Hi,
I’m trying to plan ahead with our porfolio and I’m wondering what is the best thing to do?
We own 1 IP (390k purchase price with $200/week rent). Our property settled in Sept ’06, it is an old 3x1in good condition. There is the potential to convert an added on sunroom into 2 bedrooms and convert the existing old (small) 3rd bedroom into an ensuite which would make it a 4×2. Based on the November issue of API, it would cost roughly 20k. Let’s say 35k to allow for any extras. Also there is a single carport which I could turn into a garage, by removing the metal gates and replacing them with an automatic roller door.
The problem is that I can’t figure out if this is viable because there are NO 4x2s in the area on 804sqm which are located on a quiet street. A brand new (huge) housing estate has gone up down the street ( and across the lovely park) which has plenty of 4/x2s on cottage size blocks which rent for $280/week. I’m wondering if people have been in this position before and is it better financially, to go ahead with the reno to try and achieve better rental return, or just hope for the good capital growth, try to pay down the loan and save for a 2nd IP? There is no chance for building depreciation because the house was built in the 70s so apart from fitting & fixture depreciation there is little to claim come tax time.
Should we fork out for the reno or wright it off? The IP is in Shoalwater, WA (40km south of Perth, 1.5km from Safety Bay, 1.8km from Shoalwater beach & 2km from Rockingham beach).
I’m really stuck on this, so all your opinions are appreciated.
Warm Regards,
Dee [cigar]Hi Dee, I think you can’t go wrong with coastal property and large blocks. I went to Shoalwater last year and fell in love with the area and think it has heaps of potential. Next boom I think you shall do REALLY well out of it. I’d suggest you get advice from Hegney’s Property Valuations. I’ve never actually used them but had a couple of friends use them in Bassendean area. They can give you a before and after valuation on renovations to justify if it is worth spending the money. They have valuers that specialise in different suburbs of Perth. They should also have a better idea of sub-division potential in future, and future growth. I’ve attended a group with Gavin Hegney years ago and found his info very valuable. He has a website too that has some information that may be useful too. Regars, Linda
I would suggest a trusted local real estate agent to give you an idea of what this house is worth now, and what it would be worth once the work is done.
Also get that same agent, or one who knows about rentals, to give you the same figures for what it is worth per week now and once renovations are completed.
These valuations will help you make up your mind.
One thought I had is that you can always do the reno later and if you can get into another IP now, then you have another house ready for the next boom. However, I don’t know the market where you are and you would need to know whether the local market has hit its peak. If so, you have time on your hands and could do the reno now and start getting higher rent and still buy another IP before the next boom.
If houses are still going up, maybe put off the reno and get another property, if your finances support it, of course.
Wylie
Hi
have you contacted a few of the property managers in the area to seek their opinion? Depending on the the demand of the area, eg if there is not a lot of call for 4 brm 2bth room the extra cost may not provide the returnAlso I guess you have to weigh up the possible increase in rent against the expense of building including any interest cost.
If doing for capital growth this can also be done before you sell, it would be newly done then without the wear and tear of renters.
It may pay to do some further research of demand in the area and your overall long term goal
This is not deamed as advice
Wayne
Mortgage Adviser
Email [email protected]
http://www.alphamortgagesolutions.com.au
Refinace, Loan Consolidation, Owner Occupied or Investment Finance. Free Service we come to you!Thanks for the suggestions. I’m waiting to hear back from my PM regarding the demand for 4x2s on big blocks in the area. It is encouraging to hear that you think Shoalwater is in a good spot for the next boom Millions.
Ideally we’d like to hold on to the place for as long as possible to assist us with leverage for future IPs, otherwise I’m afraid I will see it as ‘the one that got away’ if we sell. According to council, they have no plans to rezone the block for duplex unless there is an increase in population/demand. It will be interesting to see if the new railway station & town development has an impact.
I know valuers cost a fair bit to give you an appraisal, so I was thinking that I should be doing this each anniversary (meaning Sept 07) unless there is an indication of prices rising steadily again. It seems for now that things are starting to cool in the area because a similar house on the same street has been for sale for quite some time and even dropped it’s price by 5k to 410k.
The PM is due to do a rental appraisal in April which will at least give me current figures.
I’ll let you know what she says about the demand
Well I think you should go ahead with the reno and then refinance and use the money for a deposit on the next IP.
thats what I do.
good luck
Hi Dee Dee
You will be able to claim your renovation costs as a capital work as this work happened after 16/8/87. So if you do spend 35k then you will get 2.5% of that cost depreciated over the next 40 years ($875 pa) approximate only as all the fixtures in the bathroom, light fittings, additional HWS if necessary etc will all be able to be written off earlier than that. Items that cost less than 1k, or have depreciated down to a value under 1k, can be depreciated in that year that the expense was incurred as I understand it. Get a quantity surveyor in when you are finished to do a schedule for you to get the most you can back. There is also a list on the ato’s website on all the items that can be depreciated and how they can be depreciated.Julie
Daryl Fisher HomesThanks Milly, I was suggesting the same thing to my husband last night. The challenge is that my mum lent us 20% of the deposit + closing costs (via her equity) to get the house = 105k. She owns her house outright, but it’s all she has, so I think we will have to wait until we can refinance and release her from the deal before we can renovate? At this stage we don’t have any spare cash until we refinance. If anyone has any alternate ideas on this I would love to hear them, because it seems like we’re dealing with an unknown factor.
Thanks for the figures about depreciation Julie, I hadn’t thought of that.
The PM got back to me and said she always has a steady stream of renters looking for 4x2s on any size block in the area. She thought it sounded like a good idea so long as the cost doesn’t outweigh the rental income. Does anyone know how I can work this out? I’m still waiting to hear back from her about what she thinks the rental income would be if it was a 4×2.
Hi all. If you are talking about the cost of the reno . Then in my area(south coast nsw) You would allow about $1,200 per square meter maybe $1400 if the reno is out of the ordinary with better quality fixtures etc.I am having a similar dilema. The market in our area has cooled and has been flat for a year or so thats why i bought recently.The Area is flooded with your standard for bedroom double garage with a huge estate devoted too these. They are suffering the most at the moment. This is why i went a different direction and bought a town house about 500 meters from town cbd that is heavily renovate. It truly is a amazing house almost too good to rent. It is however only a two bedder.I am toying with a extension two make it a four bedder. But i am not sure there is a demand for a big family house in the cbd.So now im thinking a self contained granny flat may be a better option. I guess my point is look and see what has the higher demand in your area and if your expected rental return makes it viable then i guess nothing is stopping you.
PS IN my opinion you can buy a house at the wrong time and loose money but money spent on a exsisting house in the right way will always add value.
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