A good renovation feasibility analysis will help you choose properties that will give you the most profitable outcome. One of the top reasons renovators don’t make a profit on their projects is because they don’t know how to do a thorough analysis of the variables that determine whether or not they will make money on a property or not.
I use these five steps to make sure my feasibility analysis of a property results in maximum profit.
Step #1: Determine The Scope Of The Project
What do you envision for the project? A good renovation feasibility analysis keeps the completed renovation in mind. Do you want to knock down a few walls to widen the space? Would the value of the property increase if you added an extra bedroom or bathroom? Are you planning on opening the living area to the outside with a deck?
The more work you plan to do, the more you are going to have to spend. You need to weigh up whether or not the profit margin will be big enough to cover the costs of extensive structural changes, or if a cosmetic renovation will be more profitable.
Step #2: Decide What Can Be Retained
Inspect the property thoroughly to identify what can be kept. As tempting as it may be to gut the property, there are often things that can be left in place or repurposed. You can significantly reduce your expenses and increase your profit when you reuse parts of the existing home in your renovation.
Step #3: Estimate Your Renovation Costs
To work out whether or not the property you are planning to invest in is a feasible option, you will need to work out how much the renovation is going to cost. Do some research before the project starts:
- The cost of the materials you will be using.
- How much you will have to pay the builders and other contractors.
This is the best way to make sure your expenses don’t get out of hand and you make a good profit on the project.
Step #4: What Is The Expected Timeline?
The longer the project takes the more holding costs you have to pay. Part of your renovation feasibility analysis is to identify which parts of the project will take the most amount of time to complete. Will you be able to work on other sections of the property at the same time?
Have the property on the market by early November at the latest so as to get a good value for it. The later you go, the worse it is for your resale.
Step #5: Examine Other Risk Factors
Have a good look at the property itself as well as the surrounding area. There are a number of external factors that could lower the value of the property. Even if your renovation is top quality and full of flare, if the street appeal is poor, the property’s value will be poor.
The best way to ensure a healthy profit from your renovations is to conduct a good feasibility analysis. Having an idea of how much the project is going to cost, how long it will take to complete and whether or not the value you add to the property will translate to a profitable sale, sets you up for success.
At The School of Renovating, our mission is to give you the tools and the inspiration to experience all the joy, creativity, and profit that renovating has to offer. Check out our free resources to get you started on your renovating business journey.