One of the most common mistakes we make as Aussie investors in the US market is not correctly scoping a renovation project.
Essentially the scoping is probably one of the most important steps, as everything from here, including your success or profit at the end is hinged on this. Scope too much, and you will find that you will not be able to sell the property for enough to get a return after spending too much on the rehab. Scope too little and you will find the property extremely hard to sell
So Lindsay, what’s the magic formula?…
Well, good question you ask. Unfortunately, the truth is, there is no magic bullet here. But, there is a way to help determine this number! It’s your strategy… The strategy you have for the home will guide you in determining the correct scope for the investment. If for instance you want to tenant the property and keep as a rental or sell down the track as an investment, then this will guide your scope. If, on the other hand, you wish to sell the property (flip so to speak) to an owner occupier, then this will again, give you good indication is what you need to scope.
Make sure to tie everything back to your strategy. For instance, for a rental, ask yourself – will this <insert reno item here> help me to get more $$ in rent or reduce my maintenance costs? If yes, scope it, if no, leave it out. If flipping, think about if the update will make a difference to the sell price or saleability – if yes, do it, if no, skip it. Sounds simple but at the end of the day, it is quite straight forward. We must always keep the end in mind when we are looking at the process and none more so that the scoping process.
Let me give you some examples:
For rentals you want to look two things: 1) what is going to get me the most rent; or 2) will this addition reduce my maintenance for time to come. If either of these is a yes, then ensure to scope that in. For instance, two-tone paint colours, while they look great, are they going to get you additional rent? No. Is that going to reduce your maintenance? No? So skip, just do single colour, this will save you over $1000 on an average 1000-1200 sq ft home. Now there are exceptions to every rule, and some high end suburbs will need high end finishes to get tenants, but just make sure to refer back to your strategy each time
Owner Occupier Flips
In these cases you want to see what will make the property either a) more saleable; or b) sell for a higher price. Another example here would be granite or stone bench tops in kitchen or bathrooms, tile floors rather than laminate etc. These items are surely going to add value and increase saleability so I would ensure to scope these in.
We also need to be wary though of our original budget for the renovations and be sure to stay within this. Even if this means, formica bench tops in the flip property, you do not want to be in a position where you have spent too much and cannot get this back on the sale price. Always refer back to your strategy and feasibility to ensure each item of the scope fits and is budgeted for!
For more details, book a call with us to discuss renovations, happy to chat!