Strategies For Renovations on Investment Properties

Strategies For Renovations on Investment Properties

Here’s an interesting approach that you might consider if you’re into investment properties. Let us know what you think

“How do I work out what it costs for the work to get done renovating an investment property?”

One of three ways. When I started doing this, I had no idea, I didn’t even know what a hammer was, but I saw one in a magazine once. Now, what I’ve found is, a lot of real estate agents have a good idea of what it costs to get things done.

Or, if you start asking around, everybody knows someone who has renovated a house, or is a builder, or their uncle’s a tradesman and they can tell you what things cost to get done.

You’ll be surprised to found out how quickly, five for the carpet, two for the wall, one for the fittings, and you’ll just start keeping them in your mind, very quickly. So it doesn’t take you too long to get through that.

Or, you just bring someone in who knows more than you, and you’ll get your head around it. As I’ve said to you, the person who normally works out, here’s the conversation, “All right, I was going to spend the 40 grand for the house, and I was just going to add it to the forty grand, but if you reckon you could do it for a little bit less than 40…”,

“I mean $40,000… I’ll just take the $40,000 off the house.” Saves me the work.

Now I know that they are secretly saying to themselves, “This man’s a moron. We can do it ourselves for $15,000. He’s going to take $40,000 off the price?!?”

“We’ll take it!”

Now I know that conversation is going on in the next room. Make sense?

But I know that, because they will do it themselves.

Here’s one of the rules. The work must be finished before you move in my house. Because, your enjoyment of the house and your motivation to get the work done will stop the day you start living in there. Does that make sense? Everyone will renovate everything until the day I move in.

In my paper work, if it says there are any bids on the house, the deals off. You do the work before you move in. I’ll put a lock box on it, you can be there on the weekends, you can be there at night and after work, but you cannot sleep there. You cannot move into my house.

I don’t let people do electrical or plumbing .If it’s a licensed electrical or plumbing, I’ll say, “let me ask you something, who are you planning to get for the electrical or plumbing?” I don’t want moms and dads frying themselves. Does that make sense?

So I don’t let you do electrical or plumbing. I don’t let them do structural. If there’s a structural issue, I’ll either get it fixed, or I’ll say, “we’ve got a structural issue here, who do you think might sort that out? Who do you know?”

So I’m okay with them getting their friends in, but if it’s structural I want to know who the guys are that are coming in.

Occasionally, I’ll also say, “By the way, if for some reason you run out of money for the parts to renovate the house, you can go down and use my Home Depot account.”

They go, “great!” Now, for every dollar you put on my Home Depot account, I add three dollars to the price of this house.

image thanks to: Olger Fallas Painting

image thanks to: Olger Fallas Painting

People magically go from poor to finding a bucket load of money somewhere! They never use my Home Depot account. They just magically find money.

Now, when I do the one for hot property, here’s how I do that one.

I went to West Bank and said, I have these people who want the house. What you can do, is the banks will give you a valuation on your property, although you haven’t done the work yet. If you say, well, “bank, if I do that work, that work, that work, and that work, what value will you put on my house?”

West Bank said we’ll give the guy a home loan on that value if you do this, this, this, this, and this. So all I did was make that bit the equity bit.

I didn’t have the deposit, went in and did the work, West Bank said, “well that’s easy to deposit, did the work on the house, gave him the loan, he’s out.”

So when do they start paying? Because people say to me, when do the people start paying?

It depends on how much profit is in the transaction. If it’s a thin profit on the transaction and I’m not making a lot of money, I know so many people want these. I might say, “I’ll tell you what. If it is your place and you’re going to start renovating, I would get them to start making payments pretty soon”.

If there’s a lot of profit in the transaction, I might say, “well you know what, how long do you think it will take to do the work? Six weeks? Well, how about you start making payments on the seventh week, regardless of whether you’re finished or you’re not finished, you’re making payments on the seventh week.”

So, if they’re not in the house because they haven’t finished the work yet, they’re making payments on a house they cannot get into. You’d be surprised to find how quickly they finish the work on a house when they’re making payments on your house. No one wants to go to a dinner party, tell their friends they’re living in a tent, cause they’re making payments on another guys’ house they’re renovating for him. It just doesn’t make them sound too intelligent at the dinner party.

Now the other thing is, some people ask me, do people default? On this sort of contract, I think I’ve had one person in Australia and one in the United States. But no one will ever go into your house, renovate it for you, and then not make the payments, just so you can get the house back that they renovated for you. Because it makes no sense to go to the dinner party and say, “Guess what I just did? I just renovated another guys’ house, and gave it back to him. I did it for free.”

It just doesn’t make a lot of sense. So, that’s why it’s a great strategy.

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