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So, you’ve decided you want to try your hand at renovating for wealth. You’ve figured out what your end goal is, and why you want to dive into the renovating world.
But what about all the bumps and hazards along the road? Do you know the road rules of that particular journey? And have you got an up-to-date GPS to help avoid the potholes and dead ends?
Like any new journey, getting into the business of renovating for wealth has its own dangers and risks. Except, unlike a stint at growing your own fruits and vegetables, or spontaneously deciding to bring home that super-cute puppy from the pet store, renovating involves a lot of money.
And as with most things, the more money, the greater the risk.
However, this also means that the potential rewards can be far greater than entering that poodle you bought into a dog show, or selling the cucumbers you lovingly grew in your backyard at the local farmers’ market.
So in today’s post, I’ll take you through the most common risks of house flipping, and what you can do to avoid them.
Or listen to the audio below …
Before you go ahead, don’t let these pitfalls deter you from your renovation. They’re here to warn you, not to freak you out. Instead, use them to build a better model for your project to maximise your profits!
Rule number 1: Never ever overpay. Found the perfect house in the perfect area that’s just ripe for renovating, but the seller won’t budge on his inflated price tag? Move on, there are more fish to fry out there.
The first risk involves spending too much on the property before renovation even begins. Remember the age old saying,“buy low, sell high”? It is the golden rule of renovating for wealth; no matter how well you manage your project’s budget, or how amazing your new terrace addition is, if you overpaid at the time of purchase it will really hurt your ability to maximise your return on investment.
Rule number 2: Don’t bite off more than you can chew. Unless you are a jack of all trades, leave the electricals, plumbing etc to the professionals.Yes, you might be able to save a few dollars at first by connecting that dishwasher yourself, you will hurt your budget in the long run if you spend too long trying to learn the skills as you go and then have to bring in the professionals to fix up your mistakes. Plus, a licensed professional will keep things legal and reduce your liability when it comes to selling or renting out the property.
There’s no point in house flipping if you decide that you can paint all the walls in a four bedroom house, only to realise it will take you six weeks longer than your planned timeline. Time equals money, people!
Rule number 3: Look after your budget, and don’t get carried away with renovations. This third risk is similar to the first in that it involves the aspect of putting in too much money.
There needs to be a balance between how much money you put in with how much money you get out.It can be easy to get carried away by a renovation project–if you throw too much money into the property upgrades that will ultimately reduce your own profit pool.
Does the property call for an extra balcony or a state-of-the-art kitchen? If the answer is no, then you need to reassess your vision for the property. Even professional architects and interior designers have budgets set by their clients–except in this case, you are your own client, and you need to look at the project from a profit standpoint.
It’s all about return on investment (ROI), and if the improvements and renovations you had in mind don’t add to that ROI pool, cull them. There is no use in going for the extravagant chandeliers and champagne when the market for them does not exist or is not willing to pay for it.
The opposite of our previous risk, the fourth risk is all about undercapitalising. Avoid the temptation of spending less or cutting corners in the hopes of stretching out your budget. Would you buy a property(other than for renovating purposes) that had a dodgy paint job or overly cheap finishes? If not, then neither will your market most likely.
Don’t fall into the trap of choosing the cheaper option just because it is the cheaper option; You want the market to view the property and think:“wow, I could move in right now, where do I sign?”, not:“wow, is that a giant crack in the tiles they just tried to cover up with a cheap coat of paint?”
The 5th and final rule is all about the end game. It’s the risk that scares many a budding renovator from diving into the business of renovating for wealth.
What is it? Underselling, or not selling well, is exactly what is sounds like. It’s when your property fails to meet the sale price, essentially cutting into your profits.
Enough to make auctioneers cry, underselling can put a dampener on anyone’s mood. Just imagine, all that planning, all that capital, all that effort…and no one is interested except you.
Don’t run away yet! If you have done your research and completed all the proper steps and have a solid outline and checklist that you stick to during renovating, you will be well equipped to avoid this final pothole.
Know your property, know your location, know your market. The groundwork that you do before setting out in your renovation journey will help you avoid falling into these five traps and have you realising your well-deserve profit at the end.