The Renovators reno misses ROI mark!

This week on the Channel Ten show called The Renovators (episode 3) we saw two teams battle it out to renovate a terrace each – but they only had a 12 hour day to do it! The challenge was designed to see which team could add more value to their property based on ‘before’ and ‘after’ valuations. We saw skilled renovators hard at it all day investing in new kitchens, renovating the bathrooms, painting in and out, installing plants, putting up back yard fences, landscaping…. you get the idea it was a complete makeover.

But the big thing that stood out to me was that after all their hard work the post renovation valuations barely increased relative to the work that was done and once you factor in the cost of labour and materials they lost money. This is a great example of how easy it is to overcapitalise even when you’re supposed to know what you’re doing. Renovating is not just about making the property look good it’s about adding significant value to the bottom line or, I have to say, why bother?...

Let’s take a look at the numbers: one terrace had an increase in value of $25,000 (pre-renovation - $975,000, post-renovation $1million); the other had an increase of $55,000 (pre-renovation - $975,000, post-renovation $1,030,000). Each team had more than 10 people working on the property.  At a conservative cost of $100 per hour x 12 hours x 10 people you’re talking about no less than $12k in labour for each property. 

Then when you take into account the approximate cost of materials they used you’d be looking at bathroom works at $5k; the kitchen rip out and replace at $12k (including appliances); flooring and tiles at $3k; lighting at $2k; landscaping, pots, plants and fence at $5k, and that's for just the big ticket areas. Taking a conservative cost for paint, rubbish removal, etc I would allow around $2k per property.   Then you need to add in the cost of the styling furniture to impress the valuers  (which one judge suggested can add 5% to the value alone if done right) which you wouldn’t have been able to hire for under $3k.

The financial summary speaks for itself:

Property A:

• Value before they started: $975,000 
• Value after: $1,030,000 
• Rough estimate of what it cost: $44,000
• Profit of: +$11,000 

Property B:

• Value before they started: $975,000
• Value after: $1,000,000 
• Rough estimate of what it cost: $44,000 
• Loss of: -$19,000  

So as you can see if you don’t renovate smart then renovating is a fast way to over capitalise and lose money on your property. If you want to renovate and ensure you do make a profit then give me a call on +61 2 9904 4722 or click here to email my renovations project manager and my experienced team and I (who by the way have never failed to make a healthy profit on a renovation) would be happy to discuss how we can help you build wealth through investing in and renovating property just like we have for many other clients.