Renovation projects are not as simple as they may seem. Although they increase the value of the property, arguably by a tremendous amount, renovations require a lot of prior knowledge before beginning. Here are some guidelines to follow before starting a renovation project.
Before Starting the Renovation Project
- Find the ideal contractor and construction team – Before beginning any renovation project on an investment property, it is imperative to know and trust the team that is being worked with. It is often found that the best contractors are those who are recommended by friends and family. During the interview process, make sure that the contractor recommended is quintessential for the project at-hand. Additionally, check the contractor’s licenses and make sure that he is able to get all the permits necessary to get the project done. Before making a final agreement, do research online as to whether the contractor has had any complaints or litigations against him in the past; this will help make the decision process easier.
- Create a versatile and adjustable budget – With any project, especially a renovation, complications can always occur. Budget flexibility is key; a project may end up costing double, or even triple, the expected amount. It may be optimal to have extra funds available to accommodate for any difficulties along the way. When seeking funding from real estate lenders, such as Sharestates, knowing the after repair value (ARV) is key. Most lenders issue funds up to 80 percent of the ARV. The possibility of abrupt change is always present and must be taken into account. Do research and find high-quality people and products for the renovation in order to minimize the possibility of complications.
- Develop a track record – It is very rare for hard money lenders and banks to fund renovation projects for first time investors. It is wise to work closely with a partner, especially one who has experience in fix and flips, renovations, and rehabs, to develop a track record before pursuing a loan to begin a project on your own. The knowledge and experience gained from working with a seasoned investor will help create a strong track record; hard money lenders will then be more willing to fund future renovation projects.
- Be aware of insurance policies – In addition to double-checking one’s own insurance policy on the property, it is smart to make sure the contractor has accident and health insurance themselves. Additionally, construction, or builder’s risk insurance, is a policy that should be considered, as it protects most of the estate from damage and physical loss. It is important to know all policies in case of any unforeseen accidents. No one would want to be liable for any mishaps, so take time to do some homework and look over each policy before any agreement to begin a renovation is made.
- Create a realistic schedule with a time frame – Before beginning a renovation project, be sure to have a thorough discussion with the contractor about the timing of the project; it is essential to plan in advance. Exterior renovations tend to take longer to complete than interior. Both types of renovations can be prolonged by the weather, permit delays, or unexpected occurrences for the construction team; therefore, it is reasonable to add a few weeks to the time frame to play it safe.
- Secure the property – Once an agreement is created with the contractor, there will be people coming in and out of the property daily. Being away from the land during renovation time, it is highly recommended to secure expensive and valuable belongings in case of theft or inadvertent damage from construction. Some ways to protect the investment include fencing the estate in, upgrading the security system, and placing assets in a safe. Furthermore, even if the construction team says to check in once a week, it is suggested to check in daily – or at least three times per week, to make sure the renovation is turning out exactly as planned.
It is better to have the job done correctly by the right people than incorrectly by the wrong people. A renovation project may be a lengthy and costly venture, but the outcome is more than worth it due to the vast increase in value of the property. Make sure to put in the time and effort to find the ideal team, set up a flexible budget, create a strong track record, double check all insurance policies, set up a reasonable schedule, and secure the property.