5 Renovation MISTAKES to avoid ….I’ve said it before many times, but it bears repeating, you do not have to reinvent the wheel. It is smart to learn from other’s mistakes!!
1. Not Getting The Proper Education Before Purchasing A Property.
As property investors you will always pay for education…one way or another! You’ll either pay for it by actively seeking to educate yourself, by investing in courses, seminars and mentoring programs that help you grow your experience, knowledge and wealth. Or alternatively you’ll pay for it through making costly mistakes.
Unfortunately, it’s the latter path than many beginning property investors and renovators end up taking.
Whether you’re a new investor, first time renovator or you’ve been a landlord for some time, it is important to be aware of some of the more common (and costly) renovation mistakes you want to try to avoid.
Know this…smart people learn from their mistakes; wise people learn from the mistakes of others! So this week I’m talking to the wise…I’m going to share a few common property investment mistakes that you can learn from – along with some strategies to avoid them.
2. Guessing And Estimating Property And Renovation Costs.
Many investors and renovators hope to save money by going through the process of formulating a strategy, finding a property, negotiating its purchase, completing all the renovations as a DIY and managing a property ALONE.
However, this can be an extremely costly mistake to make in the long-run.
I’ve always found professional advice is never expensive in the long run – it’s an ‘INVESTMENT’ not an expense.
Get help to understand how to complete a detailed budget, work schedule and how to manage cash flow issues.
A huge error in any renovation project is underestimating the cost of the project because you don’t really know. Not doing your homework is a very costly error and renovation mistake that you need to avoid.
Contact contractors …shop around …start a scrapbook with pictures and prices – get repair and renovation consultants to help you to understand the real costs of everything.
How much to replace windows / install new showers/bathtubs…repair cupboards/ replace benchtops/ plaster work – render work per metre…plumbing / electrical hourly rates…roofing / guttering /fencing repair-replace costs
Having accurate estimates of all costs is essential before you buy.
Don’t make the mistake of failing to take out building and landlords insurance OR …taking out insurance, but opting for the cheapest policy – leaving you exposed to big financial risks because you didn’t read the fine print or ask the right questions.
So my point here is: an investment in yourself and your knowledge is never wasted money or time. Learn from other’s experience about the issues above (and many others) before you start investing and renovating.
3. Speculating On The Property Market
Don’t be the investor that falls for the hype – both positive and negative. It is important to only let facts and numbers guide you – there is no substitute for the homework that is required to find the right property. Many investors and renovators rush in and buy an investment property without doing adequate research first – and sometimes, none at all!
Paying too much for a property because the market is running hot and assuming it will keep doing, so can be a very costly error. Never assume – be sure about the market, the area, the street and your numbers….don’t let the hype sway you. Be confident that your plan is well researched and there is a Plan B (back-up plan) if you cannot flip quickly.
A lack of careful thought and planning can cost you a fortune so make sure you take the time to formulate a strategy, then undertake due diligence to understand your chosen market.
View multiple potential properties and meet with as many professionals as you can before choosing who you want to work with.
4. Thinking Like An Owner.
This is one of the most common renovation mistakes made by those who are new to investing and renovating.
When considering purchasing and improving an investment property, your judgement should be based on the perspective of the local demographics. It is essential that you really understand the demographic – the ‘people’ that will be interested in your property.
You really need to be disciplined and think: who is going to buy this / rent this property and what are they looking for? So do your research, go and look at what other renovators and builders are doing in your area, be very clear about who is likely to be buying/renting properties in the area and make sure you design the property for them and not for you.
5. Having No Spare Funds Or An Exit Fund.
Don’t let your personal tastes and desires affect your judgment. When renovating you must think like the potential buyer or potential tenant – focus on what they ‘need and desire’ from a property not what you want.
Here’s my advice: if buying an investment property ‘now’, leaves you with no cash in the bank, you shouldn’t buy it.
Property investing can be an expensive undertaking and surprises always seem to crop up. Firstly, check you’re in a position to invest. To invest in property, you’ll need to tick two main boxes:
- Have enough cash for a deposit
- Be able to get a mortgage (unless you want to use all your own cash)
It sounds strange to emphasise that you need to have money before you can invest in property, but in the last boom it was possible to buy with “no money down” and a lot of people (mistakenly) think that’s still the case.
How much do you need? As a rough rule of thumb, you’ll be able to borrow 75% of the purchase price. On the typical investment property, it’s sensible to add another 5% to cover Stamp Duty, professional fees and other set-up costs.
So you’ll need enough cash to cover roughly 30% of the purchase price.
Secondly …Always keep a separate account set aside to pay for exit fees.
Electricity/ water/ gas / taxes (shire/water rates / land tax / settlement agent.
The point here is that you have allocated funds to pay these fees…a percentage of the profit that you will not touch even if you like those fancy tiles or that plush carpet…know it must come from the reno budget – if the money is not there you can’t have it!
Stick to your budget …ensuring your budget allows for 10% margin.
And the list goes on…
Obviously, as a property investor, you can’t avoid making some mistakes along the way. But hopefully you will be able to bounce back from the ‘learning curves’ that you experience. It is important that you learn to avoid these common renovation mistakes from the beginning on your journey.
But as the saying goes: knowledge is power. So educate yourself, because it is one of your best defences against making the kinds of costly mistakes that can derail your wealth creation journey.