He says having the right mindset (confidence before paddling out), finding the right location (reading the surf to select the right place to position yourself) and building a strong network of advisers and support around you (your friends out on the water), are important steps for riding the wave of success towards your property investment goals.
In his book, A Surfer’s Guide to Property Investing, Glossop tells of his 10-year journey to build a successful property portfolio, as well as the tips and tricks he learnt along the way to achieving financial freedom.
In the ninth chapter of his book, Glossop explores the ins and outs of renovating for profit and the steps you can take to help reach your renovation end game, including completing your due diligence when costing up the project.
Here is an exclusive edited excerpt from his book, republished with permission:
Chapter 9: Renovation
The most crucial moment in any renovation project comes well before you start choosing hammer brands or paint shades. I’m talking about due diligence and the ability to remain unemotional and critical about the true costs and outcome for your project.
Don’t be scared of deciding to not do a project. We all like to see a venture get underway but you must be prepared to cut and run if the figures show a loss rather than a profit.
Budgeting project costs
Once you have worked out the projected market value of your investment property after renovation, the next step in your due diligence is to compile a reasonable estimate of what this renovation project will cost to complete.
First, lean on your trusted advisory builder to provide a broad but well-reasoned estimate of work. If it’s a smaller, cosmetic renovation, you might be able to handle this step yourself. Make sure you include all elements of materials and labour, from paint and brushes to services such as plumbing and carpentry.
You pay these fees to people such as engineers, designers and certifiers. This is one area of due diligence that people notoriously miss. Professional fees can run into thousands of dollars, so make sure you don’t skimp when estimating these costs.
Fees and charges
Council rates, planning fees and charges are highly likely for structural renovation work. Set aside funds to account for these costs.
Across all of the project costs, I like to allow a 10 per cent additional amount so there’s a margin for error. If you don’t use this contingency, great. If it’s needed, you will be thankful it’s there.
Buy-in and sell-out costs
If the plan is to ‘flip’ the property, you’ll be paying an agent to market and sell the finished home and they’ll earn a commission. There will also be costs associated with conveyancing. If you plan to retain the home in your portfolio, these sell-out costs can be removed, but you might need to allow for some lease-up costs.
Money doesn’t come for free. If you are borrowing to complete the deal, don’t forgot to allow for interest on the spreadsheet too.
Why go through the exercise for free? As discussed above, you must allow a margin of profit or equity gain in your calculations to reflect the riskiness of the venture. Working out what’s ‘reasonable’ in this instance requires a little bit of experience. I would also encourage you to rely on your trusted team of advisers.
Budgeting for these costs and tracking every cent going out the door during your renovation will help you stay on top of the cash flow and translate into the frugal habits that will maximise your return.
About Paul Glossop
Paul Glossop is a professional property investor, qualified property investment adviser and buyer’s agent. He is the founder of independent property investing company, Pure Property Investment, and is on the board of Property Investment Professionals of Australia (PIPA).
A Surfer’s Guide to Property Investing (Major Street Publishing, 2019) is Paul’s first book.
Cover image source: EpicStockMedia (Shutterstock)