A big mistake: the danger of underestimating…

danger underestimating mistake money miscalculation misestimate

Holding a PhD on Applied Mathematics, being type A personality and a little OCD, I typically estimate things very accurately and thoroughly (sometimes too much!). Turns out that I messed up big this time.

I am very proud of RP#3 – it will generate a 50% Cash on Cash return and I will add 6 units to my portfolio. This would not be very surprising if we weren’t talking about a <50k property…

When I bought it, I knew right away that I would have to spend serious dollars towards renovating it. However, I did underestimate what I was going to spend…

The previous state of the units was definitely very poor. I knew that when I bought it, and I knew I was actually buying the land and 4 walls. What was inside had to be redone, for the most part.

I typically spend €35/square meter in terms of materials (tiles, ink, glue, etc). I made estimates having that figure in mind. So, overall, I expected to spend €6000 renovating 4 units, and put off the other 2 till the property generated enough cash flow to do so.

I was so very wrong… To renovate 2,5 units, I am already at €15.000+ and the bill grows by the day (the final bill with definitely be something around €25k). I did choose better tiles for one of the units, as I may keep it to myself, and go with higher quality materials here and there. However, what absolutely went wrong with my estimates was not the money I spent with materials, but human labour. This was a lesson that will ride along till the end of my career of Real Estate investor…

Having spent a total of €6500 renovating RP#1 (you can check out the properties), I figured that this amount with be enough to cover 4 units, as they are considerably smaller. However, what really raised the renovation costs was the age of the property. As I mentioned before, Real Estate in Portugal is made out of stone, bricks and concrete; nothing like in the US. Old Real Estate though, is made out of wood and stone. Imagine what is would be like to have a 100yo property made out of wood… Well, that is what I have! Every wall and room within the 2 units that I start renovating had to be re-done.

The renovation is going very well, fortunately. We had a few setbacks here and there, but nothing big. I will show you one of the 1-bedroom units, just so you know what we are talking about:

renovation works Portugal rental property sea

This is the kitchen of one of the 1-bedroom units. I like these tiles a lot and I think they go really well with the property (I definitely like classic / twenties style!), as it is 100yo. They are indeed more expensive than the tiles I typically use.

The practical consequences of underestimating these renovation costs are all about liquid cash. As you know, I planned on leaving my job for good by December 31st, but given that I need a lotta cash to renovate the property, I decided to stay till April 31st and take my so-desired 1-year off right after. In these extra four months, I will save around €6000, which I will exclusively spend on RP#3. Don’t expect my net worth to grow in this period!

With all this in mind, RP#3 better spit rents non-stop after April 2017, or I will go crazy… 🙂

I will send a complete report – including more pics – on the renovation of RP#3 soon, through the newsletter. So, if you haven’t subscribed my blog, please do so!

All the best for the new year folks!


This entry was posted in Daily life, Planning, Real Estate. Bookmark the permalink.

3 Responses to A big mistake: the danger of underestimating…

  1. JF says:

    Very good feedback Ben. I’m from Portugal and trying to do something like you are doing.

    Best of luck (from now on…)


  2. Pingback: My net worth formula and net worth report - January 2017 (248036.67€)From cents to retirement

Leave a Reply

Your email address will not be published. Required fields are marked *