Hello:
Okay, tell me honestly – am I missing something?
Understandably, folks posting here are speaking of large profits on some bigger properties.
Have I over-simplified things too much to think that doing cosmetic improvements on smaller properties (modern but dated flats and units) is a slow but steady means to making profit from renovating?
Presuming that the purchase, holding, renovation, and selling costs are a few K under the ultimate resale price, there is a slim profit to be had. Right?
Is there a really obvious argument against going small?
Bronte x
The problem is what you will ultimately make out of the deal for all the work you put in.
After cap gains tax is factored in, it may be a very low hourly rate; maybe even less than your day job, and you have taken lots of rosk and sacrificed a lot of hours. If you are doing it more for the fun than the money (or a bit of both) then it's not hard to justify the effort.
Contrastingly, you can put the same amount of time into a higher price property and probably make a lot more based on your hourly rate.
I think your strategy with the cheaper properties works better for a buy, renovate and hold, hoping for the renos to add value and increase the cap growth and the rent returns, then repeat.
The renovating strategy will always work if you sell the property for more than all your costs put together.
The problem being that there are many costs apart from just the renovation that fall into play. Take into consideration, Stamp Duty, Mortgate Duty, Solictors Fees, Building Inspection, Mortgage Costs and Sellings costs. The beauty about renovating a cheap house is that you can add alot of value cosmetically to both inside and outside to help achieve profit. There is just more of it to work with. Where as with flats and units there is not as much potential to add value in areas, especialyl if you consider studio or one bedroom apartments. (Although not impossible, as proven by a few people that have mentioned on this site)Marc & Stumunro:
This is good…this is really good info…I am reading all I can, and am slowly starting to see a few things more clearly.
I really appreciate your comments.
Thanks,
Bronte x
This is my first time to this site.
I'm 22 next month. I work in a supermarket in a country town . Mid last year, after help from my partner getting the deposit, I bought a house (in Morwell Vic) for 76k. someone previously had put an extension on it, making it 3br instead of the standard 2 br in this area. But it had been done badly, and the previous owners had left it in a horrible mess.
While both working, we have gradually worked on the house. We've spent approx 3k so far, and with another 3 or so thousand in the current market it will be worth 120k+.
Now if I decided to sell it and got $120 000, subtracted the loan, the money spent on renovations and $8000 for fees, I'm still left with over $32 000 profit.I think it all depends on the potential of the property you're looking at purchasing, and just how much the renovations you will do will add to the value of the house.
Hi AlleyKat:
I can see you are absolutely right.
Good on you for your good purchase and great work to improve the property.
What are your plans now? Do you plan to keep this as your PPOR and purchase other properties to improve?
Bronte x
Not sure.
Houses in Churchill have a higher retal return then most in Morwell. And another plus for churchill is Most of the houses are Brick, so easier to maintain.
I have a few options open to me at the moment.
1: re-finance this house, and spend the extra money to finish off the reno's, and clear my self of all other debt. ( car loan, credit account, random bills etc)
2: continue as is, slowly doing reno-s and paying everything off.
3: get a personal loan for enough to pay out my car,credit, and finish off reno's, then sell & buy a house in churchill as a rental.
I'm leaning towards no3 at the moment, because I want to avoid re-financing this property if i can, think it would be best move from a long term investment point of view to buy a brick house in churchill.Whats your current situation?
AlleyKat:
It sounds like you are in a great position no matter which way you go! I envy you!
My own situation is a mess. I am plagued by regret and indecision:
A few years ago I bought what was to be my PPOR in rural Vic – a 40yo ex-railway house – for mid 80k. Although it needed work, the surveys showed it to be a solid 3br aluminum clad house. It was all I could afford, livable (to me) and cost approx 50k less than the then median local price. The purchase had nothing to do with investment. It was all about getting off the rental round about, and making a quiet country life for myself in my dotage. The plan was to do the improvements gradually – as my income and time would allow. I loved my little house.
Then that all changed. After decades of singledom I met HIM! Some time later he asked me to move (over an hour away) to his house. I also gave up work.
My little house was only ever going to be a good buy to myself in my then circumstances. Now I find myself paying the mortgage on a house that really is not suitable as a rental until work is done. Its tiny kitchen and bathroom need renovation, the wooden double hung windows need replacement (some tradies tell me they could be restored) some wooden flooring needs replacement (years of a former owner keeping large dogs locked inside the house!), some plastering needs replacement or making good. Paving, landscaping and car accommodation needs adding.
The town where my house is located is undergoing a boom. Builders have waiting lists of 3 – 6 months. Tradies are also extremely popular, meaning I have repeatedly travelled to the house for appointments that have never taken place. For me, owning a house some distance away just does not work!
I have wasted so much time and money! My little house is now an expensive storage facility. I swing between cutting my losses and selling "as is" at a loss (loss due to length of holding period) and perservering and getting some level of renovation done and making some kind of profit through resale – or renting it out in a town short of rental properties.
That is my long and boring story!
Bronte x
Well With out more details, I cant really comment on pricing. But If the area is undergoing a boom, I dont see how you could lose too much money ( depending on what the total cost has been so far) I also believe tradies ( no offence to the tradies out there) but they generally see 'us' coming and could possibly end up costing you more than what the value they would add to the house would be.
