oh no, it's the silly season...
knowing how to assess the right property
Today we're having a big ol' chit-chat to discuss the "renovator's delight". You've seen a property and it definitely needs work, but you're seeing the potential that lies within. That's great, and it's very exciting, but before you go full steam ahead and purchase the property we want you to really assess what needs to be done.
We're here to share a few handy tips to really get you thinking about that "renovator's delight" project before you sign on the dotted line. We know it's super satisfying when you flip a property from zero, to hero. But there are quite a few traps that you can fall into if you haven't thought the project through in some detail. We want you to feel excited about taking on any renovation and we're here to arm you with the knowledge and the benefits of our past experience so that you can avoid some of the issues we've faced.
If you have a topic or question you’d like us to cover, contact us here.
SOME TOPICS THAT WE COVER:
Knowing how to assess the renovation costs properly
Working through the site potential and pitfalls that need to be avoided
Is there a need in the market
Is subdivision actually an option
Looking at each room that needs work, and attaching an actual figure to the cost to renovate
Setting a realistic budget based on the number of rooms you're wanting to renovate
Resisting the urge to demolish anything before you've had your loan approved
LINKS MENTIONED IN THIS EPISODE:
We have several Facebook Groups at BuildHer Collective.
MEMBER ONLY FACEBOOK GROUPS
BHC DevelopHers Circle and BuildHer Collective Members Only - these are closed groups for women who are doing our Build Like a BuildHer course or who have joined our DevelopHers Inner Circle.
FREE FACEBOOK GROUP - Join Us!
Anyone is more than welcome to join our Women who Design, Decorate, Renovate & Build group. You will note that it's a closed group but ask to join and if you're into building and renovating, this is such an amazing and supportive FREE community, so come on and join in the building goodness!
Read the Full Podcast Transcript Below:
Rebeka: Thanks for joining us in this podcast, we are super excited to be jumping into this very big topic of the renovator's delight.
Kribashini: Or nightmare.
Rebeka: The right decision or the wrong decision.
Kribashini: It depends.
Rebeka: There's so much to think about before you buy and we just wanted to sit down and put together five or six things that you really should be thinking about before you buy the renovators delight or any property really.
Kribashini: Come join us. It'll be fun.
Rebeka: It's always fun.
Hi, I'm Rebeka.
Kribashini: I'm Kribashini.
Rebeka: Welcome to Building with BuildHer.
Kribashini: Our podcast. We believe that building is fun.
Rebeka: Super fun.
Kribashini: So much fun.
Rebeka: BuildHer Collective was created to help women with building and renovating, and we believe that with the right tools everyone can build. For us, it's all about encouraging women to take back control of the building process and really achieve their dreams.
Kribashini: We are women in the building industry and as developers, builders and project managers, it's our passion to share everything we know with other women doing the same and that's why we've created this podcast for you.
Rebeka: If you love all things building.
Kribashini: You're into design.
Rebeka: Keen on the numbers.
Kribashini: About to renovate.
Rebeka: Thinking and dreaming of that forever home and what it would look like
Kribashini: Or even developing for profit,
Rebeka: Then you found your family.
Kribashini: Subscribe to our podcast and follow our journey over at buildhercollective.com.au [music]
Rebeka: Hi, I want to say really quickly, thank you to all the people that have left reviews that is so exciting.
Kribashini: No, I actually sat down and read through them the other day and I got goosebumps. So lovely. Thank you.
Rebeka: Thank you. That was really kind and we have a biggest fan.
Kribashini: Do we?
Rebeka: Yes, well, this happens to be my daughter. She just loves listening to, sorry, all the downloads. I think it's my seven-year-old most.
Hilarious anyway, the point of today's chit-chat, and it came up in the Q&A that we were doing this week was it someone was buying a property or looking at purchasing actually we've got two builders that are looking at purchasing a property this weekend, which is probably a few weekends ago for you now. They wanted to know how to assess what the renovation costs were going to be, and whether it was a good purchase to buy the renovator's delight or not.
Kribashini: The renovator's delight.
Rebeka: Right. It's a big topic.
Kribashini: It's really not an easy answer.
Rebeka: Well, it's a simple process, but it takes work, I reckon. To do it properly probably takes about three hours.
Kribashini: It also depends on how much you know about how much it's going to cost and how many times you've done it before, and what the condition of the site is, and the house is.
There's a few different bits and bobs or balls in the air that you need to be able to juggle, to be able to come up with this assessment, and I think what happens here in Australia a lot is that people do the back of the envelope type feaso and throw those numbers together, and part of what we do and what we want people to embrace is that there is a bit more behind that visibility, which is really going to save you in the long run.
Rebeka: It's a myth to think that it always works out to buy renovators delight. I know one of our Master Builders when she joined because when we were assessing the project that she hadn't choose at the end of, and it's absolutely fine. I'm not, no criticism, but a few of those key mistakes along the way actually cost her profit and means that a profit is questionable.
