Are you considering renovating your property? It’s a very big decision. Before you embark on this potentially expensive adventure, you need to consider the following:
- How much will the renovation cost?
- How should you fund this project?
- What’s the best way to limit revenue displacement during the renovation?
How much will the renovation cost?
It’s essential to have clear, realistic expectations about the costs of renovations. Create budgets for every aspect of the renovation, including FF&E, labor costs and any permitting and inspection costs.
If you are seeking financing for your renovation, you will need estimates and invoices. More importantly, you will not be able to undertake a DIY mode for major projects. You need to use licensed workers. Furthermore, lenders will often insist on paying vendors and contractors directly to assure the work is being completed as agreed.
You will also need to consider that renovations may run over budget. Set aside a comfortable contingency allocation to cover these cost overruns.
How will you fund your project?
Conventional loans, bridge loans, and Small Business Association (SBA) loans are just a few of the products that can provide short or long-term financing for renovation.
GRP Capital can help analyze your project ideas and determine if it is likely to lead to increased revenues or higher property values. We will help you assess your budget to make sure it is not only realistic but also affordable for you. We can also assist you in finding ways to increase revenue and reduce costs going forward as ways to afford the needed renovation. Most importantly, we will help you decide if your proposed project has a return on investment that is worth the outlay before the bank makes that judgment.
Part of our analysis is determining why people choose to stay at your property and why they choose other properties. This can underscore what renovation projects could bring the greatest value to you and would outweigh the expenses—short term and long term. If you participate in the STR reporting system, these reports give a nice snapshot of how your property functions in your local market.
Most importantly, GRP Capital packages your ideas and presents them to potential lenders, showing the value of your project and your ability to make loan payments in a timely fashion. In this way, we can partner your project with an appropriate lender or even utilize our in-house debt financing sources.
What’s the best way to limit revenue displacement during the renovation?
During a renovation, you may lose the use of parts of your business; there can be disruptions in parking, food service, or rooms. Planned and unplanned delays amid construction can cost you money during which facilities cannot be used. Here is our advice to minimize revenue displacement:
- Make sure all plans are complete before the first hammer comes down. Do you need permits? Does your renovation trigger a code change (like ADA) that requires new inspections and/or new municipal approvals? Have all architectural drawings been approved by you and any qualified engineers? Will there be needed changes in plumbing or exit configurations because of the construction? Count the rooms and be sure that everybody agrees with the number of rooms and the room type that will be the outcome.
- Get prior approval on renovations from lenders and franchisers, especially if the renovation is required for rebranding or reflagging.
- Consider if you need to break up renovations into smaller mini projects to limit downtime.
- Make sure all replacement products are on hand or available before removing old stuff (like carpeting, drapes, furnishings). This is an easily avoidable delay.
- Choose a renovation schedule that limits the negative impact on your bottom line — schedule renovations during times when you might have less demand. At the same time, be sure that your contractors will have enough skilled laborers in your community to get the job completed on time.
- Can you set aside one or more rooms as your “test subject” for renovations? When you install new lighting, furniture or change configurations, you can see what works and doesn’t work in this one room and learn your lesson before making multiple mistakes on multiple rooms.
Plan, plan some more, and then contact GRP Capital. We encourage you to dream big and small to find ways to make your properties work for you. We are happy to help secure funding so you can achieve your business dreams.
Whether you are expanding your existing portfolio or investing in your first business, GRP Capital has the resources to help you meet your required capital needs. Our services include divisions of Real Estate Capital Markets, Small Business Financing, Construction Lending, GRP Capital Debt Fund, and Consulting and Advisory. Learn more at grpcapital.com.