Every month, leading reno expert Cherie Barber answers your questions on renovations. This month Cherie tackles questions about calculating costs and the merits of DIY vs professionals and vice versa.
Question:How can I ensure I won’t overcapitalise?Do you have a special tool or calculator you use to calculate the cost of doing a reno? How do you allocate the costs when planning your renovation?
Answer: Making sure you don’t overcapitalise is all about crunching the numbers. You need to know the absolute maximum you can spend in order to still make money on the renovation. And when you’ve worked out your budget, you need to calculate what your costs will be, down to the last powerpoint and tap. Then stick to that budget, no matter what! That’s the only sure way to ensure you don’t overcapitalise. Of course, working out those costs is the tricky bit.
For that reason, I have a software program that is supplied to all graduates of my workshops and that calculates all the costs of the renovation on a room-by-room basis. The user inputs all the costs, and the program automatically calculates the grand total. If you don’t have access to software such as this, then you could create your own Excel spreadsheet to work out the cost of your renovation.
There are some ballpark figures I use to ensure I don’t overcapitalise. If it’s a purely cosmetic renovation, work on 10% of the current property value as your renovation budget. For a structural renovation, it’s harder to put an exact percentage on it, as it comes down to the type and scale of renovation you’re undertaking. Just make sure your budget includes a contingency of about 10% for nasty surprises.
A good tip is to attend a few ‘open for inspections’ in your suburb. This is particularly important if you’re planning to on-sell the property post-renovation. It will give you an idea of the type of renovation that is well suited to your potential buyers. It will also help with your budget. You’ll Your renovation questions answered
When you have your budget, work out your costs on a room-by-room basis and input absolutely all items you will need to purchase: paint, skirting boards, architraves, plasterboard, flooring, lights, and so on. That’s the level of detail you need to get down to, so there’s no cost blow-outs at the end.
To avoid overcapitalising, you also need to make sure you’re not paying more than you need to for what you buy. Wherever you can, buy off-the-shelf items, as the minute you start getting items custom made, your costs will soar. Shop around for the more expensive PC (prime cost) items, such as appliances, vanities, baths, tapware, etc.
There are a lot of cheap ‘fake’ designer items on the market now, and the average person honestly can’t tell the difference between the clones and the real thing, yet you’ll save thousands of dollars and still get a contemporary look. Check out online sites like GraysOnline and Gumtree for bargains.
You also need cost-effective labour. Always get at least three quotes to give you a benchmark price of what a job should cost. This is particularly important if you’re a novice and have no idea about labour costs.
DIY or professional?
Question: We’re planning to have a full reno done on our newly bought investment property but haven’t decided whether we should do it ourselves or hire a professional to project manage the reno. Are we likely to save money by doing it ourselves, or could we end up botching the project? If hiring a professional, how do we know we’re getting a good or reliable person? Any tip on how to pick the right one, what questions to ask, and so on?
That really does depend on how experienced you are at renovating and how good your organisational skills are. You haven’t specified whether it’s a cosmetic or structural renovation you’re planning, and there’s a world of difference between the two. A cosmetic renovation is a lot more straightforward, as it generally involves basic upgrades such as new flooring, lighting, painting, and probably an updated kitchen and bathroom.
That’s a lot of different trades to coordinate, a load of deliveries to manage, and a lot of shopping around to be done for fixtures and fittings. To be cost-effective, you want the job done in the shortest time possible, especially as it’s an investment property and you’ll be forfeiting rent while the renovation is happening.
If you have good organisational and design skills, are a good communicator, and feel confident negotiating with all the different tradies, then you’ll save a lot of money by project managing a cosmetic renovation yourself. If you don’t think you have those skills, then seriously think about hiring a project manager (who must have a builder’s licence) to coordinate all the work for you. However, expect a large chunk of any profit margin you make from this renovation to be absorbed by the project manager’s fees.
It’s fair to say that an experienced project manager is likely to charge an absolute minimum rate of $400 per day. A structural renovation is much more complex and will involve putting plans through council, and you’ll require an army of professionals for that process alone. By law, you will need to hire a builder, who will then take on all the responsibility for hiring the tradies and managing the project.
When hiring anyone for a renovation, whether it’s a professional or a tradie, you need to do extreme due diligence on that person. You can check the licence of any tradie at licencerecognition.gov.au/authorities.aspx.
Make sure they’re licensed for the work they’re doing and have all the necessary insurances. Good builders or architects always have work in the pipeline, so quiz them about what projects they’re currently working on. Ask to speak to the property owners on their current job and from their very last one.
You’ll get a good sense of who’s good and who isn’t. If the person is reluctant to give you those details, alarm bells should start ringing. When it comes to signing your building contract, make sure absolutely everything is itemised, right down to the last powerpoint, and you’ve read over.
Can you afford to buy in this suburb? Find out how much you can borrow