In today’s market, where inventory is a challenge and buyers are having a hard time finding what they want, renovating may be a good alternative to buying something turnkey. If buyers are willing to take on a renovation, they may be able to get exactly what they want by buying a home that needs some work and then customizing to fit their needs.
There are many reasons why renovation and remodeling is more popular today than it has been in decades including:
- Personal Taste: Remodeling and making the home “theirs” is one the most popular reasons for a renovation.
- Lifestyle Needs: With more generations choosing to live, together this is a very popular reason to remodel. Many Baby Boomers remodelers are making a change to their homes to make room for “Mom” or “Dad” or to create a space for their visiting or boomerang children.
- Asset Appreciation: Remodeling to improve the value of the home or updating due dated age and style are other excellent reasons to remodel and update a home.
- Flipping: With all the shows on television which feature glamorous home remodels and a return on investment, flipping has become a popular hobby for many.
Before the beginning the investment process, the most important decision your client will make is deciding who will do the work involved. Hiring a contractor to manage their project can save you time and money through experience and expertise. Before anyone is hired, the following should be done:
- Verify the contractor or trades people are licensed, bonded and insured
- Check references
- Get more than two estimates
- Check the Better Business Bureau for any complaints
- Check the Department of Licensing to make sure that the person is licensed to do the job
- Make sure the person actually doing the work is licensed to do that work. For example, if someone is working on the plumbing, verify they are licensed to do plumbing work.
Now that a contractor has been chosen, it is time to drill down the budget. I recommend researching all costs before the project is begun as one cost can greatly affect the rest of the project. Consider the following when assessing costs:
- Project Size & Scope: Consider the budget and prioritize the most important things to be done. In the event the budget has been exceeded, knowing the top priorities are helpful in determining what needs to be eliminated.
- Structural Changes: Doing any kind of structural changes could require an architect or engineer and will require permits. All of this takes extra time and money so a homeowner should consider the importance of taking down a load bearing wall for example. Are some jobs critical for the renovation or is it just on the wish list?
- Cosmetic Changes: If the changes are just cosmetic, consider the overall finished look and then work backwards from there to create a realistic budget.
- Product Selections: There are so many good products out there, so finding a choice to suit the budget may require some time. This should be factored in.
- Grade of Finishing: Determine the grade of finishing to be used and make sure the contractor and all the sub-contractors know what the expectation is.
- Age of Infrastructure: Consider the age of the home because the older the home, the more likely it is that something will need to be upgraded to today’s standards.
- Level of Craftsmanship & Quality: This is the area where there are more disputes during a renovation than anything else. If the homeowner has a very clear idea of what they want, don’t wait until the shower is completely tiled to complain to the tile setter due to the quality of the work. The moment something is not being done to the level of expectation warranted, stop and reassess immediately.
- Custom Versus Stock Cabinets: A decision as simple as whether or not stock or custom cabinets will be installed can greatly adjust the budget. Be prepared to have these decisions made before the project begins.
Managing your renovation project is the most important part of the process. If you want a seamless process and a good final result here are some things to consider.
- Daily Project Updates: Make sure to get daily project updates from anyone who has done work on the home, log this information, and adjust future projects if the overall timeline is impacted.
- Arrive First: I highly recommend that you arrive at the renovation site before anyone else. This tells the crew that the project is being managed at a higher level and there is an expectation they will manage their time as well.
Record keeping is essential for the project. Here are some things good record keeping includes:
- Keep every bid, estimate, quote, paper drawing or electronic drawing.
- Allow NO changes without adding the changes to the original documentation or scope of work document.
- Any financial changes must have signatures by the homeowner and the contractor with the agreed amount and whether or not the change will alter the timeline.
- If the change alters the timeline then adjust the timeline document and make sure the contractor signs it.
Protecting yourself is the most important thing the homeowner can do during the renovation. These are critical:
- Make sure the contractor gets permits and NEVER start work without a permit.
- NO ONE gets paid without having them sign a Lien Waiver. A Lien Waiver indicates the work has been completed and the contractor, tradespeople, or subcontractor have verified the work has been paid for in full.
- Use an Affidavit of Final Release, which indicates the entire job is complete as opposed to a lien waiver which indicates a single job is complete. This must be received by contractor before final payment is made.
I recommend that these steps are followed by the homeowner to end up with a renovation that is completed per expectations. Your clients can have the home or property that fits their needs with a bit of organization and elbow grease.
Our Cash Flow Worksheet
If you have a client who is renovating with a long-term rental in mind, check out our new worksheet which helps project rental cash flow and equity over time. This is perfect for working with an investor or even a homeowner who is considering turning their home into a rental and buying another. This worksheet is available to all of our Club Zebra PRO members.
Download the Cash Flow Worksheet
Project not only rise in rent over time, but also expenses and also show change in equity with this handy worksheet! “Love this worksheet, used it already… Very easy to use and understand. Thank you!” -Aranka Fruehauf
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