Hi everyone,
I need help in making a decision. We have 2IP’s and a PPOR. We are moving out of our PPOR to a rented place so the PPOR can be a +ve cashflow IP. Then 2 IP’s will be +ve and 3rd IP breakeven.
We are beginning to get serious about our investments and had been actively reading Steve’s books, Spann and Lomas books as well.
We found a 4 bedroom property that is 70’s inside in a very good location. 4 doors up from a preschool, round the corner from tennis courts and a primary school, quiet area adjoining green belt with fantastic views of the city. Gardens and landscaping are good, fences are strong and almost new.
Asking Price – $295,000
REA thinks after rejuvenation and making it modern it could fetch from mid to high $300’s.
If we go ahead we will take probably 3 to 4months in refurbishing which includes, painting, strip carpet and polish floorboards underneath, redo the ensuite, and maybe knock a few walls to make the family,dining and kitchen areas more open plan than what it is now.
Questions:
Is this the right time to do this?
Is there any right time to undertake a project like this?
If we spent about 15 to 20K ( and i am guessing here) what are the chances of getting the money back in 6 months time.
Its an old couple that own the house who are wanting to move up north closer to children.
How does long settlements and on selling before we settle work exactly? What is the procedure?
I guess without asking for any guarantees I am asking for them from you all – Pardon me if that is the case. This is our first time and I am so excited and stressed over this that I am making myself physically sick[sick]
Any advise please……….[confused]
Thank you very much for all the info on this forum. It is a great help for a novice like me.
PadmaFirst thing to think of is if you turn it around in 6 months all of your work will be for next to nothing. Why??? Capital Gains tax. Keep it for a year minimum and you get a 50% break on Cap gains tax.
After 12 months you are only taxed at your marginal rate on 1/2 of the profit. So you can make good $$ if you do the reno then either live in it or rent it for a further 6 months before selling.
Secondly, if you get it tenant free and do the reno straight away you will have all of your reno classed as capital improvement, which means you cannot claim it on tax until you sell. Should you have a tenant in there for 6 months first then do your reno for 6 months it can be classed as repairs and claimed in this years tax.
I personally want the money in my pocket and not the tax mans.
Good Luck
DD
PS146 Certified Financial Planner
Don’t sweat the small stuff,and it’s all small stuff!!<<<<Should you have a tenant in there for 6 months first then do your reno for 6 months it can be classed as repairs and claimed in this years tax.>>>>
Fixing a hole in the wall maybe but not replacing the kitchen and bathroom. You better do some further research on repairs v improvements. Do a search – this has been discussed many times on this forum.
First Mistake, don’t believe the agent when he tells you that it will be worth high 300’s when its finished. Things are pretty lean for agents ATM and he’s probably looking for his commission above your concerns! See what refurbished places like this actually sell for. Note carefully what the market is doing in this area. Is it stagnating or worse is it falling? You must do your own investigations to get the truth.
Renovating in a rising market is easy. You should make a profit. I know of one forumite (on another forum) that painted the front of his IP, put up a picket fence and made $85k in 12 months. He honestly believed his “renovation†attributed to this. Unlikely, in fact the area was on an upward swing with prices, that’s what gave him the CG’s.
I have an old acquaintance who used to renovate a lot (many years ago, now retired) and he reckons in a flat market renovations get you your money back plus 10% “hassle factorâ€.
Have you renovated before? It’s NOTHING like the shows on telly in fact its bloody hard work if you do a lot of it yourself and if you don’t you’ll make your tradesmen rich.And what DD said.
Good Luck
I dunno about the moving out of your PPOR bit. If it is going to be cashflow positve, that means you will be paying extra tax where otherwise you wouldn’t. This doesn’t really make sense, unless, maybe, you will be downgrading and moving into a very cheap place.
Also factor in holding costs on your renovation. It might grow $40,000 in 6 months, but this might cost you $20,000 in interest. If paying cash, you need to think about the opportunity cost. You could be investing your money elsewhere.
Other than that I think it is a good idea. There may not be immediate increases in all markets, but in the long term adding value to quality property is a good strategy.
Terryw
Discover Home Loans
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Is there any reason why you can’t live in the reno while doing it up? Could save money on rent.
Hi Padma
“We found a 4 bedroom property that is 70’s inside in a very good location”
Sounds like it could be a deal but I really like Fitz’s reply – “Is there any reason why you can’t live in the reno while doing it up? Could save money on rent”
You’d save a LOT more than just rent though – since you are renting out your old PPOR, make this one your new PPOR – that would probably mean paying no Capital Gains Tax when you sell.
This would mean putting yourself out somewhat – but if you can stand it, this could be the way to go. Good luck
Benny
I’m presently completing my third property reno. I agree with Steve’s statement: “it will take twice as long and cost three times as much as you budget”… or something like that.
I’d enter into a Reno, re-sale strategy with great caution. It is easy to say “polish this, know down that, paint that” though when it comes to the hard work, it can soon lose it’s lustre. I’ll complete this third one then alter my strategy. Go for it if you have the time, and the zeal, though honestly approach with caution.
Some questions:
1) Can you spend all your time on the reno, or do you have to work in a regular job also?
2) Do you possess tools and skills to do the work yourself?
3)Have you got quotes on each of the tasks required, by professional tradespeople, PRIOR to Purchase?Not trying to put you off, just advising you to proceed with caution. Consider, I have the time, tools, tradespeople and tools, though it’s still taken me three goes to make a decent profit.
Furthermore, consider your back up strategy and your worst case scenario, if things don’t go exactly as planned. What will it cost you to hold the property for a year longer than expected with a high vacancy rate? etc..
If you want to discuss it personally, email me at
[email protected]Regards, Adrian.
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