Reality Check

The Backside, part 3

While it is really, really fun to reconfigure a home and watch the design come to life, and it is a great adrenaline rush to “blow out a wall,” this is our job and do we it to earn a living. Having said this, we watch the budgets, expenses, and profits presented on several of the HGTV shows and think, “No way.”

Eyes, ears, and nose all protected as Evan “blows out a wall.”

Since beginning this work, we have bought lots of experience and learned about hidden costs that must be included in a project’s budget. These include the property insurance for the time we have ownership of the home, utility bills, permitting charges, clean up and staging. (Pretty sells a property; this step cannot be skipped.) 

Then there are on-going business expenses of gas and maintenance for the work truck, phone and data (we look up a lot of stuff on YouTube videos while on site), and software programs, to name a few.

And when a completed renovation is ready for the market, we list it on Zillow. We love that we can post our homes for sale free of charge. We love that so much relevant property data is available at the site -- we can see recently sold homes in the neighborhood, historic sales information, and sales trends. We have found the data, for the most part, accurate, and it is nice to have it all together in one handy-dandy spot. This information is key to our decision to purchasing a property and to selling it when the renovation is complete. 

However, this same site that is so useful and integral to our marketing efforts, can also be very misleading. When potential buyers look at our property listing and see that we are asking $70-$80,000 more than the price we paid, it often leaves this buyer wondering why in the world are we asking so much more than what we originally paid. 

Zillow also provides comparative values, but what these calculations do not take into account is that the home has had a major overhaul and that the properties used to determine their price are no longer comparable. Buyers look at the relative values and think, “What the heck are you doing?” Because of this, it is so important for us to get potential buyers through the door so they can see for themselves the value that has been added.

The sales price, and all that goes into determining it, is only one part of the financial equation. All the subcontractors, bills and related construction costs are paid first. Because we are self-employed, roughly one-third of the profit from the sale of the home goes to taxes. We pay ourselves last after all obligations are met. 

Think about it. John works for an average of three to four months on a home – from day one of the renovations to the closing date of the property’s sale, usually for 10 hours a day. I also work with him on design, layout, marketing, accounting and anything else, putting in 10-20 hours a week. Four months is a long time to wait for a payday.

Plus, we use our own funds, meaning this money is not earning interest during the time, but it is invested in a renovation.  

Is this a complaint? No. Is this a sobering reality check? Yes. And yes, we do love it.  You have to in order to work so hard and put so much at risk. It helps knowing that we are contributing to a better Memphis one home at a time.  And yes, we get to “blow out” some walls while doing it.