I absolutely love doing full gut renovations. I’ve done two in Detroit, one of which is currently a short-term rental.
And I’m currently in the middle of doing an ADU build/addition. Granted, that’s not technically a gut renovation, but there are many similarities.
There’s simply nothing more rewarding than stripping a place down to the studs and bringing it back to life.
So why am I telling you that doing a full gut renovation is a terrible idea?
For starters, they are incredibly taxing, time consuming, and draining projects. I think most people grasp this, but not nearly as much as they should.
So let’s take a look at some examples of gut renovations I’ve done and let me help align your expectations with what’s realistically going to happen should you decide to take on one of these projects.
Full Gut Renovations Are Incredibly Capital Intensive
When you take something to the studs, it’s obviously going to cost you a lot of money.
You aren’t just replacing all of the electrical, plumbing, etc. You’re also putting everything back together.
It adds up quickly. And it’s easy to plan your full gut renovation, account for everything, and even slap on a contingency so that your numbers are “conservative”.
But they NEVER are. And there are two main reasons for that.
The “While We’re In Here…”
The first reason you will almost certainly go well over your projected budget is what I call the “while we’re in here” line item.
In 2021 when we were ripping apart our Morningside duplex and converting it to a single-family home we had a lot of these moments.
The walls are open, you’re looking at the floor plan, or considering something you just didn’t plan for, and you say, “well, while we’re in here we mine as well do it”.
The “it” could be a number of things. But I can assure you none of them are things you planned on doing.
It became a joke between us and our contractor.
The walls are open. It’s “easy” to make changes, updates, etc. and you almost feel like you have to justify it.
Why? Because you realize you aren’t ever going to have the opportunity to do a lot of those things again.
What’s a little more money, right?
It adds up!
There Will Be Surprises
It’s also inevitable you will uncover some surprises.
Whether you find out you need to replace things you didn’t anticipate replacing or discover that the home’s layout isn’t conducive to what you wanted to actually do… something is bound to come up.
We once opened up the walls in one of our projects and found a ton of wood rot. It wasn’t visible unless you literally took the house to the studs.
We had thought the roof was in pretty good shape and we’d get at least 5-7 more years out of it.
Nope.
A new roof wasn’t in the planned budget. But we had to do it. Oh, and we had to replace a bunch of framing too.
Usually these surprises aren’t THAT big.
But the little surprises are the ones that quickly add up both in terms of cost and delay. Usually they come in the form of finding out you actually can’t salvage something you initially thought you would be able to.
The easy “fix” here is to just plan on every aspect of the house being a total loss and needing to be replaced.
The problem there is, if you do that, the project simply won’t pencil out and make any sense.
Human nature is to be overly optimistic. Even our “conservative” numbers aren’t nearly conservative enough.
Luckily, all of my full gut renovation projects have turned out great in the end. But it sure didn’t feel that way when we were blowing out our budget and timeline.
Speaking of time…
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Full Gut Renovations Are Extremely Time Consuming
Just like budgets tend to get blown out of the water during full gut renovations, your rehab timeline will also go far longer than you expect.
I recently finished up a full gut renovation on a duplex in Russell Woods with my buddy.
We weren’t trying to go super fast on it.
He was managing things while working a full-time job and the plan was to go “low and slow”… keep the cost down and don’t worry about speed.
We figured it would take us 10 – 12 months. It took 18 months. Here’s a photo of some of the demo I completed on my own:
The crazy thing is that nothing memorable happened. Meaning, there was no one big, catastrophic thing that threw off our schedule.
It’s the creep of little delays with contractors, weather, or sourcing materials that add up over time. You don’t notice them until you do.
My only advice here is to plan your project and timeline and then DOUBLE your expected timeline.
The issue with that, much like budgeting for surprises, is you’ll likely realize that doubling your timeline is insane.
There’s no way that makes sense. You can’t possibly do the project if it’s going to take THAT long.
So you rationalize away the realistic timeline.
“OK, we thought this would be a ten-month project, surely it won’t take twenty-months. That’s crazy! Let’s conservatively add 50% more to our already conservative timeline… 12-months it is!”
This is how our optimistic human brains work. It’s as much of a strength as it is a weakness. Because if we weren’t overly optimistic we may just never do anything worth doing.
Full Gut Rehabs Are Mentally Draining
When you find yourself 50% over budget, 50% over your initial planned timeline, and come to grips with the fact that you’re only 60% done with your project… it’s hard.
Full gut rehabs wreak havoc on your mentality.
Imagine writing check after check, month after month, with nothing coming in the door. You know that eventually that money will come back when you refinance.
But that refi date keeps getting prolonged as your project’s timeline moves further and further out.
And then you’re grossly over budget.
There have been too many surprises; too much money has been spent.
Your initial ARV projections were realistic, but now… even if it does appraise where you anticipated it’s not going to be good enough. You’re going to leave a ton of cash in the deal.
At this point, you have two options. You keep going or you give up and sell as is.
Neither are easy.
At this point you know that staying the course will mean even more money and time. And you understand that it’s highly unlikely you’ve made it through all the surprises and delays. So even your worst case assumptions probably aren’t aggressive enough.
And this is why so many people throw in the towel and take a loss.
Maybe they could continue financially. Maybe not.
But they know, mentally, they can’t keep doing it.
I see it all the time.
And it’s not just full gut renovations.
Sometimes it’s just a project that people underestimate. They didn’t fully understand what they were getting into. Or there were too many surprises. Or their contractors left them high and dry.
It happens time and time again and it will mentally ruin you.
So my best advice is to always start small. Avoid doing full gut renovations, especially if you’re just starting out.
Start with projects that you can easily afford to do with your own capital. You don’t need an extra layer of pressure and complexity by using hard money. Renovations are already stressful enough!
Once you build the experience, cash pile, and mental fortitude to tackle the big full gut projects, that’s when you can consider whether they are worth doing.
Personally, I have a love-hate relationship with them.
And it seems that every couple years I forget how tough they are and do another.