On today’s episode,
The goal of The Class Project is to teach how renovation income can become a valuable part of your life or career at any stage. Learning together about renovation income demonstrates the power of collaboration, teamwork, and the effectiveness of a joint venture –without the need for the bank!
Listen to Episode 133: Boost Renovation Income by Learning Together – The Class Project
Boost Renovation Income by Learning Together –The Class Project
- [02:37] The Class Project big idea to teach about renovation income
- [05:00] Objectives of the Class Project
- [05:42] Criteria of Investment defined for the Class Project
- [08:09] What to consider when setting up a joint venture for renovation income
- [10:02] How we communicate in the Class Project
- [11:00] Details about the properties inspected for the Class Project
- [15:58] Preparing to buy at auction
- [18:05] Planning the scope for trades
- [20:57] Digital tools to keep the Class Project scope on track
“I always feel that renovating is not a topic that you want to teach purely theoretically, it’s really important to have a real life experience as an example of what you’re trying to teach.
– Bernadette Janson
In this article, you’ll learn about our latest renovation project. This project is different for lots of reasons because it’s a Class Project. This is a project where we have brought together 14 of our people from our renovators’ community to contribute funds to be able to do our teaching project with cash.
Demonstrating Renovation Income Strategies With The Class Project
The Class Project is something that I have been thinking about for a while. I had this idealistic idea that we would be able to do a project and make it a richer experience for our community of renovators. I always feel that renovating is not a topic that you want to teach purely in theory. It’s really important to have a real-life experience or an example of what you’re trying to teach.
In the past, it’s been a personal project for teaching or a small-group project. Now it’s a lot more meaningful if we can create a situation where students have got some skin in the game. So by having students investing in it, I think it makes it more meaningful and it’s just a practical working example of our 100K Cosmetic Plus renovation system.
The Class Project is based on doing a renovate and flip and that’s another reason why I didn’t want it to be my personal project. For those who are new to renovation, flipping is exciting and a great opportunity to learn the process. It makes good chunks of money. But flipping property is not investing because when you don’t work, you don’t get paid.
Flipping property tends to be a short-sighted strategy. However, when students come to The School of Renovating it’s the strategy that they tend to be most interested in initially. It can also tend to be a higher risk strategy, so if I’m going to be demonstrating something on an ongoing basis it needs to be what we are doing because I need to be able to demonstrate the risks as well.
The Class Project: Joint Learning, a Mentoring Opportunity and Shared Profits
The objective of this project is to provide a collective learning experience for all participants as well as a one-on-one mentoring opportunity for one student. We have Kerry Mills who is getting close-up mentoring.
The other objective of The Class Project is to stop lining the bank’s pockets and to line our students’ pockets instead, which we think is very motivating. The idea came to me from Mary Benton, who is a financial planner and a student of The School Of Renovating. She suggested that we do a project like this so I decided to put a call out and see what response we would get from our community.
Criteria Of Investment Made For The Class Project
We created a set of criteria around the investment process to ensure it could be successful. The target for the purchase price would be between 800 and a million dollars. We can only take 20 members before we move into an area that is more complex in terms of setting it up. We wanted to keep it under 20 so that meant that the minimum investment would be $50,000. Members must be Australian citizens, for land tax purposes. They can invest via their self-managed super funds because we understand they will have less than 50% ownership that meets the criteria.
We have used My Property Circles to support an effective and legal framework for all participants. I have suggested that participants don’t use borrowed money. So if they’re taking money from a line of credit, it’s not going to work well.
We had 20 people respond to say that they wanted to invest and out of that, we’ve ended up with 14. We also needed to set up a trust and we did that first so that it was ready when our investors (Class Project participants) came in.
What To Consider When Setting Up A Joint Venture For Renovation Income
When you’re setting up a joint venture, you want to allow plenty of time to get things done before you start looking for property. It’s not something that you can do in a six-week settlement period. Organising all the details takes time, the shareholders’ agreement, and determining the terms, etc.
One of the things that we needed to be careful about was when people could take their money out. We decided to have a minimum investment of 12 months, with the expectation that we would be able to get two projects done in that time, and then money could be taken out, provided that it wasn’t mid-way in a project. The project needed to be completed before we did any distribution of profit. I’m well aware that people’s situations change and if someone wants to move out that needs to happen at the end of the 12-month project.
If we are on track with our projects, during the 12-month period the plan is to do two cosmetic plus renovations per year with a target 10% profit on each. We anticipate that the investors will have a reasonable return on their money. We also need to be careful not to promise anything.
“You never know what happens in property, and you want to make sure that you’re not making promises that you can’t deliver on.”
~ Bernadette Janson
Class Project Communications To Boost Teamwork, and Increase Renovation Income
We’ve got 14 members and one has been nominated as the mentee. We also have two members who have very kindly offered to be the communicators. Project communication is very important between 14 people. Lots of people have questions so we’ve set up a WhatsApp group and those two members, both called Chris, monitor that WhatsApp group for questions and comments. I do a report each week to update everyone on where we’re at. I am also the one responsible for maintaining the records, and thankfully I have a bookkeeper to manage the books.
The Property Hunt – Research, Inspections, and Preparing to Buy at Auction
Our preference was to buy a house because you just have so much more control. I didn’t want to be spending months getting strata approval for renovating an apartment. We ended up with total funds invested from The Class Project group of about 1.1 million dollars. And we were looking for a property to buy at around $900,000. Since I wanted a house, we decided to purchase it in Newcastle where prices are more in our range. I asked our buyer’s agent to source us the property and while we were on The Wonder Women’s retreat, we did a property tour and found a house in New Lambton that had enormous potential.
