The time has come. You’ve found your investment property, secured it at a decent price, and now you’ve got to figure out what comes next. Planning a renovation is a daunting task, and it’s hard to know where to begin. Having a plan for the renovation process is vital to success, as it helps you keep track of your time, ideas and budget. Along with the expected concept planning and timeline structure, it’s also important to research and plan the team of specialists and tradesmen who will be working on the project with you, and to look into your options when it comes to financing the renovation.
(If you haven't read it already - check out The Renovation Basics Part 1)
Reno rule #3: Set a realistic timeframe
Creating a timeline
The best place to start is to create a timeline for the project. A timeline is the first part of the planning process, and planning is the first step on your timeline.
Planning: One month (or the length of the settlement period)
Planning is a broad term that encapsulates most of the theoretical work you’ll have to do before any actual construction begins. You’ll want to try to compile most of your creative ideas during this time to create a solid concept of what you want for the finished project.
A stable concept and a working drawing will provide a detailed breakdown of all the elements of the project, and result in a more comprehensive pricing estimate. Once you’ve got a design that you’re happy with, try to stick to that design. Deciding to make changes throughout the process simply due to creative persuasion is where contingency issues arise, as these changes have an impact on your entire budget and timeline. There will undoubtedly be times throughout the renovation when you will be forced to stray from the initial concept, but unless it’s necessary, try to adhere to the original plan.
Throughout the planning process, it’s important to discuss your plans with experts in architectural design
and construction, and to acquire any government permits you may need. You can use this initial consultation stage as a way to interview potential candidates for the job, as you will be needing those services on a more permanent basis. You’ll have to plan your finances in relation to banking, as well as creating a realistic budget with a buffer margin of at least 20%.
Choose your team: One month (or the length of the settlement period)
After you’ve solidified your plans with an architect or designer and had your concept plans drawn up, you’ll need to put together a renovation team to work with you on the project. You’ll need a contractor who will work with you and who you can trust on a financial level. Often contractors come with their own team of tradesmen in different specialities, but you can also choose particular people to do particular jobs. At the end of the day, you’re the boss; you’re the one financing the project, and you get to decide how things are done. But professional opinions are hugely valuable and that expertise can make or break a project.
Demolition: One week
‘Demolition’ is a strong word and may only apply to projects with large structural changes, but this section of the timeline is all about getting rid of the old to make way for the new. This step includes smaller tasks such as pulling up the old flooring and disposing of old sinks or appliances that are to be replaced. It’s a big step and it’s messy, but it allows any hidden damage or issues to be determined early on so that a solution can be found quickly.
Behind the scenes: Two weeks – allow an extra two weeks for any complications
The next step involves anything that needs to be done within the walls or beneath the floor; primarily plumbing and electrical work, or any thermal additions. Some renovation projects won’t require rough-in work, particularly if it’s just a cosmetic renovation, but for those that will, it can be done without any excess damage to the housing structure. By this point you’ll need detailed schematics of the kitchen and bathroom in particular (that should have been completed previously by the architect) and any other room that will require electrical work. This is the point where the most costly contingencies tend to arise.
Walls and fixtures: Two weeks Give the property a sound structure by foxing up any walls that have been sacrificed so far, and building up any new ones that you have planned in the concept design. Installing any cabinets, doors and other such fixtures can also be done at this point, giving shape to the renovation.
Flooring: Two weeks
This is the stage at which reworking or installing of any new flooring, from bathroom tiling to floorboards, is done. Estimates of how much material is needed to cover the space is often subject to error, so it’s always a good idea to purchase slightly more than the projected amount of flooring material. If you run out, having to wait for more can cut into your time plan.
Painting: One week
Repainting the internal walls and ceilings is one of the easier DIY jobs if you’re looking to make your budget stretch a little further. This is where your renovation really starts to become reality.
Finishing touches: One week
This allows time for finishing the baseboards, door frames and any other bits and pieces that haven’t been taken care of yet. These tasks are often simple and unlikely to run into complications so near completion.
External and landscaping:
Varies depending on inclusionsA fresh coat of paint and a tidy gutter go a long way towards curb appeal. This can be done after the rest of the renovation is technically finished, and most of it can be DIY to save on cost. Proper landscaping and any large-scale additions like a swimming pool will require a team; you may have to hire other tradesmen if it’s outside the realm of your team’s services and expertise.
