Hi Benny,

Thanks for taking the time for that detailed response. Looking at the numbers is definitely one of the key elements I’ve been leaving out in my decision making. So I’ve had a look at yours,

Option1:
Value $550k (est) Equity $200k Income $650/wk = $32.5k pa = 5.9% return (gross).
In example above, I have made a couple of assumptions:-
1. That the value will lift from $480k to $550k thanks to the extra Income – that might be invalid though, so re-do that number if needed.
2. The $20k for the renovation may be wildly inaccurate – adjust as required – you know your house, I don’t.
3. I guessed that the Equity would be $70k shown, less the $20k spent for the reno – so $50k extra.

The house next door to mine is a 3br house with a pool that was built in the same era. The owners stuck to cosmetic reno’s modernized it, and it just sold for $580,000. This is a dramatic increase from 12 months – 2 years ago. This should give an idea of the potential for value adding in a cosmetic reno with my place due to it’s current value. The reno’s to separate upstairs and downstairs would be more in the $50-70k range, including cosmetic reno as well. By doing so, I would also narrow my market should I want to sell.

“Why are you needing to replace windows?” That is hardly part of most cosmetic reno’s, and maybe not likely to add any value either. Think long and hard about that option.

I know it’s not going to add any value, but the state of the current windows is most likely decreasing the value upon valuation. Thinking more about it I may not need to replace them so much as have them simply serviced and repaired.

Unfortunately I now live interstate and my job doesn’t allow me the luxury of getting home to add some sweat equity. I have a lot of friends in the building game though and I was in the industry for 13 years so I estimate cosmetic uplift (with bathrooms) would be in the vicinity of $50k, adding $100k value.

As to whether to sell or not, My current wage is small due to a career change last year ($40k, starting at the bottom of the ladder again), but most of my expenses are covered. I don’t pay for rent, food or travel to and from work, so a lot of my income is savings. And I’m permanent full time. The banks are still tight and I’m having some issues getting access to equity for reno’s.

The house needs an update regardless. If I were to try and sell today, I would be getting lowball offers because of the work it requires and leaving money on the table. So a quick look at the figures;

Reno and keep: $50k for reno, $580k value, $210k equity. Rent $480pw.

Also, just wondering why you calculate the return off the total value. Wouldn’t you calculate the return off money owing aka your investment? So 480pw = $24,960, @ $380k investment = 6.5% gross return. No?

Separate levels: $70k reno, $600k value, $200k equity. Rent $600 (Being conservative after looking more at whats available in my area at that price range).

$600pw = $31,200, @ $400k investment = 7.8% gross return

Is having to deal with 2 tenants rather than 1 on the one block worth the extra 1.3% return?

The other big factor I mentioned earlier is my access to funds. At this stage I’m more likely to get access to $40k sooner than I am $70k. And even that may not be for a little while.

The final option is I only put in the bare minimum, around $20k to keep it appealing to future renters, adding value to around the $520-530k mark and keep riding the capital growth train. The loan is Principle and interest as well so it’s getting paid down.

I feel like I’ve done a bit of a circle and looking at the numbers has given me a bit of clarity, but I’m not quite there yet. Thanks again for your reply Benny, much appreciated.

Jay

• This reply was modified 6 years, 10 months ago by  Jay888.