing with.”
Once the initial background checks are done, investors are advised to take the time to meet prospective builders in order to establish rapport.
Communication would be integral in the success of a building or renovation project, Ms Manciameli said.
“Communication is really right up there. If they don’t communicate well with you and you don’t have that suitability with them, it’s going to be hard because it does work both ways. Builders also need to be comfortable with their client,” she said.
“I know builders that have rejected clients just thinking that they can’t work comfortably with them. So you want to make sure that you can communicate well with the builder.”
According to Ms Manciameli, some indicators of good communication are responsiveness on email or over the phone, as well as testimonials from previous clients about the frequency of communication and their presence on-site.
Investors would also want to make sure that they’ve got a detailed written contract with terms agreed upon with the builder.
“You don’t want to be missing important things in the contract because that will also cause variations to not be an issue when you’re going down the track,” Ms Manciameli explained.
“When you’re talking to their clients and you’re getting those reference checks, ask about variations, say to them, ‘Were there many variations along the path?’ Time and time again, my good reference checks on my builders will say, ‘There were variations, but they were initiated by the client,’ which is very common.
“If they’re initiated by the builder, there’s your red flag. You want to make sure there are less variations. If you’ve got a nice tight contract, you can know exactly what you’re in for and what you can expect them to finish with.”
Further, investors should also make sure how builders get their quotes, because substantially low costs could very well be a red flag.
Aside from getting in touch with their past clients, investors are also advised to check up on online reviews, as well as other information about the builder that could be found online.
According to Ms Manciamelli, investors can easily do an insolvency check online and make sure the builder does not have any insolvency notices registered.
Further, company details presented online must also be solid, she said.
“I do credit watch reports, making sure they haven’t had any court default judgements against them, any mercantile inquiries, or there are no collection companies chasing after them… All these things you get online,” she said.
“Look at their socials, too. Check out their Facebook, their Instagram, because good builders are all getting involved in promoting themselves in that way as it gives them visibility. You can see what they’re doing, get the addresses of where they’re working and go and have a look.”
For final checks, Ms Manciameli recommended talking to the neighbours of both their previous and current projects.
“It’s always nice to ask, ‘How good are they at getting rid of all the rubbish on-site?’ or ‘How respectful are the builders?’ as it gives you an idea of what you’re going to be working with,” she said.
Finally, investors are encouraged to pay attention to what their gut is telling them before hiring a builder.
“This is something that you can’t really quantify, but once you’ve done all of this, you kind of got to go with your gut. You will get a feel by talking to all these people, by doing all these checks,” she said.
Ultimately, building and renovating are massive decisions to make for investors as they entail a significant amount of money, so thorough checks could really help ensure that they will be getting their money’s worth.
Some builders have specific specialisations, which would have to match the investor’s requirements for their project.
“Finding the right builder to do your work is critical because they will spend their time within this specialised style of construction work, so you really have to match the right person to the right builder,” Ms Manciamelli concluded.