She has done all this work over a period of really two years, and look for next time she's going to do it differently, but I guess because it came up three times in one week or two weeks actually, she was last week, we thought it'd be a good idea to assess, talk to you about what we discussed on the Q&A and how, you know, obviously we were running through a floor plan and talking about a house in specifics, but just in general, how do we go through and make these assessments and what can we do to ensure that we're not buying something that we'll overcapitalize or missing some key areas which are going to be big issues.
Kribashini: Absolutely, we think there's probably a bit of a mental checklist we can put together as we go through this.
To start off with, we want to look at the site potential. There are pitfalls, and there are ways that you can avoid those pitfalls. We're going to start off with, we don't look at our site potential, and what are our opportunities for the site?
Rebeka: Yes, when we're looking at that, we'll be looking at things like do we need a planning permit, massive cost implication, and the cost implication isn't necessarily a financial implication, but it is a time which creates financial implication like it's holding costs.
Kribashini: We do a lesson on that and our DevelopHers in a cycle and we have a lesson on the cost of time and it was so interesting because people don't necessarily quantify the cost of time.
Rebeka: No, but time adds up and man I was at up. Holding costs. When you look at say, that Masterclass person I was talking about it was a series of things that had gone wrong. One of them was that she didn't factor in 12 months in planning. She's like, "Well, I got held up in planning." I'm like, "Yes." There are things that you could have contracted out or there were things you could have negotiated through, there were ways to go about this, which were and you didn't have to buy this site".
Kribashini: There may have been some ways that she could have designed around so that she didn't need a planning permit. There's always a cause and effect.
Rebeka: Yes, one of the things we want to look at is, do you need a planning permit? Or do you need a building permit? If you need a building permit, that's a much simpler process than a planning permit. If you need a planning permit, you will always need a building permit.
Kribashini: That's right.
We've looked at site potential, we've looked at the opportunity. We also want to look at what is the need in the market? Are we buying something that can actually give us that need? Quite often, we get approached to help people with feasibility, we get approached to help people with building concepts. One of the biggest things that I've come across in my career is they want something but they only have the space for something else.
Rebeka: These are some basic things that we probably assume that you check first. One of the hard ones to do is when you buy single-fronted in between houses to then go up is a really difficult process. We want to also assess, is this an easy build or hard build? Are we going to make our life hell for the next 12 months? Or is this an easy thing?
Kribashini: You want to make life easy. Another one that comes up a lot is people think that there's a lot of opportunity for subdivisions, but they underestimate how much space they need to allocate for driveways, and circulation and garages and things like that. That's another fundamental thing that we need to check at the beginning.
Rebeka: Yes, these are some basic things that you just go through, and you go, "Yes, I can cover that."
Then let's say that we've satisfied all of the criteria. Everything looks like it's going to go in line. Let's say for argument's sake, it's going to be a building permit, because we want to be simple and we can control the process of a building permit. Res code tells us what we're allowed to build and what we're not allowed to build, we overlay them with the local council. We need to be across all of those things, what are we going to do to that house to change it?
What I see most often is someone will give me a plan of a house that's dilapidated, and go, "I want to do a kitchen, and a back room and a bathroom, and I've got 150 grand".
Kribashini: 150 grand is the magic number. Everyone wants to renovate for 150 grand.
Rebeka: Yes, if it's a small block or otherwise, it's 500.
Kribashini: Like, "This number or this number." It's actually people are deriving their budgets from what they're comfortable with spending, not what they need to get.
Rebeka: Or how much money it's going to take to get to that point.
One of the projects we were looking at with an extension, the other project was a renovation and internal gut and just restructure of the rooms. What we were doing was going okay, well, we can assess these two ways, depending on the way our brain calculates and formulates we're like, "What do we need to do or what do we want to do?"
Sometimes we get hung up too much in the detail, and so it's too hard to assess because we haven't worked out what we want to do. We just want to give it a really big number, and we don't break it down at all, but if we can go through and the two ways are doing a trade by trade, or room by room, depending on complexity and what you're doing, and go through, "Okay, let's say formal lounge room: we need new curtains, we need new carpet, we're going to paint it, we need some lighting upgrades, we need some [crosstalk] plaster cost." Then we'll have some general.
You're going to either room by room list out all the things that you want to do, will have a joinery costs, and then we add all these different rooms up, make sure we haven't forgotten anything, and then we'll have the general ones which is we've got to raise up the house, we've got to landscape the house, we're going to get a plumber to plumb [chuckles] we're going to re-wire, but we've actually gone through and thought about it. Now, when people get hung up is, "I don't know if the plumber is going to cost 10 or 15 or 20 grand?" I'm like, "Yeah, nor do I. What plumber are you hiring?"
