As effective as they are for adding value to a property, renovations could be a costly venture for some. How can investors make sure to maximise their resources and ultimately fast-track their wealth creation journey?
Like a successful property purchase, a successful renovation entails careful planning and meticulous budgeting, according to renovation expert Naomi Findlay.
“Don’t look at your budget every week or every month. Look at it every single day. This is where a lot of people go wrong.”
What is the proper budgeting process? Should investors base their renovation on the existing budget or should they save up in order to achieve their desired renovation?
For Ms Findlay, it’s simply a matter of finding the “sweet spot” – as in understanding the market and how best to satisfy the demand without overcapitalising.
What would the market pay for what type of product? And how much would it cost me to give them that product?
While most investors believe that there’s a certain percentage of the value of a property that would be an ideal renovation budget, Ms Findlay said that the right renovation budget will ultimately depend on the investor’s current personal and financial circumstances.
According to her: “I have clients who buy $3 million places in northern beaches in Sydney and those who buy in Victoria for $83,000. You can’t work out the percentage of what you should spend based on your property value – it just does not work.”
Instead, Ms Findlay formulates two to three “plans of attack” for each renovation project she undertakes, with each plan largely based on market demand, financial requirements and the potential for profit.
“Each of those plans of attack will have different budget spend, and they’ll have different product at the end, because it’s not always that the more you spend, the more you will get, or vice versa. It’s about understanding what the market wants and trying to meet it for the least amount of money, [doing] the numbers and seeing which one’s actually going to profit you the most.”
“To develop your budget, you’ve got to decide first what your different kinds of work will be in those three different streams. And then, naturally, it’s a cost up on materials, labor, ancillary and other miscellaneous fees,” the expert highlighted.
Investors must also take into account the time frame of the renovation project – the longer it goes on, the higher the cost might get.
“If I have 10 tradies on a site, I’m out at least a ton, realistically. Then, there’s holding costs, rates, gas, power, all that other stuff, which will vary,” she said.
Doing the numbers is critical to the success of the renovation, according to Ms Findlay, which is why she strongly encouraged investors to engage professionals if they can’t do it well themselves.
At the end of the day, renovation, as in most strategies in property investment, is a numbers game.
“If you truly don’t like numbers, then don’t renovate to create wealth…It’s a numbers game and a doing game,” she saidl
“I have a lot of people come to me and they say, ‘I don’t actually want to do the renovating. Can you just hook me up with one of your students?’ I’m like, ‘No, because you actually need to understand it’. Even if you don’t want to be the doer, you need to understand the process. When someone says, ‘Hey, we’ve just knocked out that wall, and the ceiling heights are two inches different. We couldn’t see it. We’re gonna need another $5,000 because we’ve got to drop the ceiling and put another one in,’ you need to understand what that means.
“For me, there needs to be an understanding across the numbers and the processes, but it doesn’t mean that you have to be perfect at both. You could always partner.”