Inflation-proofing Your Renovation Budget

For real estate investors who renovate and re-design for retail, this business is about more than just numbers. Spotting potential through layers of chipped paint, rusted hardware, and DIY fails, there’s a satisfaction that comes in more than just the paycheck at the close of a deal. The manifestation of a design vision, breathing new life into tired, neglected walls and seeing them become someone’s loved HOME once more creates a sense of pride that adds another layer of wealth.

Recent shortages and price increases of material and labor have started to replace the excitement of home renovation with frustration for many investors who find themselves struggling to meet budgets for making necessary repairs and marketable updates while maintaining a worthwhile profit potential, though.

By cranking up the creativity and keeping an open mind, investors can face these new challenges head-on, continuing to provide quality renovations that buyers will love while staying within budget.

Investing for retail begins with the challenge of creating (cue deep, echoing voiceover) The Renovation Budget. The amount of profit potential and renovation budget for a project are symbiotic numbers sliding up and down a scale determined by formulas that include estimated ARV over acquisition, holding, and marketing costs, so it’s extremely important that they be accurate. A trustworthy investing software like REIPro is a must for not only this purpose, but for all aspects of real estate investing.

Renovation budget costs are individual to the property, its location, and current materials prices. With this in mind, it is best to err on the side of caution and consult a local licensed contractor for project bids vs using a generic formula. A reputable contractor is an essential part of your renovation toolbox and can be a huge help in many ways. They are usually creative in their own right and can provide excellent ideas for design challenges, keep the project on time, and itemize bids for labor and installation materials separate from customer-supplied materials and finishes, making it easier to stay within and on top of your budget.

So, where does more creativity and an open mind come in? We’re getting there!

For the majority of retail projects, the renovation budget consists of a mix of necessary structural repairs, functional re-design, and cosmetic updating for a property to reach its full ARV potential. Structural repair costs like foundation, roof, plumbing, and electrical don’t offer any real dollar stretching and belong at the top of a budget priority list. This is why it’s important that issues are identified by a professional home inspector prior to committing to a project and are accounted for when negotiating an acquisition price.

Now that we have a structurally sound dwelling, it’s time to address what will make it appealing to potential buyers.

Functional design and cosmetic finishes are the first things potential buyers look for after price and location. Exterior curb appeal, interior layout and finishes are all big-ticket items that buyers don’t want to be REQUIRED to change immediately. Clean, neutral, and functional. These are musts, but what is big-ticket for buyers is also big-ticket for investors, right? Not necessarily. Especially not when you look at ROI. It’s definitely worth the cost of responsible updating, but the question is how to stretch those dollars and make them go further.

Bulk and sale pricing on finish materials like tile and carpet is old news to investors, but materials like windows, shingles, siding, granite, and paint just don’t go on sale often, especially in the quantities needed for large-scale projects.

It’s not common knowledge, but many local recycling facilities across the country offer repackaged, recycled paint in 3-5 gallon bucket quantities. Early on, paint types and colors were just dumped together and blended into ‘light’ or ‘dark’ brown options, but the process has been improved over the years to create a wider array of neutral colors. Many don’t separate by finish, so the end product is an eggshell variety, but this works great for interior walls. Some facilities even separate and blend specifically for exterior grades. And. It’s. Free. Search the internet for ‘reblended paint near me’ for local facilities.

Here is a photo of a project using interior reblended paints:

The image of the interior staircase also shows another great budget-stretching design upgrade.

When faced with a house full of outdated, cracked tile, investors automatically think ‘this is going to be expensive’, and it CAN be. The cost of time and labor to remove old tile from a concrete subfloor, replacing with new tile or even carpet can take a huge bite out of a renovation budget. A savvy budget stretching option? Sealed concrete overlay. With a light sanding to rough up the existing tile surface, re-adhering any loose tiles and grout, and two to three applications of self-leveling concrete overlay and sealer by a reputable installer, you are left with strong, beautiful, modern floors that provide an undeniable ‘WOW’ factor for potential buyers at roughly 1/3 the cost of traditional replacement options.

The option of using low grade finishes like tile, countertops, and appliances is something that many investors feel they must resort to, but salvage and surplus supply stores can be a treasure trove of high-end materials at deep discounts that are even more cost effective than ‘going cheap’. Discontinued or unclaimed custom orders of everything you need… granite, tile, lighting, appliances, bathroom fixtures, cabinets, flooring, doors, and even windows are available at a fraction of the cost of purchasing ‘cheap’ materials. Let’s talk windows for a moment. Many older homes have odd-sized, energy-wasting eyesores with rotting frames that need to be replaced, but ordering custom windows is budget-crushing in both money and time categories. Consider replacing them with slightly smaller, NEW salvage store windows that are easily reset, sheetrock patched and trimmed out, without blowing the budget. This works exceptionally well if exterior siding is on the list to be renovated, but even if that’s not in the plans, a larger exterior window frame or siding transition can complete the repair and even add coveted curb appeal.

Here’s an example of a neglected 70’s era split level updated to a neo-craftsman cottage using the window hack mentioned. Surplus windows retailing for $220 each, purchased NEW at $40 each with an additional 10% discount for purchasing tile, bathroom fixtures, and lighting for the same project. Always, always ask for a discount. The only other answer besides ‘no’ is ‘YES’.

A good way to stretch the budget with appliances and kitchen cabinets by browsing local marketplaces for sellers remodeling their own kitchens. Mixed cabinets can be reconfigured and painted, and gently used high-end appliances are budget-maximizing superheroes.

These cost-cutting tips may seem time-consuming, but keep in mind that many salvage and surplus stores generally have enough inventory to make it a one-stop-shopping trip as long as you come armed with measurements for the items you’ll need. Most even offer delivery options, or contractors can usually pick up purchased items if agreed upon up front.

By far, the most important hack for ensuring that you stay on target and maximize profit potential for any real estate investing strategy is to start right with your initial numbers. Utilize trustworthy real estate investing software like REIPro, reputable and licensed inspectors, contractors, and service providers. In the long run, you’ll save time, money, and avoid expensive pitfalls that can happen when trying to cut corners. Think creatively, conscientiously, be open-minded, and invest smart.