So did you actually renovate for profit?

renovating-for-profit

So did you actually renovate for profit?

So you’ve finished your renovation but do you know the final cost? More importantly, do you know whether your renovation was worth the effort?

Whether you are renovating an investment property for profit or you are just trying to improve the value of your own home, after the dust settles on the renovation take some time to work out whether you actually managed to renovate for profit.

Renovation Budget Bravado

I was pretty sure I was all over this renovation budgeting and return on investment stuff when I undertook my last property renovation in Frankston, Victoria.

I had spreadsheets, I had targets for how much to invest in each room as a % of the overall value of the property.

It all started out pretty neat; I was getting quotes, entering them into my spreadsheet and negotiating the best price at every turn, I was on top of who I owed money to and when.

How Renovation Budgets Get Off Track

Then life happened.  Which for Type A’s like me is a harsh reality check.

  • I hadn’t estimated my tile quantities correctly, so I just needed to race to Bunnings and buy whatever tiles would work so I could finish those areas
  • The rangehood I so thriftily purchased online as seconds, no longer had filters available for that model so I had to bin it.
  • I needed a second pair of hands to put the kitchen cabinetry together, that wasn’t in the budget!
  • The very cheap brickie who had come out and quoted with no issue at all, disappeared off the radar.  So I had to pay a premium and get whoever I could.
  • The young fella I had helping me sand the floorboards; plugged in the floor sander – having left in gear and it screamed across the room and through a window – hadn’t planned that expense.

Contingency?  What contingency?

You know the deal, and this was only the tip of the iceberg.

Getting Your Renovation Budget Back on Track

So I have blocked out some time (get it Block-ed?) and gotten some help from my faithful bookkeeper in crime and actually taken some time out to set up my Renovation Budget in Xero 

We have structured our chart of accounts and created line items for everything from Acquisition Costs, to Renovation Costs, Holding Costs and happily income lines for the rental we are now earning.

Whilst I am not doing this as a business, I will simply claim the expenses and income in the course of our personal tax returns, meaning the initial effort to set up a Xero file for this purpose will set me up for future renovations. This will also set me up to manage the ongoing financial whirlwind of property investing include tracking depreciation, expenses related to holding a rental property and rental income – yay.

So is renovating worth the effort?

I’ll let you know in the next SheBuilds instalment where I will get down and dirty with the actuals of the budget I undertook.  I am still finalising all the numbers which should be done by the end of tomorrow.   So at the moment I still don’t know if it was worth the effort but I sure enjoyed it!

In the meantime if you want to take a sticky beak at my Xero Chart of Accounts on my renovation projects, subscribe and I will send you a complete Chart of Accounts that you can use.

About Suzanne Commerford

Suzanne has stepped out from behind the desk of Australia's largest home inspection business to build the skills, confidence and independence of women to tackle maintenance and home improvement projects around the home.

7 Comments

  • We work with a couple of renovators who regularly renovate for profit, one of these takes it very seriously and because of how finely she controls the expenditure, she has been successful in making a profit each time and is able to clearly define the profit within her accounting system. Another one we work with, doesn’t have the same level of control and their budget tends to blow out regularly. While this person still claims to make a profit, they are unable to be sure, due to the lack of control on the expenditure. I am very interested to follow your story. Thank you for linking up with #HIT, it’s great to have you along. x

    • I think I fall into the former but towards the end of the reno I just needed to finish and I’m expecting a less than favourable outcome on the intial reno budget. But the reality is the spend was $270k, negotiated down from $310k due to the termite activity we discovered, its now positively geared with a three year government contract with inbuilt pre-agreed rental increases and we plan to hold for the long term so any initial stuff ups should be ‘recoverable’! I hope.

  • Helen says:

    Hi Suzanne –

    Thanks for that information!.

    Any chance of getting a copy of the complete Chart of Accounts that you can use?

    Cheers Helen

  • Bec Senyard says:

    I laughed at what you shared that wasn’t part of the renovation plan. There is always 1 or a couple of headaches when you renovate. But I think the more renovating experience, the more you learn and less mistakes are made. I’m looking forward to when you share how you went with the books, but I love that you enjoyed the experience because what’s the point of renovating just to make money? You need to enjoy the process too. Thanks for linking up to #HIT Suzanne. I look forward to reading more of your blog. 🙂

  • Melinda says:

    Thanks Suzanne, for your post, I have been trying to look for a system to keep track of expenses, compared to what I budgeted. I was using an excell sheet, but now getting into the thick of the Reno…it’s getting hard to get a quick overall view of how we’re going. I’ll look into Xero. Thanks 😉

    • There is a monthly cost but for me its worth it. We are doing it as a partnership with another couple so we need to keep a good track of the equity contributions.
      The transparency is important, because everyone can have a user identity with different permission levels, they can log into the books from wherever via the Xero app so it means no excuses for not being ‘informed’!

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