From Remodeling to Real Estate

The residential real-estate market has received mostly bad press during the past four years. In spite of challenging times, our firm has found it to be one of the most productive markets for our speculative construction business. In the speculative segment of the market, few companies have the financial ability or the stomach to renovate homes with no buyer in hand.

The limited volume of new homes being built combined with few speculative renovations means the market does not have enough high-quality move-in-ready properties. Because buyers have limited choices, our projects have sold quickly and produced high margins and annualized returns on capital invested.

Taking on your own project can be extremely rewarding from monetary and creative perspectives. However, it is hard work and unless you are a remodeler who also is an attorney, real-estate agent, designer and appraiser, you need to do a lot of research and assemble a team of professionals to complement your skills. There are many things that can go wrong if you do not anticipate them. However, when a well-thought-out profitable project is successfully completed, you will enjoy a sense of satisfaction and accomplishment that lasts much longer than the financial reward. That being said, there are six steps that must be considered in all projects.

Step 1: Assemble Your Team

Unless you are a renaissance man/woman, you are probably going to need input in one or more areas. Although you’re a whiz at finding subcontractors who provide quality craftsmanship at reasonable prices, you will need to take your time diligently researching real-estate agents, attorneys, appraisers, etc.

You may think you can cut out the real-estate brokerage community because you don’t want to pay for a broker’s services. Our firm never takes this approach. We view real-estate brokers as one of the main customers to which we market our business each day. The more the brokerage community understands the quality of your finished product, how reasonable you are during negotiations and the service you provide after the sale, the more your business will grow.

Unless you live in a small town, it is rare to find a single broker who specializes in all price points or sub-markets (small geographic areas that are identifiable to locals). If you have access to the multilist, search for brokers who have bought and sold the same home in a short period of time. These transactions are likely to involve renovators, and the agents are more likely to understand the process.

Step 2: Know Your Buyer

Good local brokers also are important to helping you understand the buyers for the home you’re renovating. How old is your buyer? Does he or she have or plan to have a family? Why does he or she choose to live here (schools, proximity to work)? How much can the buyer afford? What will neighborhood sales support? To be successful you need to understand the sub-market you are going to buy and renovate in and the substitutes for that sub-market. Buyers are going to shop in both.

You must look at a lot of real estate and talk to a lot of people. There is no substitute to kicking the tires in the real-estate business. Words, like renovated, updated, refurbished, etc., are thrown around in this industry like confetti. You need to see what your competition is offering. Look at as many homes as possible, including active listings and sales. Working with successful real-estate agents in your sub-market is an excellent way to streamline this process, but you must see listings yourself.

Step 3: Formulate a Plan

This is a multifaceted phase depending on the scope of the project. For renovations that are more cosmetic in nature, such as replacing the kitchen cabinets or refinishing the floors, it is not as difficult to develop the plan because the structural and mechanical systems probably won’t have changes.

For more extensive renovations, such as linear or vertical additions or interior floor plan changes, this is a critical phase. There are many things to consider.