Your home, like life, is a series of evolutions and special moments. Tackle these mini projects yourself – and sometimes with help! – and you’ll create a space that’s truly your own style. Knowing what to spend on renovations, or rather what not to spend, is one of the keys to a successful property investing. Whether the property is your own home or an investment property, the most common goal is to make a profit from the exercise, whether that be now or in the future.
Avoid Over Capitalizing
Start with an understanding of values in your area. A good starting place is to establish the likely sale price or valuation price after the renovation has been completed. This is just an indicative value, look for similar properties in your area which have already been renovated or subscribe to a public property database such as Rightmove or Property Network. Using those same information sources establish what the price range for the specific area is and stay within a range mark. We’ve all heard the sad story of someone who got too emotional about a property and built or over improved way outside of the area average, then ended up being broke and unable to recover the costs when selling.
Remember the saying “buy the worst house in a great area? Avoid doing the reverse.
Tip: Make sure to compare properties in terms of the number of bedrooms, baths and garage and area size along with the style and construction materials.
Established a Probable Value for the Property
Decide on a price range which you will stick to. Seasoned investors and renovators tend to suggest keeping your renovation budget to around 10% of the current market value of the home. Stick to the lower side of that 10% variable in an area with lower demand or add a little more, say 1-2% in a really good area. Allow an extra 1-2% if you plan to make any minor structural changes more for additions or extensions. If the property is really run down allow an extra 1%. If it’s in pretty good condition allow a little less. Plus or minus if you are experienced or inexperienced in renovating, or whether you will be doing some of the work yourself or just project managing the trades, remembering labor costs are often the biggest cost.
Example: Families with children prefer a bathroom with a bath tub, a fenced yard with room to play, nearby parks and playgrounds.
If your property falls short in any of these areas, then the first allocation of funds should go to meeting the requirements of the market. Sometimes a coat of paint and new carpet are enough to meet the likely client’s needs. Other times the demographic has completely changed.
Know Who Your Target Market Is…
What do local tenants look for? Is it different from what local buyers look for? If you live locally go to property inspections of competing properties so you can see who they are attracting and how the properties are being presented. Pay attention to other people’s comments during inspection, this is a great market research. The type of renovation you might undertake may also be determined by whether the client you are looking for is a tenant or an owner occupier each with their own specific list of desirable features.
Visual Appeal and Look of the Property
Once the property is catering for your target market’s needs, the next focus is on the visual appeal and look of the property. All properties are affected by the impact of the street appeal, first impressions truly do count. Have a look from a far, can the gardens do with a little trim? And a little cosmetics? Are the letterbox and front door looking fantastic or tired? Internally, it is advisable to review the condition and colors of walls, floors, carpets and lights approximately every 6-8 years. Always try to stick to neutral colors that don’t date and will comfortably match most decorating styles.
How Much Should You Allocate To Each Room/Area of Your Renovation
Many seasoned investors recommend a particular percentage of allocating funds and then translate that into a £££ budget. Typically you may allocate 30% to the kitchen and 20% to the bathroom, 20% to the exterior and 30% for general improvements. Now, convert those percentages into a pound value.
Example: If your property is worth £400,000 and you have allocated £40,000 to renovate, then on those percentages, the bathroom gets £8,000 and the kitchen gets £12,000. Just remember to address the needs of your target market and consider the existing condition room by room.
Budget To A Plan
Start with a list for each room and then prioritize the allocation of funds. If you are anything like the rest of us; there are always more things you’d like to do than the funds will allow. One way to make the budget extend further is to consider what you can retain and work around. You may be able to keep the kitchen drawers. Then replace the handles and appliances and just paint the doors and add new handles. A full renovation will always add more value but it’s not always affordable as well as increasing the risk of overcapitalizing. If you are doing a full remodel, remember there is always a market for second hand items especially character pieces. Things like kitchens, bathtubs, old doors and windows even laundry tubs can be sold to help cover costs.
Get some good quality photos while the property is looking great! Once you’ve done all the hard work get a fresh batch of professional photos taken. This will show the property off in its best light. Finally, never discount the value of a first impression. Buyers and tenants will often drive by a property to check out the presentation and the area long before they make contact to book for viewing.
CTTO: Google Image
Research and Source: Keith Grisman