I love Homes Under The Hammer, but there are some things which happen on the show which just drive me insane.
And I know it’s reality TV, which isn’t really like the real world – but if you want to make real money from property investment – you need to live in the real world – because that’s where the real money is!
It’s Rule 8: Get Real
1. There is NO free labour in the business of property development
Seriously, I am sick of the amount of people on Homes Under The Hammer who expect their friends and family to work for free, while they get to roll in all the lovely lolly when the project’s complete.
In the business of property development, labour is a big expense and needs to be costed into your renovation plans. People, on the whole, do not work for free – and “mates rates” start to wear thin after the umpteenth project. Maybe once or twice people will help you out for a favour – but that’s the difference; it’s a favour not the basis of a business plan. If you can’t make money from property by not paying for labour – the deal’s a dud.
2. ALL fees, financing and flooring costs need to be accounted for
It never ceases to amaze me the amount of people who think they’ve spent just £6k doing up a property, with the narrator gleefully extolling how much “profit” the buyer will make. No, let’s add this up properly and the way a business should work. Financing a property costs money, buying and selling a property costs money, everything to do with a property transaction costs money. There is a fee involved in everything. From the initial property auction fee, to the stamp duty fee, the surveyor fee, the mortgage/ bank fee, broker fee, solicitor’s fee, estate agents fee – the fee list is endless and will drain your profit pot.
Just to recap you on simple maths: profit is what you make after ALL expenses have been deducted.
You may remember the quick property renovation I did in Stevenage which highlighted that the renovation costs were not even half of the total costs – and a whopping 25% of my total costs went on financing! This is the reality of property investment. And I swear to God that none of the buyers ever include the cost of their flooring. Flooring is a massive suck-up of funds and a necessity. Unless you’re turning over the world’s smallest studio apartment you’re shelling out big time for flooring.
3. There is a MASSIVE difference between Buy To Let and Buy To Sell
But people never get it.
They see a property which needs work and plough straight in taking everything “back to brick”. I don’t understand it. These so-called “investors” need to get their heads checked. If it ain’t broke, don’t fix it. Buy to let is a long game – you are looking to rent the property – not sell it. Making the property like a show-home may pump your ego, but it certainly won’t increase your bank balance. And, you need to remember tenants will live in your property, and I mean like really live, with dirt and muddy shoes and maybe even a child or a dog. Walls and doors will get scratched, and the property will generally be lived in. It will not remain a show home.
There is a major difference between getting a property ready to let and ensuring the property is safe, well presented and will return you an income compared to getting a property ready to sell. Don’t ever confuse the two. One is a short game, the other is long.
If you’re in any doubt read Rule 49: Don’t peak too soon.
4. Do what you NEED to do
Making money in property demands priorities. If you’re working to a real world time schedule and budget that’ll mean you cannot do everything – nor do you need to do everything. Property investors who make money, prioritise the areas where they will get the most bang for their buck. They do not try to do everything – because not everything will give you a payback.
Learning to operate as a property investor who makes money in the real world, means you will have to make some uncomfortable decisions. Not every wall can be skimmed and have a glass finish – it’s not just the cost of the plasterer, but you need to factor in the prep time (all wallpaper, skirting, coving etc., needs to be removed), the drying time (especially if you’ve got bad walls they’ll need bonding which takes even longer), then you have the material costs – plaster may be cheap, but then you’re changing the skirting – that’ll cost even more and then you’ll need a carpenter. And all of this takes time – and that’s time when your property will be costing you money, not making you money.
Get a grip on the domino effect (Rule 46). Learn to prioritise, re-use where you can and don’t be so quick to strip everything out. (See the before and after photos of my Stevenage renovation to see what I re-used)
5. There is NO money tree at the bottom of the garden
Property renovation projects often over-run on budgets and schedules. Hidden issues will develop, overlooked stuff crops up and more problems will generally surface the more you try to put things right. That’s why you always need to have a contingency budget. But once you know you’re into the contingency budget, that doesn’t give you carte blanche to blow it and spend even more.
I watch agog as people who’s original budget was £8-10k suddenly find themselves spending upwards of £25k. Why? WTF are you doing? Are you made of money? Do you have no business brains? Do you not understand that every penny of overspend is pushing your project further and further into the danger zone?
Shit happens – that’s a fact of property development, but it should not be embraced with wild abandon. When you’re over budget you need to look where you can cut back – not carry on spending.