Hello,
I need some advise on credit for doing renovations.
Prior to purchasing my house, I contacted a couple of mortgage brokers before going with one who I thought understood my plans of investing, renovating etc etc.
My Mum has gone guarantor for this first house. The bank wouldn't give me extra money for renovations. However, the house badly needs it.
I asked the broker if I'd be able to use my credit card to purchase the materials to renovate (my partner has done up many houses in another country).
He said to try save for the renovations rather than putting too much on my credit card and risk the potential of not being able to access equity from an improve valuation down the track??
The house has been purchased at $280,000 with an average median in the area of $400,000 (lower quartile being $329,000).
My aim is to get some equity and looking into setting up trust accounts so I'm able to loan more and purchase more investment properties.
I'll most likely keep this current house, but the rest will be renovate = sell.
I'd also like to remove my Mum from guarantor as soon as possible, another reason why I'd like to renovate prior to moving in.
I'm looking at spending $15,000 on renovations.
Any help/advice would be much appreciated.
(PS. I had applied with one bank, who was going to give me the $15,000 for renovations. However, the loan was split in two. One loan against the house – $235K – and another loan against Mum's place – $66K. Because Mum is on a low income, they didn't approve the loan against her place… but they approved the $235K loan).
From what I know about guarantors you have to be able to prove that you are able to service the debt for a period of time. In my experience a guarantor is required when you don't have enough credit history so the bank requires someone to take responsibility for the loan if you default. In my experience (but this is very limited) what it took was 12 months of being able to show on time payments and reliability and enough time to build up a bit of a credit history with the bank.
I'm not sure how it would work in your situation, maybe speaking to the bank about what they would require for you to be able to have the loan without a guarantor would be a good first step as they would be able to tell you based on their policies.
Thanks for your reply.
I do have a bit of credit history with car loans but maybe they do want to see how I'll go with a mortgage.
Mum went guarantor because I didn't have enough for a deposit – over the last year, I spent quite a bit of money on eye surgery and visiting my sister overseas.
Hi Hannah,
I am in a similar position to yourself. So far, we have just used cash for everything we have done to our PPOR (which will eventually become an IP). But living in the house rather than relying on getting it rented out ASAP makes a big difference to how you approach it.
For us, it doesn't matter if it takes a few years to finish (3 so far), because we are comfortably living in our construction site and paying less on the mortgage than we were for rent. Also, our risk profile is very low… But when relying on the rental income or wanting to 'move quickly' maybe a different tact is required.
As for 'how' to get the money, there are a number of ways you 'could' do it.
Kitchens, for example, can be bought from some kitchen companies and installed on 0% interest repayment plans over a few years. Some carpet places do similar plans also. In most cases you just need a 10% deposit.
Materials, I read somewhere on this forum that you can get store credit with bunnings, or use the credit card.
Labour for electricians, plumbers, tilers, etc could be financed with a personal loan or whatever cash you can put away… some trades also take credit cards.
Other options, I think citibank at the moment have a personal line of credit at a low introductory rate for balance transfers, like 2.9% for 2 years… so if you were to rack up 15k credit card debt, you could look at getting one of these to keep the interest down while you finish things off… In this case, 2.9% sounds like pretty cheap access to money. Cheaper than your average mortgage rate even.
But doing any of these things need to meet with your risk profile. I would recommend you seek professional advice before doing anything. Some of the forum members here would be able to provide good insight into this if you speak with them directly.
Hopefully I have cooked up some food for thought for you.
Thanks Grimnar, good ideas.
What needs to be done on the house is; kitchen, carpet, paint and polished floorboards.
We will be installing the kitchen and painting ourselves.
Gardens and other maintenance around the house can be done as we go along.
But just doing those few things at the start will greatly improve the house.
I was looking at CitiBank, until I read their terms and conditions and they were stating "Apply before October 2011". I emailed them and suggested they update.
But what they have to offer is good.
Thanks again.
Yeah there are a bunch of places that offer low introductory rates on balance transfers. Which I think (have not tried) would be great to try.
I guess from my recent experience, there are two questions that I would ask myself if going into the same situation again.
1. How quickly can you get it done and access the equity for other profitable activities. i.e. what is your opportunity cost of waiting?
2. How much disruption are you willing to deal with when you live there?
In terms of disruption, I recall my first house, we were getting the floors polished and had to move the whole house full of furniture and junk into the back yard to do the floors… Slept out there in -2 degrees for 3 nights while they dried… not fun. just got my carpets done in our current place last weekend and spent 2 whole days worth of moving stuff in and out of rooms. Seriously, it seems we spend more time moving stuff out of the way and putting it back together than we ever do 'actually working' on the house.
And for opportunity cost, I'll give you a hypothetical example for a devils advocate point of view.
How much dearer does it work out to get your kitchen from someone else than to buy and install flatpacks yourself? And how much does it cost you in lost opportunities while you wait to save up?
For example: Say it's hypothetically $200 a week you are putting into the reno fund. After 12 months you're only 2/3 of the way to your goal total goal on 15k…. allow for some cost overrun and for new tools you need to buy, and hope nothing gets in the way that requires your cash (in my case, it was a wedding that put us back about 18 months… but it was the RIGHT choice, if she is reading this… hahaha)
If you said that the kitchen was half your budget for all those activities, would you be able to put away enough cash to pay for the carpet, paint, floorboards, and garden, within 9 months, and then use interest free terms to buy a kitchen from a supplier to get it all done in half the time?
In the following 9 months (when you would have still been saving) could you have bought and renovated your second house using your manufactured equity?
Would the profit from a deal like that make paying an extra couple of grand for a kitchen worth while?
Just something to think about.
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