I have over a decade of practical experience in working with renovators and builders who have successfully, and in some cases, very successfully completed a renovation project with a positive financial outcome. I have also had the unfortunate experience of working with some clients who haven’t been quite as profitable. I have learned some valuable lessons throughout the years without a doubt, but none more important than it is paramount that you get your plan right before you even consider purchasing a property. There are a number of articles in TWTalk concerning renovation for profit in Guelph, but if you are only going to read one, make it this one.
HGTV has truly been a phenomenon unlike any other form of mass media for our industry.
Buyers and sellers are sitting at home in the pj’s and getting a peek inside our world. House flipping shows by the dozens seem to be out there and I understand why – it makes for great TV. Combine this with a big box home improvement store attitude of “hey, don’t worry, you can do it yourself” and voila, a house flipper is born.
I couldn’t even count the number of people over the years that I have tried to talk out of trying to renovate homes for profit. Not because I don’t think its a viable business, but because I didn’t think they really had there proper business plan in place before they walked into my office. They may be great at renovations, but they didn’t have the proper mindset. Flipping homes is a business and it should be treated just like any other – with structure, organization and serious attention to the math. You MUST have a well defined plan. These are items that you absolutely can not deal with during the process, they must be addressed prior to entering into a transaction.
I can see why HGTV doesn’t have a show called “Clearly Defining Your Investment Goals”, but in reality it would be a very informative show. Renovating for profit is, really at the heart of it all, nothing more than speculation. You purchase an asset at a certain price, in the hope that after you do some work on the place, that some one else will pay a considerably higher price for the same asset. Nothing wrong with that idea, as long as you have clearly defined what risks are at play and are comfortable with the worst case scenario.
The largest mistake that most flippers make is buying the wrong house. I understand why and it’s simply because they are often so anxious to get going with a project and to start living their own HGTV experience. It certainly doesn’t help the situation when the market is moving quickly and you need to act fast to avoid a competitive environment. Buyers hastily make a decision to purchase without fully examining the numbers on the way in, during the renovation and on the way out. Round figures don’t work well in these type of situations. Be exact, stand back from the deal and just look at the numbers. What’s my best case scenario? What’s my worst case scenario here? Can I live with these figures? If you do the math right, these numbers won’t change much from start of the project to the end. If all the numbers work, step back in.
The good news is that some simple organization can greatly improve your success in making quick and accurate calculations. My first suggestion is always to create a spreadsheet that you can bring with you wherever you go. A smartphone loaded with the right technology can be the most important tool in your belt. Spreadsheet apps with predefined formulas and some fixed costs included will provide you quick access to hard numbers. Personally, I like using Evernote as a great addition to any spreadsheet app as it allows you to take quick notes about the project, measurements, drawings, photos, and even drop the finished spreadsheet into one note and is easily shared between Realtor and renovator. Get organized and you will get better numbers on the spot and avoid making bad decisions.
Every renovators plan is different. Some spend tens of thousands of dollars trying to get a home into a new stratosphere of price. Others, take a simpler approach looking for smaller but safer sale prices. Both can be worked successfully. However, what sometimes gets lost in all of this hype is that you are doing this for profit, not to create a job for yourself. A well defined plan allows you to properly account for all of the time you will invest into your project. If you weren’t doing this renovation, you would be working for someone else and getting paid to do so – remember that. I read somewhere in a blog post a long time ago a statement that has always stuck with me – “If you’re not prepared, you wouldn’t be the first person who figured out they could have made more money with less stress flipping burgers instead of flipping houses”. If i could remember where I read that I would share it with you, because it was a great article.
If you consider renovating a home a hobby, then by all means just enjoy the ride and I wish you all the best with it. But, if your goal is profit, then your first step really should be to clearly define your plan, get organized, and then start looking at property.
Obviously, I really recommend the use of a knowledgable Realtor as an invaluable part of your team. Someone who truly understands where the market is at and where it is going and will give you honest advice at every turn. This is information you must have when considering a purchase. There are plenty of honest and qualified real estate professionals in this city that can help you get organized, stay on track with your plan and help you make money with your renovation for profit ventures.
HGTV is calling me, happy flipping!
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