Even though it was outside our budget, we decided to prepare to bid on it. We’ve set up a joint venture with My Property Circles to raise more funds. So I decided that’s what we would do, raise capital and we went to the Auction.
This property had the potential to be a premium renovation within the best street in New Lambton – on a hill, right up the top, big block of land and it had great views. The selling agent advised the price guide at around $950k but we felt fairly certain that it could go to 1.3 or 1.4 million.
We had set our budget at $1.25m and while on the way to the auction, we stopped off and had a look at another house in New Lambton that was open for inspection. This particular house that we looked at was a pretty simple Reno and certainly quite a good prospect.
The Newcastle Property Tour And Research
Due Diligence And Research Supports Progress
We decided to follow through with due diligence on the properties progressively. We would work on a property, go to an auction if we didn’t get it, to move to the next one. The one in New Lambton, that we saw on the way to the auction, was still in the offing. When it eventually came up for auction, its guide was 800 to 900,000 and everyone expected it to go for around a million, but we had a little stroke of luck in that one.
The auction was scheduled for a Friday and not a weekend, which doesn’t make a lot of difference, but I hoped that would keep some people away. We got in touch with the solicitor to request a longer eight-week settlement which they refused. That’s always exciting because I think if you’ve got a vendor that’s not open to broadening their market by allowing as much flexibility as possible, then that limits the market.
I was thinking if they’ve said no to us, they might have said no to other people, which would mean that they’re reducing the number of bidders. Our buyer’s agent, Judith went to the auction and bid for us. She didn’t put her bid in until everyone else was starting to peter out. She started to come in strong, going up when they were down to $500 Increments. She came back in with $5,000 increments and knocked them out in two bids! We had a limit of 950k for that property and we got it for 915k which I was very happy about because it was a new area.
Managing The Renovation Budget Will Be Important
I am slightly concerned about the cost of the renovation because the feedback I’m getting is that it’s really hard to get builders in particular and they are charging like wounded bulls.
Finalising The Scopes For Trades
I had a chat with one of our students who is currently renovating in Newcastle. She was talking about the plumber…
“He is okay but he requires a serious amount of managing. Another came in and he was the lowest price by far and this is on quite a modest three-bedroom house. The quote was $10,000 and the next closest quote was $18,000, a difference of like $8,000. I’m willing to spend the time managing him and I couldn’t work with the other quotes that we were getting.”
So in the last week, I’ve been organising a builder. We had organised an open inspection on the property we just bought so we could take our trades through. Sydney is in lockdown. So I decided we need to roll with this new world that we’re in. We agreed to do the inspection remotely.
Our mentor-student, Kerry is based in Newcastle, which is great. She could go and Judith went as well. I could only get one builder out there, but I feel that he is a good prospect. I do have two other builders who are going to quote but couldn’t get there that day.
It’s impossible to finalise the scope until you get a bit of information on what you can and can’t do. The main thing that we want to do is take a couple of walls out to open up the kitchen. We also took out the back wall to put in multi-folds and build a deck on the back so I needed him to figure out which walls were load-bearing.
We were able to do it and finish the scopes. He’s organising an engineer to design the support system so we got that done. We did the inspection via zoom, which was challenging because the house happens to be in an internet blackspot. We worked our way through it and we are now getting the plan finalised. Kerry and I spent the afternoon on the computer via zoom, and we worked through the remainder of the scopes.
Digital Tools Support Class Project Scope Planning
We have got a new process for doing scopes which I’m loving. This was the idea of one of our students, Kate Potter. Kate is a professional project manager and she developed this system for doing all scopes in a spreadsheet where you can filter by room, by trade, or by item. It’s just a good way of keeping all the information in one spot.
Kerry and I are set to send these to a lot of other trades and builders to get our quotes submitted. The other thing that we did was a Renovator Concept Session with architect David Janson. In this session, David had 14 clients(!) contributing, so we had a few guidelines for how to make the session effective. It was a very productive session and we’ve recorded it and posted it as a blog article for you to view here: Renovation Planning Concept Session for Class Project.
We’ve also started a Class Project Blog for the project so you can share in our journey to learn about renovation income. You can see the video weekly reports and articles on the Class Project Blog too.
Purchase Date, Organising Trades And Landscape Planning
We are settling to buy the property on the 16th July so now we are getting organised. We have also assembled a landscaping group so that’s an area of the work I don’t need to put a lot of thought into since we have people in this group who are much better at gardening than I am.
Between now and then I’ll keep working on the trades, the plan, the budget, and getting it to a point where we are ready to start work. I’m not being too ambitious with the timeframe because trades are a little bit challenging to get, plus the fact that we’re working remotely.
We anticipate having the property back on the market for the spring market.
A Bright Future For Renovation Income With Joint Ventures And Class Projects
Now that we have established The Class Project process it opens up the possibility of joint ventures with just about anyone who can do a joint venture.
“You need to get your partnership set up well. It’s important to ensure the person who is managing the renovation is experienced and knows what they’re doing”
~ Bernadette Janson
It’s not a good idea to have a newbie renovator managing the project because the renovator is the linchpin of the project and needs to know what they’re doing. It is essential you’ve got someone experienced or if you’re experienced, to pull together a project. And it’s so much more fun doing it together.
“ I love the idea of having a brains trust – you can ask… what do you think about this?”
~ Bernadette Janson”
If you’ve got people that are invested in your project, they are so switched on to it. You can collaborate and take advantage of a team. You will get an unlimited amount of enthusiastic feedback which certainly I think makes making decisions a lot easier.
As the project manager, you still need to make the critical decisions yourself, but there are so many little things to consider. So it’s a big asset to have a group around you. You probably don’t need 14, one or two usually is enough, but we like to push the envelope!
Replace Your Income With Renovating And Airbnb
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