Copyright 2008 Profitable Partnerships USA, LLC
Money and expenses tend to go hand in hand with the timing of the project. The longer you hold the project, the more it ends up costing you in the way of mortgage expenses, utility costs, insurance, taxes, and the list goes on.
With each passing month you are waiting for a permit approval, or waiting for your construction team to finish, or waiting for the property to sell after being listed, you are paying these expenses – no matter what.
All that being said, it is mandatory to consider “How much will it cost me to fix this house?” as you venture into the realm of the renovation.
Outside of the costs and expenses to administer a renovation project comes the obvious expense of the renovation budget.
Depending on how you structure your deal, this may mean you will have to come out of pocket for particular money to cover the costs of renovations. In other cases, you may use local hard-money lenders to finance the deal. In some cases, it could be a conventional credit line or bank which gives you a construction loan.
No matter how you look at it, you need to consider where this money is going to come from, how much is it going to cost you to get it and is it a liability and a monthly expense you are willing to take on to complete the project?
In a lot of cases, you can find hard money lenders who will finance the project for you and not require you to make monthly payments. Instead, their note balloons and all of the interest accrues to the back end of the loan.
This is a nice way to finance the deal as you do not need to worry about monthly mortgage payments. However, you pay for this convenience and in the end your cost of financing is much greater than what you would have paid with a conventional credit line or mortgage. Conventional financing facilities will generally require a monthly payment and may or may not give you the full amount of money needed for the renovation of the project.
Additionally, something else to consider when it comes to money and expenses is the idea of cost over-runs or project “oh-no’s”.
These are items that are sometimes unforeseen when you are engaged in a renovation. In some deals you may discover you need to make particular adjustments to a property as you are beginning your demolition or site prep work. In other deals, you may find that particular budgeted areas of the project end up costing more than expected.
A good example of this that we have come across many times is in basement renovations when our crews are adding a bathroom to the basement and are needing to drill the concrete to find the main drain pipe.
In many cases, we have dug up parts of the basement floor where the access to the pipe appeared to be, but as it turns out was nowhere to be found. As a result we dig more to find it and we end up having to install a much longer extension to connect to it.
This kind of work is not cheap and is a definite overrun that we did not anticipate. It is always good to factor in 10% of your construction budget for any unforeseen cost overruns that may occur.
Between the time of your project, your team, the market, and the associated costs you will encounter as you do a renovation, you must be fully aware of these considerations and the impact they have on your project’s bottom line. The longer the property remains on your books and not for sale, the more expense you will accumulate against the property.
We want to you to be stepping into the project with your eyes wide open to this fact.
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Tom Zeeb and Will Lansing are active real estate investors, national speakers and mentors who coach students how to make BIG profits so they can live the lives of their dreams. They are the authors of the highly acclaimed home-study course the “Profitable Partnerships Success Library”. For information on having Tom & Will speak to your real estate group or for home study course and other Profitable Partnerships product information, please visit www.profitable-partnerships.com email mentor@profitable-partnerships.com or call 877-COACH-50.
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A big thing that alot of people don’t take into consideration is their landscape. Be sure that the sprinklers are functioning properly, that the backflow is regulation (inspectors frequently don’t catch this) or that you have the cash to cover repairs.