Kribashini: Each job is so different. In one house, you might need to run a whole new sewer line in a different house or a different one on the block. You may only need to replumb your new, hot and cold water.
Rebeka: Yes, what we want to be assessing at that point is we just want to be giving ourselves what we think might be a realistic budget. We're not trying to go too high, we're not trying to go too low.
An easy way to do that is maybe just to like plumbers or electricians, you can sound out, but for material type stuff, there's a lot of information on the internet. It may not be right, but something which is 80% right is better than not putting the number down at all.
Kribashini: Well, by using the feasibility format, it's really giving you a checklist to make sure that you don't miss any big buckets of money because Rebeka's exactly right. There's a level of detail required at every stage and that level of detail becomes more and more intense as we get through our design process.
Essentially we don't want to miss any massive buckets of money at the beginning, because we only have a finite amount of time for the houses on the market. We can't do a full design and we can't get it fully tended. We can't get it fully costed before we're going to buy it. It's just not possible.
Rebeka: Depending on the level of what you want, like a bathroom, I was saying in this particular case we were looking at the bathrooms. I'm like, "We'll just allow 20 grand." It's like, where's that come from? I'm like, "Nowhere." It's just that it comes from nowhere, but I'm giving you, that's kind of [crosstalk] a medium size bathroom. You can do a few different things for that. I'm not limiting you so much that you can't afford to spend anything on it, but I'm also giving you a bit of option. If you can scale that back, you can spend that money elsewhere.
The kitchen the same we're like okay, 20 grand for the bathrooms, 40 grand for the kitchen, we're going to need X amount for landscaping. The pool needed re-upgrading and then the carpet like was X amount per square meter, not a low amount, not a high amount. We would just roughin' stuff out.
Kribashini: But it feels good to sort of rough it out and it's roughed out based on some experience and based on a lot of knowledge.
I think you know what I'm just remembering, we were going through a Q & A, we were actually going through someone's feasibility and one of our DevelopHer Inner Circle Q & A's. What I loved about it is this particular developer done such an amazing job at breaking down the numbers, doing the research, putting together the feasibility spreadsheet.
We got to go through that and we just picked up one or two key areas where there wasn't a bucket of money allocated. That's all you really need to make sure that you've to the best of your ability and at the time of the purchase with the information that you have, you're making the best decision for yourself.
Rebeka: The funny thing about that one is the feasibility didn't stack up, and then we added a couple of buckets of money. We pulled -- shaved a couple back. She did a really good job. Now she owned this piece of land already so she didn't have that time constraint. She'd been thinking about it, but she had one sum that was wrong and that sum meant that the feasibility didn't stack up, but when we fixed that, it actually made it feasible.
Sometimes it's you get so far in your own head that it's worth running that through.
Kribashini: When we estimate numbers, it's actually really interesting and this is why it's great to have someone look over your numbers who's impartial to it because we're either really pessimistic or really optimistic.
Rebeka: Kribashini is more pessimistic. I'm more optimistic, I think probably in numbers.
Then the contingency that we work is different. Right?
Again, we've got different ways of doing it. You work from a kind of controlling a builder and a project manager and controlling those buck of money for a different way. You keep your contingency separate.
I like to, which I know you hate, I like to build fat into my numbers to give myself areas to play with.
Kribashini: There are so many different ways to get to the end goal and there's really no right or wrong way.
Rebeka: I guess the interesting thing is there's no answer either.
Kribashini: Yes. That's probably the one, I think that's something that people really struggle with when they're looking to buy that property. When they're looking at the renovator's delight and they're kind of going, "Is this a steal or actually is this going to bankrupt me?" That's everyone's worry, isn't it?
Rebeka: We've spoken to people that have bought nightmares, absolute nightmares and they're like, "Oh my God." You know when you're buying something, you're so optimistic and you're so hopeful and it's going to solve all your problems because otherwise why are you buying it? They're just like, "This has ruined my life," and for a short period of time, it might ruin their life.
Kribashini: Look, unfortunately sometimes in building we have this kind of knock-on effect or I call it the knock-on effect. It's like if we change one thing, we have to fix something else, which means we have to fix something else. Because a building is put together with so many different elements and so many different materials that sometimes it's not as simple as just replacing the windows. We might have to fix the floor, we might have to fix the walls, we might have to do -- repair some structural works by changing that window.
Sometimes as the renovator's delight, we have to think about are we buying something that's got some potential that we can actually reuse or it's giving us some charm, or there's a real reason why we want to use this particular structure or building or character. Or is it actually potentially a knockdown, just a full knockdown rebuilt [crosstalk]
Rebeka: An emotional dream that we've decided we want to do. Because we've all watched The Block and it takes seven days to do a room and blah, blah blah.
