Property Expert Nick Statman on Ways Property Investors Determine Repair Costs-
As a property investor, you spend a lot of time crunching numbers. Your success depends on how you balance income and expenses and finding a way to maximize value while minimizing cost. If you’re like many property investors, every decision you make regarding your property is based on how it will impact your ROI.
Repair costs, renovations, and upgrades are responsible for a significant percentage of the money you spend on an investment property. The better you can be about predicting repair costs and preparing for them, the easier it will be to maximize financial gains.
Here are 5 steps to determining repair and renovation costs so you can budget your next property investment effectively:
Make A List
The first step in determining how much it’s going to cost to repair and renovate a home is to take inventory of what needs to be done. Do a thorough walkthrough (preferably with a professional contractor) and write down repairs that need to be addressed, room by room. Once you have a clear idea of what needs to be done, you can start to organize the repairs and renovations into categories.
You can break these repairs down in order of cost, importance, or how long they will take to complete. You’ll also be able to identify which projects require a professional and which projects you can do on your own.
Decide: DIY or Hire A Pro
One of the ways to save money on renovations is deciding which repairs, if any, you can do yourself. You may be able to do simple jobs like removing wallpaper, painting a small bathroom, or fixing holes in the wall by yourself. How much you can do on your own depends on your personal experience with DIY projects, and how much time (and desire) you have to complete these repairs. Keep in mind, while doing a complex home repair could save you money, it could also cost you in the long run if something goes wrong and you have to hire a professional to come to fix the damage.
Once you’ve decided which jobs you feel confident you can do on your own, it is time to break down the other projects down to get an accurate estimate for the cost. For the repairs that require a specialized contractor, call around and get a few quotes. This will help you determine the going rate for the specific repair you’re looking for and find the best rate.
Calculate Labor and Material Costs
The cost of a major home repair will depend largely on the amount of work it takes to complete and the materials you use. You can save money on some home repairs by buying the materials yourself and hiring a professional to do the work for you. It is also important to remember that many complex home repairs and renovations can be a hybrid process of DIY and professional services.
For example, you could buy unfinished wood cabinets and apply the finish yourself, and then hire a pro to install them. Finding ways to combine your DIY skills and the expertise of a contractor can help reduce expenses. As you are putting together a home repair budget, don’t be afraid to find creative ways to negotiate the price for labor and materials.
Use the 1% Rule
Investors like algorithms, equations, and formulas. They like the idea of plugging numbers into a calculator and getting a concrete result. And while this doesn’t work with all aspects of property investing, there are some ways to calculate the estimated cost of the repair. This is where the 1% rule comes in. This common practice in property investing involves setting aside 1% of the purchase price of the home for ongoing repairs. While this rule isn’t set in stone (since the home’s current condition and fluctuating market values can impact home prices) it can be a good place to start to set aside money for repair and home maintenance costs.
Budget For Surprises
One of the biggest mistakes that property investors make is underestimating the cost of repairs. They calculate the costs of the major home renovations that they know the home needs, but they don’t leave any room in the budget for a busted pipe, a broken water heater, or unexpected roof damage. These things can (and will) pop up, and having money set aside to take care of them will make the whole experience a lot less stressful.
Home repairs are a signficant part of the property investment process. UK property owners can expect to pay £700 per year in minor repairs and renovations, and up to £20,000 for major repairs in a standard three-bedroom home. Being prepared for this can help you stick to a budget, improve the value of the home, and keep you on track to ma