Just thought I would tell you a couple of stories about some of my experiences in property refurbishments. The first is the story of a mate of Simon and me; the second, unfortunately, is my own story, and the third is an unfortunate client of another property investment company.
Before I get into the intricacies of this let me explain why I am writing about property refurbishments. Many of you may not know, but I didn't start in new build properties.
I started buying second-hand properties and doing them up before selling or remortgaging them. At the time it was the best thing for me, I had heaps of time and little capital. I was willing to pick up a paint brush, dig a hole, punch through a wall and build a fence.
For the most part, it was a great strategy at the time, but one that I would only go back to again if I had to.
You see, after my first few property investments I began turning into a smarter investor – the kind of investor whose time is more important. I had enough money to pay other people to do things for me and most of all I had a life outside of my renovations.
That's how I moved into new build property.
It was easy. I didn't have to spend a great deal of time and despite the main criticism that was they were overpriced I found that I was a good negotiator and, therefore, could buy them at a great price.
I rarely had problems because the property was new, and the tenants tended to be better.
Understand that I'm not trying to sell you the virtues of a new build. Indeed, I am living proof that new build works just like any strategy, but only if you understand how to do it properly.
The first story,
Simon and I have an Aussie mate, Steve, who earned £120k per year as a consultant. He decided to go into property development, so he began the research phase that ended up being 3 months. This is quite a normal amount of time to invest to find the right deals and build the right relationships.
Three months in and countless hours later he ended up finding two deals in the same week. Great he thought, I'll do both. And so begun a 6-month refurbishment project on each flat. He was smart enough to hire a team of Aussies and Kiwis to do the work for him, but even so, he pretty much spent the entire 6 months full time on-site. That's right – he took a sabbatical from his job to do the refurbishments.
In the end, we went for beers. He was over the moon about turning a profit of just over £70,000 for the 6 months work, and as the beers flowed and we spoke more frankly and realised just how much time he had put into the project he began to realise (with a little bit of help from Simon and I) that even though the two projects that made him £70,000, he had actually foregone £60,000 income along with countless evenings, weekends, added stress from working with tradesmen and the stress of selling the property.
You see he fell into the biggest trap of property refurbishments, the one that they never tell you on the television shows.
It's simply that you never value your own time.
Steve could have earned £60,000 in a relatively stress-free way in his normal job. Was the extra £10,000 he made worth the extra time? That's for you to decide, but let's just say that Steve hasn't done another renovation after learning this valuable lesson.
So remember always factor in the cost of your time in the job before you get excited about the returns.
The second story.
Once, I bought a bargain. Worst house in the best street on the waterfront in the Gold Coast, Australia. The deal was such that I couldn't lose. Yep – it was run down. Sure the pool was full of creatures from the black lagoon, but it was cheap and I had just made some good money from a previous deal so it meant I wouldn't have to do everything myself – I could hire tradesmen.
Now don't think for a minute that a tradesman in the UK is any different from a tradesman in Australia. They all turn up late (if at all) and lack the ability to take responsibility for their stuff ups. It seems to be coded into tradesmen DNA.
Anyway, I scheduled all the works to take place over a 6 week period. Apart from a pontoon on the water nothing had to be built – it was mainly cosmetic stuff that needed doing. So I thought to myself that I could take my previous profits and have the house looking ship shape in no time.
Day one began fine: the foreman and his team showed up. No surprise considering I was paying them the initial 30% up front. All seemed good they begun cleaning out heaps of rubbish. “Great,” I thought to myself and headed off to work to return later.
I arrived at about 2 pm to see how my new home was looking, and no-one was there. To my surprise, the property was also left open!
I waited… And waited… And waited… In fact, I waited 3 days before they returned.
Their excuse was they were just finishing off a previous job and that they would be onsite full time now and that the 6-week deadline was still fine.
After two half-days of work over 2 and half weeks, I sacked them. It also took me 2 months to get my money back and at one point I was physically threatened to get lost “or else”.
It doesn't end there, the next guy I dealt with was a similar story, he would arrange to be at the house at 7 am but wouldn't arrive until 10 am, always stating he had another quote or to see a client. This guy was a little better but still unreliable.
Can you spot the two lessons in this story?
The first is it ended up taking double the time and double the cost.
This is what I normally suggest people think about with a project. Can you afford double the time and double the cost? If not then seriously consider if it's the right project for you.
People always deny that it could ever get this bad. Don't forget that even the best tradesmen advise a 10% contingency, and that's before they come to you trying to upgrade you to the gold taps.
Trust me, it's amazing how easy it is to blow a budget!
Every “horror story” television show starts the same: “they started out with a estimate of £5000”, and we all know how they end.
The second part of this lesson is underestimating the time it will take.
Property investors always underestimate the time it takes to sell a property once it's done. And even if you aren't intending to sell, it only takes one tradesman to let you down, one delivery not to arrive and it throws the entire project back a week or four.
The second lesson is that if you are to do these renovations and refurbishments without stress you need to have a team of experienced tradesmen around you. This can take some time to find and the truth is that you can never set and forget your project. You need to be on hand at every stage along the way.
So you need to build a team based on performance but always stay on top of their work.
This is unfortunate story, but it's a common outcome in refurbishments that a client doesn't manage property or have another company manage for them.
In this story, the client paid £30,000 to purchase a run down below market value property on the condition that a “carefully selected” company will renovate the property after the purchase, leaving it in ‘as new' condition.
The problem is that there's renovation and there's renovation.
Which is the kind my client received? Unfortunately, the kind when corners are cut, finishes are poor, and things are generally badly completed and not of the quality you would expect.
The property had damp that wasn't solved, just painted over. When it rained the roof would leak. The radiators were barely screwed into the wall and after 3 months the only thing keeping them on the wall was the main oil pipe. Not exactly safe. The snagging list grew and eventually my client paid a professional snagging company to do a report but it was of no use. The company that had been carefully selected didn't want to know about the problems.
In the end the tenant moved out which, on the positive side, allowed all of the issues to be fixed up but only after an extra £5,000.
The lesson is if you directly aren't supervising the renovation or refurbishment, be very careful! It's far too easy to have people take the short cuts. Then the short cuts become YOUR problem and can cost you an arm and a leg.
If you are thinking of refurbs or renovation then make sure to consider these things. They might just save you a whole load of time and frayed emotions.
But if you want the easy road, just choose new build. It's as easy as a simple phone call with one of my team. Call us on +44 (0)207 923 6100.
Live with passion,