If you’re getting jazzed about that hot investment opportunity in an up-and-coming neighbourhood—or if you’re thinking you’d love nothing more than to buy a charming fixer-upper as your first home—please sharpen your pencil. And turn OFF the TV.
As a REALTOR® I’m not sure I should admit this, but truth be told, I’m just as addicted to real estate television as the next guy. It could even be argued that I find tromping through properties without getting up off my couch even more enjoyable than most, because I get to watch someone else do all the work while I armchair coach.
While we all know much of reality television is scripted (yes, those house hunters have already seen those properties they’re “reacting” to), what a lot of folks may not know is that the costs quoted for home renovations on those shows are usually out to lunch.
Given how much I enjoy his programs and respect his obvious success as both entrepreneur and contractor, I was disappointed to read that Scott McGillivray has succumbed to this not-so-real approach to real estate TV production and marketing. Although I shouldn’t be surprised. The numbers stated for renovation costs never seem to account for the actual cost of labor, let alone how difficult it is to secure a talented and reliable contractor (but especially if you’re in Alberta). Contractors don’t work for free. Moreover, most homeowners AND investors do not have the skills, knowledge and TIME required to invest 100% of the sweat equity required to properly renovate a home or do an income-suite conversion.
Anyway, Moneysense.ca did a little digging into the numbers behind a recent episode of McGillivary’s Income Property and it wasn’t pretty. While the show quoted the homeowner’s cost of renovations to be $55,000, Moneysense.ca’s estimate came in at $108,195. Even if you factor OUT staging and design, this is more than a minor discrepancy. Contractors need to pay themselves and they need to make a profit. And inexperienced homeowners need to understand what “sweat equity” really means. If you don’t know how to general a construction project, prepare to PAY for that expertise. Period.
So let’s get real about renos…
Three questions to ask yourself when considering whether or not to buy a property that needs big-time renos, for investment purposes OR for your primary residence:
- Can you get the property for well under market value?
- How much sweat equity can you realistically invest in the project?
- How long can you live there yourself or “hold” the property before selling?
Of course, there are myriad other factors to consider when renovating a property, like how much cash you have available or your personal tolerance for uncertainty. (How many hours of sleep you require per night should also go on the list.) The point is, do your homework and consider how a major renovation is going to impact your life and your bank account. What looks good on TV might look terrible on paper.
And you know what they say: if it’s too good to be true, it probably is!