Clean-up: A few days
Many first-time renovators forget to include the cost of the huge clean-up that takes place both during and near completion of the project. For bigger projects, it’s often worth the cost of renting a large rubbish skip to save on lots of small runs to the tip and several clean-up sweeps. At the end of the job, have a professional cleaning team run through the completed renovation to get the place ready for the market or for personal residence.
Building your team
Trust is vital when it comes to selecting the people you want to work with on your investment renovation. Trade work can be fickle, and tradesmen vary in quality, punctuality and sincerity
as much as they do in the prices they charge. You can’t be around to supervise 24/7, and you need to be able to trust your team with your investment; you need to trust them not to rip you off, and you need to trust them not to waste time.
It’s therefore important to be selective when choosing whom to employ. You want someone who is skilled at their craft, respectable and likeable. Follow these simple guidelines to choose the right tradie for your renovation:
1 Meet them in person so you can assess for yourself how professionally they handle themselves. Assess their general manner and their punctuality, and whether or not you think they would respect you and the property.
2 Ask for a detailed quote that will break down the prices so you can see where your money is going. Ideally, you will have a few potential tradesmen so you can compare their quotes and see which appears to be the most accurate, or which is the most appropriate to your particular brief and design needs.
3 Check that their services are legitimised under a registered ABN.
4 Check that they have insurance. Labour-intensive jobs in unstable environments are at higher risk of causing personal injury, and if they aren’t covered for insurance you could end up legally responsible.
5 Ask them for any qualifications they might have, and their licence number.
6 Have they been referred to you by someone? If not, ask for references and try to contact people connected with past projects they have worked on.
7 When possible, try to choose someone who lives locally. Not only will it save on transport costs but it’s also more likely they’ll be able to get there with little notice in case of an emergency, and more likely they’ll endeavour to maintain a respected reputation in the local community.
Reno rule #4: You’re only as strong as your team
Return on investment
When it comes to crunching the numbers, the most important calculation for any investment is ROI (return on investment). The basic algorithm is ROI = (Gains – cost)/cost, a formula which applies to all types of investment. The ROI of real estate is one of the trickier types to calculate because often both the cost and the gain are constantly changing due to factors such as the cost of upkeep and gain of rental income. To calculate an accurate ROI percentage, every cost that has gone into the property from purchase to resale must be considered. Many smaller factors are often left out of the simple equation, which can seriously skew the projected return.
How to finance a renovation
There are several different options when it comes to financing your renovation, all of which suit different intents and purposes. In order to purchase the property to begin with, you’ve probably already taken out a mortgage or a home loan. To begin renovations, the most common financing options undertaken in Australia include home loan modifications, construction loans and lines of credit.
Modifying your home loan
There are different ways that your home loan can be changed in order to cover the cost of the renovations you’ve planned. One way is to top up your home loan, which often has a lower interest rate than other types of loans (such as personal loans). This can save you the time and paperwork involved in taking out a separate loan with a different interest rate. Another option is to refinance your home loan altogether, which provides you with the opportunity to re-evaluate your current loan and come to a new arrangement that suits your needs, such as switching from a fixed rate loan to a variable loan under building conditions. Sometimes a mortgage can also be refinanced or topped up, although stricter conditions apply due to the time constraints of the mortgage agreement.
Construction loan
Building or construction loans are designed specifically to cover projects such as renovations. These types of loans have a defined limit but allow you to progressively draw funds as you need them so you can pay off individual invoices as you receive them. The biggest advantage of these loans is that interest is only charged on the amount you have progressively drawn that month (plus fees). These types of loans often have an interest-only period of up to 12 months when you don’t need to repay the principal, just the interest.
Line of credit
Taking out a line of credit is a slightly more complicated method of financing. Like a construction loan, it offers the freedom of withdrawing from your home loan progressively up to the agreed-upon limit, and you’re only charged interest on the balance owing rather than on the total amount. However, the big difference is that there are no regulated loan repayments; it’s entirely your responsibility to ensure that the account balance never outweighs the approved credit limit. This includes paying off interest and any extra fees. Another risk factor with a line of credit is that it is entirely at the bank’s discretion; at any time the account limit can be withdrawn and you’ll be required to repay the amount owing in full.
Other potential finance options include personal loans and credit cards, but these are more economically viable on smaller projects. Interest rates on personal loans and credit cards are often higher than those charged for home loans and larger borrowings. If you’re considering any of these options, it’s recommended that you discuss this with the home loan specialists at your bank so they can help you choose the right option for your renovation project.
Go to: The Renovation Basics Part 1