Kribashini: Some people would love spending years and years and years on the Renovator's delight, just really chipping away as that hobby project.
Rebeka: There is, again, no right or wrong, like what does this block mean for you?
I spoke to another lovely lady, bless her heart, she bought a property with her husband and it was an investment property, and then they gut the property. They took out, they basically cleaned it out. They took all the kitchen and the internal stuff out of it and then realized they didn't have enough money to build the internals. It sat like that for a year. It's now unable to make rental income.
She's unable to get a loan because she's got it prior to getting the loan, so now it doesn't have any rental potential and she's really shot herself in the foot. I felt so bad for her because she just made a rookie error and it's just been one of those nightmare projects for her which she'd pinned her hopes and dreams on making a bit of money and getting some passive income some positive cashflow coming through.
One of the things we really do need to think about is can we afford the renovation?
Rebeka: Yes. We can get a loan for up to 80% or whatever your broker says, I'm not telling you what you can get a loan for. Yes, we can get a loan, but construction loans are harder to get. They are possible. Absolutely possible, owner builder loans are absolutely possible. Do you have access to that and does that lock you in? Because it's a lot easier to build with cash available. I don't mean actual cash, but I mean if you've got the funds ready and available, you can do that work a lot better. This is something we need to factor in at the beginning because often by the time we need the money, we can't get access to the money.
Kribashini: So important. [chuckles] Also demolition is easy, but don't do it. Don't do it until you're ready.
Rebeka: Yes. Don't do it until you're ready to rebuild and you've locked all those things into place. I understand the -- I know what she was trying to do, what she was trying to do was get a jump on-
Kribashini: Absolutely. It made sense probably at the time I'm sure.
Rebeka: -get a jump on the build. Yes. With the information she had at that time, she was making the best decision she knew how she didn't intentionally make a decision to-- and so then her property was devalued, so its value was less. She had no potential rental income and she really needed this money to -- and so she's like, "Well I'd have to sell my car to get the money to do the renovations, fix it back up." Otherwise, you've got no out. There is no way to get out of this situation. Unless you can get access to money.
Kribashini: It's a pitfall.
Rebeka: It's a pitfall. We want to avoid those pitfalls.
Kribashini: Let's sort of recap so initially we need to know about our site potential. We need to know about opportunity, we need to know about our potential renovation or new build costs, or constraints. We need to know about our financing options. This is all before we buy. It's a lot to do actually.
We want to make sure we've read through our contract and we know if there's any sections or any covenants on the land part of that site potential due diligence.
Rebeka: To say we want to know that we've got the money available and the time available to enact it because every week that we sit back and wait as well.
A top tip here is if you buy at renovator's delight, you don't start the work when your property settles, you start the work straight away. If that's engaging a draftsperson, getting quotes and some of the things you can contract in our access to the property earlier. You can contract in depending on what you're doing, getting the land surveyor, getting soil reports, getting access for a draftsperson or an architect and getting underway on these things really early and having knowledge direction and I guess vision is super important and I guess that's one of the things that--
Kribashini: Tie in to [crosstalk] making a profit.
Rebeka: Yes, right because if you can use like you're not paying for it at that point in time, you've got three months of rent-free really to get as much done as possible because when you settle you want to be ready to go. [crosstalk] Or four months or five months depending on what you said about time--
Kribashini: I think people do underestimate just how long it might take to get those things underway to get your land surveyor done, to get your geo-tech, to get your architect or your draftie drawn up. You do need the matter of months to get all that work done prior to starting.
Rebeka: Time is money and as soon as you can start doing that work, you can start getting the quotes in and you can know whether you need to assess what you're going to do prior to getting the house going.
I hope that's been helpful.
Kribashini: I think we got very serious there, but that is a really great quick five, six step checklist that you can use to help you assess the property before you buy.
Rebeka: But renovating is fun.
Kribashini: It's so much fun.
It really is. When you're thinking about it in this way, it takes the guesswork out, really does.
Rebeka: It does. Your feasibility will work. If your feasibility shows a really good strong profit, then great. That's a great property to buy. Some of them do and other ones are really tight. If it's really tight, do you know what you need to do?
Have a good think about whether it's going to be worth it. If something goes wrong and if your contingency isn't stacking up, do you want to put yourself and your family in that position?
Kribashini: Have someone in your court who can look over your numbers and give you a really balanced view on where they sit.
Rebeka: Yes. [music]
Thanks for listening to building with BuildHer. We'd love for you to spread the word.
Kribashini: For show notes, links, and downloads, and other awesome resources, freebies, head to buildhercollective.com.au. Don't forget that's BuildHer with an H-E-R.
Rebeka: If you enjoy this episode, it would mean so much for both of us if you could take a minute or two to leave a review.
Kribashini: Don't forget to subscribe so you can listen next time as we talk all things building and women making their mark in the building industry.