Updated: Oct 9
Renovations are a large part of real estate investing, and for real estate investors, managing renovation projects is crucial. . From flip properties to the BRRR Method (Buy, Renovate, Rent out, Remortgage), dealing with contractors and renovations is a skill that needs to be developed. The renovation process begins long before the first hammer hits a nail. Proper budgeting, planning and the development of relationships with the right team members for your project is the foundation that makes each project a success. Like everything, managing a renovation project is 50% organization and 50% the relationships that you build along the way. Let’s start at the beginning.
Dig the well before you get thirsty. Before you begin your search for your next renovation project, identify and build a relationship with a contractor that you want to work with. This can be someone you have a prior relationship with or a recommendation from someone you know. Make sure this contact is licensed and insured for the work that they are doing.
Pro tip – the cheapest guy is not always the best. Several years ago, I hired someone through word of mouth for a large project I was taking on. I was paying him cash and trying to get a deal. He was a good carpenter, however he walked away in the middle of the project due to personal issues. I was left scrambling on nights and weekends to finish the unit myself, as I had a deadline to meet.
Lessons learned – pay above board, get a contract in place and hire a reputable company. You’ll pay a bit more, but it will be absolutely worth it to have some guarantees.
Whether this renovation project is a new purchase or a remodel on tenant turnover, it is necessary to begin with a rough idea of the scope of work. Sometimes that is easy to determine and other times, not so much. If you are adding additional units, there can be hidden expenditures that aren’t obvious initially, such as upgrading the incoming water lines and electrical service. Is fire separation a concern? If so, is the current drywall fire rated? Are there any foundational concerns or plumbing issues that need to be addressed prior to drywall installation? It is best to walk through the project with your contractor from above and get their opinion. There are many things that they can point out that you may have overlooked. The contractor should be able to give you a rough quote based on the walk through and scope of work.
Set a budget and then add twenty percent. Renovations are always over budget. The rough numbers the contractor gives you will probably be a good place to start, but just be prepared that things never go according to plan. Have a good cushion of cash behind you for these overages. For example, I was quoted $12,000 on a recent design project. Several weeks later, the budget ballooned to $16,000 due to a change of scope and a consultant coming in over budget. This is before the project even began. Expect it.
If you are refinancing or selling after the renovations, go high end. People want to be wowed when they walk through your project. You’ll get a higher sale price, a higher ARV and a better quality tenant if you don’t cheap out on your budget and finishing.
Determine if you need a building permit, zoning change or any regulatory requirements. A general renovation typically doesn’t need a building permit, however electrical changes need to be inspected by the Electrical Safety Authority in Ontario. Major changes such as the addition of a kitchen or another unit will require a building a permit. If a permit is needed, start the process early so that paperwork isn’t holding up the project.
Figure out what appliances, flooring, and fixtures you want. It isn’t up to your contractor to pick these things out, unless you’ve given them some guidance and they’ve added it to the scope of work. They don’t want to be held up because you really wanted the oak flooring and it hasn’t been in stock for 12 months. Get used to constantly searching Home Depot, Lowes and Rona for products that fit your budget and taste.
Hold your contractor accountable to what they said they would do but let them do their thing! Communicate your needs and expect your contractor to do the same. Be present to co-ordinate other trades such as plumbers or electricians if need be and keep everyone on the same page. Leverage their knowledge to ensure a good outcome.
Check in regularly, or have someone you trust stop by to check in. Sometimes things don’t go as planned and it is best to catch these instances as soon as possible. The contractor may have some things to discuss during the project and regular check ins are a good time to manage any issues that may come up.
Pay on time and treat your contractors right! When your contractor sends you a bill, pay it promptly. When they have a recommendation, take it or work with them if your budget doesn’t allow for what they are recommending. A well-timed compliment or gift upon completion goes a long way. It keeps them coming back when you need them. The reality is that a good contractor typically has too much work and can afford to be picky about who they take on as a client. Be a preferred client.
Do a final walk through upon completion with your contractor to identify any deficiencies or issues and make sure they get resolved prior to paying the final bill. If you were following the other steps in the process, there shouldn’t be any surprises here.
Enjoy the finished product! Begin the sale, refinance or renting process to make all the work worth it. If the project was well managed and expectations and budgets were set properly from the beginning, it should have been a fairly smooth process.
Have questions about your portfolio or want an outside opinion? Please select the button provided below, and I will schedule a free half-hour call with you to go over your situation! Talking to the right people can really save you money. I really believe that this is the time to expand your network and learn from those around you. I'll be in touch!
I'd love to hear your thoughts on this! Have a great week while working past those obstacles on your climb to success. Let's Grow Together!
Real Estate Investor and Entrepreneur
Jonathan Beam is a real estate investor in the Niagara region who is passionate about helping you achieve financial freedom through real estate. He works with new and experienced investors to formulate a plan that fits your specific situation and provides market guidance and consultation on the best places and strategies to pursue within the Niagara Region. Book a free, half hour no obligation consultation to see how he can help you to achieve your goals. His travels are available at www.realestateandrepeat.com
For a free market analysis on 2 markets within the Niagara region that we are currently investing in, please visit the home page and fill in the contact form at the bottom for your free report!