Renovating During Settlement

Hi Chris, I believe properties should be insured as from xchange and access clauses are usually in the contract (NSW at least)The other things that you mentioned , I know even less about but I also believe that I would not be starting reno work until the contract was unconditional and the vendor could not change the ir minds.
Cheers Len

We in the final stages of negotiating and settling a property our Ipswich way here in Qld. It is in need of major reno to be habitable. While within our management we have used early access for full reporting, design, quotation, quanity surveying and minor works before (without (to my understanding) haveing a contract fall over at the last minute, this one requires some big $$.

Speaking with a solicitor last night on just these scenarios, who is cautious but very strongly reminded us about no contract being unconditional untill settlement is achieved, and all early access issues being ones which should involve no cash or commitment from you or your client buyer. He identifies no legal impediment if it is within the contract.

He did emphasise the risk, especially, as said by another, you can get stuck having done you’re doh. Is this business, or are we just toying around? For us it’s business and treated as such.

As to council applications, not sure but if using licensed builder (who else would you use?) then they can lodge (at least up here in Qld, I believe, as ours do) unless it is a total raise, refit, and restump, the works. Then we wouldn’t be doing much but plans and design quotes before settlement anyway.

The insurance points of others are spot on – effect coverage (building and contents) from the day your contract is exchanged (we have it as a bold ticklist reminder for all parties).

Remember also, it isn’t just if the vendor pulls out that you can hit a snag. A caveat can be awarded against / over the property by say a previous partner (divorce you didn’t know about?) or a creditor (hasn’t been paying their bills, and forgat to mention that?). Or tragic as it could be one party may die the day of settlement and the whole lot goes into limbo land. If you’ve sunk $,000’s into it you can walk without loss. Only $’00’s into it and you could crash it without excessive pain or discomfort.

Bob Parker
Principal
FBP and Associates
http://www.fbpandassociates.com.au

Delivering opportunities for you to secure your financial future.
So…? What future do you want from tommorrow?

Hi Chris
That should have been soon after settlement.
Lisa

Are there any reasons that in these circumstances you wouldn’t just shorten the settlement period. My understanding is that it can be as long or as short as agreed by both parties. In the cases of deceased estates or where you are planning on doing major reno’s, you would have to assume the place was empty anyway. As I see it, the only benefit is to the purchaser who can renovate without having to pay a mortgage on the property, with the risk that the contract MAY fall through prior to settlement. The seller is paying a mortgage on an empty property!

Friends of mine recently bought a property in Perth and managed to get access to it to do some work before settlement. However when they tried to submit plans for council approval council would not approve until settlement had gone through.
Cheers, H

Hi,

We have had quite a bit of experience renovating during the period after exchange. I suppose technically the work we do falls more into the category of make overs to increase yield. Usually the materials cost of these sort of jobs are low and the time/labour cost is the most significant part of the job.

In 2002 we did a job on a house that we secured for 90k. We spent 4k and got the property revalued at 165k by the time settlement was due to take place.

This was a good outcome for us, however, the property was a deceased estate and ended up getting held up in probate and did not settle until April 2003 (we bought in november).

So during that time there was a bit of doubt.

We negotiated with the vendors (estate) to rent the property and receive the rent based on the fact that the property was not in a rentable condition when we had purchased it.

We got a tenant in at $180 per week and did not have to pay any finance costs for the entended settlement period. We ended up buying another and completing it before the first settled.

So the moral is if you are worth taking a bit of a risk then it can be a very worthwhile process.

Good luck.

Thank inez,

There are so many variables in a deal like this. Firstly, we made our offer through an agent that we had dealt with before.

Although the market was very hot and the agent indicated that he had received offers of 105k I submitted a written offer of 100. In the offer I detailed info about how I would proceed with the deal and where I had secured finance and details about myself.

The offer of 100k was accepted. The agent said he put the two offers to the vendors and stated that he had confidence that although the other offer was higher I/we could make the sale go through and see it to the end. Perhaps this was because we had purchased properties via this agent before and had never pulled out of a deal dispite many obstacles.

Although we had finance pre approved as usual we asked a broker to source a better rate for us. We struck problems at the valuation stage. The drive by valuer stated that he would not accept this property as security.

That was the end of the line for that broker. It was all to hard for him after that.

We got straight on the phone to the agent and stated that we could make the deal happen but as the finance was going to be harder to obtain we would need a concession on price. We negotiated the price down to 95k.

I went down to the local building society and spoke to them directly about the property armed with some photos and was completly honest about the previous drive by valuation.

I had purchased my first IP through this building society when I was 21 and they must have been fairly happy with me because they gave me a 95% io stand alone lend on the property that the other bank would not even accept as security.

So when you see value in something there will be plenty of people that tell you that it’s the wrong thing to do or try to put you down. The broker was telling me I was crazy. Needless to say we do not have room in our lives for these sort of negative people.

The 4k represented the cost of materials and included $1800 to pay someone to sand the floors. I have done this job myself many times since and would never pay to have it done again.

Never underestimate the value of learning the hands on skills of property investing. This is especially true when you are first starting out.

Some people say that while you are doing the painting and hands on stuff the property deals are passing you by and you miss out on opportunities.

I find the exact opposite. While you are at the property people (locals) will come out of the woodwork with new info about deals and properties that are coming up, who is buying and selling, what is happening in the town etc etc.It’not hard to keep a mobile phone handy and keep in touch with agents about whats coming up.

It seems people are more willing to come forward with info if they see you are willing to get your hands dirty and have a go. A smile and a bit of courtesy with tools and noise etc also goes a long way.

You will find that neighbours will offer to lends tools, advice and even the odd home cooked meal. The value of being there is huge.

You will also get a much better deal from tradies when you demonstrate an understanding of the process and detail exactly what you want done and what you are trying to achieve.

Don’t let people tell you there is no money to be made in low end renos. This deal was done in 5 weeks so its not fair to say the market did all the work.

The best advice I can give for these sorts of deals is to develope a good gut instinct for value. Do a detailed costing and be realistic about your skills. Once you have decided on the deal ignore the negative and surround yourself with people who can help you get it done.

Cheers.