Before buying a renovation project you will most likely have considered the cost of the renovation and worked out in some detail what needed to be done. Well, in an ideal world that is what you might do before you buy, however the reality is often different for many reasons. When it comes to offering on a property it can sometimes be difficult to obtain enough access to the property, or to create the time required for you to get detailed quotes, therefore in many cases progress with offers are made based on a best guess renovation calculation.
Regardless of the detail applied to your renovation calculations prior to buying, it is likely you will have established a budget you need to achieve in order to make the profit you want from each project. Therefore, it is essential to come in on, or under budget to maximise the returns.
If like many other investors both new and experienced that I have spoken to you find it challenging to stay on budget and often find you spend more than you thought, I’d recommend using the following four C’s. These are the steps we share in some detail with our clients to assist them in staying on budget for their renovation projects.
Categorise – split your project into sub sections to cost the work from the outset. This can be done in a few different ways, however the most effective tends to be by trade or by job required, for example you might list out the different trades you require and create a list of the likely works you will need each of them to do. By breaking your project down into smaller categories or sections you will be able to obtain more detailed level quotes without the different trades necessarily visiting the property at the outset.
Using this information you could build a project plan for your renovation with costings attached, allowing you to track more closely how your actual costs are doing against your budget when the project is live.
Contingency – Allow for the unexpected to happen, as it inevitably will. Working to a standard % (say 10%) of your budget as a contingency, is certainly a good place to start, however consider the level of work and the age of the property, as these can have a greater impact on the amount of contingency you may need. Working on older properties can uncover things you were not expecting, albeit this is not always the case it is important to have a reasonable amount to cover unexpected items.
Control – Keep a very close eye on your renovation project from start to finish. Do not leave the builders or other trades to just get on with it. Majority mean well, however if you are not ensuring the project is moving forward every single day and week, you can be sure it will slip in time and money. When you are undertaking large renovation projects there is clearly alot of work to be done and if you don’t have a close eye on the work and the cost, a few hundred pounds overspend in a number of areas and a few extra weeks of finance costs will not take long to completely wipe out a contingency budget, and that is before you find something unexpected!!
Choices – before you commence identify at least 3 potential items that can be removed or reduced in your project to save money and/or time without affecting the overall finish and potential resale value. There will be times during most renovation projects where you feel the costs are increasing and causing you concern. It may be possible for you to manage through this without too much worry, and see the project though without compromising on the works planned. In some cases however you may hit challenge after challenge with the costs and timelines starting to edge out of control. When this happens it can be difficult to see things clearly, and therefore having identified where you can save money and time prior to the start of the project when you were thinking straight, you know you can safely remove or reduced these which will help towards regaining some control without affecting the resale value of your finished property.
By using the 4 C’s on your renovation projects you will have a much stronger chance of staying on budget with your renovation projects, and ultimately protecting the profits you started out to achieve.
For more information on how we can help you on your property investment journey, or to book a free coaching call to discuss any areas you need help visit www.thepropertymentor.com or call 01244 760213.