I'd do some internet research on those windows if I were you. I've heard from some people that they can be quite simple to restore if u know the tricks, where as Very expensive to get fixed if you have to pay a "profsional".
If there's one thing I've learned in the last few weeks, Its to just get in there n give it a go yourself. I'd never try anything myself coz I was worried I wouldnt be able to do a good enough job, but my theory has become,"It mightn't end up finished to perfection, but I bloody well cant make it any worse,lol"
It depends on the house. You dont need to do massive renovations to make it a rental, it just needs to be clean, tidy and livable.
Replacing a few floorboards is nothing, though replacing whole floors is a much biger job.
I picked up some second hand kitchen benches in reasonable condition with double sink for like $15 off ebay. going to modify them to fit my kitchen, then its classed as "updated".not sure what you're bathroom lay out is, but i picked up a second hand vanity unit for $80, black marble style top, comes up like near new. Little things like that make Huge differences.
If you want to get it to a rentable standard, (again this is without having seen the house) but I think, Tiles, Paint , Carpet & Ebay could probably be your best friends.
Would love to see some pics of the house ( if you dont find that too invasive) my email's [email protected]
Hey Bronte,
if the travel time and distance isn't too far (less than 2 hours) then I would keep the property (especially if rentals are in short supply) and commit to no social life for the next 3 or 4 months and do the renos yourself on w'ends and days off.
For the sake of about 30 or so days of work, you will produce an asset that will make you money your whole life. Better than a real job!
You can make the trips into fun camp-outs, organise a few friends to come up and help and turn it into an adventure. My brother and his wife did this with a house they bought in Great Western. There was many a w'end of painting and drunkenness seen in that house. They are perfectionists and went for some more extensive things like removing walls and re-jigging the floorplan a bit, but it was done well and took not a lot of time in the scheme of things.
3 or 4 friends on the end of a roller can paint a whole inside of a house in a w'end with 2 coats. Don't expect perfection though.
The renos can be done very cheaply if you are doing them yourself, but make sure you use the professionals for all the compliance stuff (plumbing and electrical).
Stuff like the paving, landscaping you can easily do and if it is a rental don't go too mad as tenants rarely look after gardens. You don't need a garage, but a carport can add more rental to the equation, so maybe order a custom made one. It is a depreciable expense as well.
Painting is easy, and windows can easily be removed and replaced with new ones if you have a little handyman know-how. You would have to order them to be made first.
Hi Marc and AlleyKat:
Oh I know you mean really well….and I can see how what you are saying would work – if done by anyone else! Sure I am willing to put my back in by doing cleaning up work, but doing the actual improvement work – well that is a different matter….and I am the more handy member of my relationship.
After years as a tenant I am painfully aware of the cheap fixups (not suggesting that this is how you guys do things) people try to get away with. So I have a bit of a 'thing' about patched up stuff. Ugh I had this nasty old landlord Aunt who would have her husband remove 25 yo rusted fly wire from screen doors and stretch so to trim end sections that had developed holes!
Thing is, I reckon it's important to be aware of one's own limitations. Straight clean ups and paint jobs I can do – but the stuff my cute little place needs – well that's a different story.
At the moment I am leaning towards giving it a decent boost – by getting a builder to fix up the worst of what is wrong, and remove the need for ongoing fixups……hey, but all this could easily change!
Good news is that my location is in the midst of a boom. The cheapest price currently listed for local house sales is 135k – and that's a fixer-up property.
AlleyKat – this sounds terrible…but I don't have a photo of my house at all! I got my digital camera after moving out.
Marc – yeah I reckon a carport will do the job…and I can probably do some of the landscaping meself.
Thanks for the advice guys…it is good to have these ideas challenged!
Bronte x
Hi, I thought that it'd be a good idea to buy broken down properties & ended up living in a house that could not be used for rental. Rebuilding costs a lot, I could still do it but mortgage costs added to the total. In the end, I decided to let someone else make the profit because the timing was not right for me.
I sold for $62000 more than I paid. After subtracting costs, I probably end up $15000 extra cash but I lived free for 20 months.
You might want to consider selling to cash in [you'll get tax exempt profits, even $5000 is good] plus your original 20% deposit. The cash can be used in a way to generate income straightaway, maybe a property more suitable for rental. Obviously, you'll wear the transaction costs but it's all part of the learning curve, isn't it?
Good luck,
Kum Yinbronte,
Have you ever thought about gettig a financal backer ? ths is a person who can see you have a reno gold mine and will pay for the reno's to be done and take there upfront money as well as a large chunk of the profits, but you will not loss anything.
what i would do if i was you would be to grab the phone book and start calling builders in the area and running it pass them, what is the worst they could say……… NO.
if it is in a boom and all it needs is a few touch ups by someone who knows what they are doing then start calling and find someone who can do it, put an ad in the paper "tradie wanted for renovaton partnership, large profits" then split the profits 60/40 or 70/30 and be happy that you got 30% of something, then paying all of everything for nothing.
just something you might want to look into.
hope it all goes well
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