Hi
I am a retired female and have my house on the market for sale. I live in country NSW and will be looking to buy a very cheap property (fibro etc) and renovate. I would like advice on how much to renovate? I have renovated two houses, one in Sydney for which I made enough profit with enabled me to buy a house cash in country NSW and the one I now have on the market for which I do not stand to make much profit on because of the low sale prices here. However, I will make about 10%-15% on it. I would be living in the house as I renovate the new property. I wondered about purchasing an ex-Housing Commission house but one in a privately owned street rather than in Housing Commission village type thing. I wondered if I simply put new bathroom/kitchen in, polish floors and paint and decorate and then put on market quickly is the best plan? I cannot apply for a mortgage now, unfortunately, as I have retired. All advice gratefully received! Thank you.
Del
Hi Del,
Great idea to purchase, renovate and resell asap. As there are so many factors to take into account when purchasing, the most important thing in your case is the cost of all the renovations on top of your purchase price and other outgoings. If you can purchase below the median range in the area, then great. I have known friends who have over capitalised and now they are holding on to their properties until it appreciates a little more. I'd advise to place most of the effort in the bathroom and kitchen and carpet can be a more cost effective way than floor boards. If you know of some tradies who can do the work for you @ mates rates, that helps heaps, otherwise, purchase them yourself and get them to do it. Hopefully im of some help, as I was in a similar situation earlier this year, but I have decided to keep my property and not sell. I had budgeted 25k for renos and after research and quote comparing, it was completed approx 12k.
Cheers.
CIS
Even though you are retired, you can still get a mortgage. You need to see a decent mortgage broker about no doc /lo doc loans.
Del, is there any reason why you'd sell rather than refinance?
Unless a property is a fundamentally bad investment – in which case I assume you wouldn't have bought it anyway – then you're almost always better off holding and refinancing than selling. (And I agree with hleung about seeing a good broker, who should still be able to get you a mortgage.) Changeover costs – agent's commission, CGT (or worse, income tax on gains if you're found to be in the renovating business, as it sounds like you are), stamp duty etc – add up if you're doing this frequently. Also, this is an active property-based business, rather than a passive property investment strategy. I should think if you're retired you'd be looking for more passive than active income.
If you're not sure about any of these points, please feel free to contact me personally.
Thanks, guys, for your advice – which has been very helpful. I guess what seems to be happening with my last purchase (present reno) is that I have x number of dollars to spend but by the time Ive finished the reno and put the house on the market, I end up with the same amount in the bank!!! Perhaps I shd be grateful its not a loss!! I cant seem to improve my situation so obviously doing something wrong. One reason may be current property downturn as I, like everybody, made money in the Sydney property. Not sure how to email privately as you offered, Trakka, but could you explain why I should consider refinancing? I really am a beginner, Im afraid. And, HLeung, could you explain what a no doc/lo doc loan is? Thanks a lot
Del
Hi Del! You contact somebody privately by clicking on their name above a post, viewing their profile, and then hitting "Contact". Unfortunately, you have your options set so this is disabled, anyway, so I can't contact you privately. (Edit your profile if you want to change this.)
Now, refinancing 101. You buy a house worth, say, $100K with $80K debt. You have an increase in value to $200K – by reno, market forces, whatever – and you want to get your hands on some of that extra value.
Option 1: Sell. Sell for $200K, use the proceeds to buy another $200K property
Deductions from the $200K to figure out how much cash you end up with:
mortgage on 1st property: $80K
agent's commission $5K
CGT (assuming 30% marginal tax rate): gain is $100K, 50% taxable (presuming held > 12 months), therefore CGT $15K
stamp duty on new purchase (varies by state, average): $6K
other costs of changeover eg solicitors, loan transfer etc: $2K
20% deposit on new property: $40KEnd result: you own a new $200K property with $160K debt against it, and (200-80-5-15-6-2-40=) $52K in the bank
Option 2: Keep the current property, increase borrowings to 80% of new value
New borrowings = 80% x $200K = $160K
less previous mortgage $80K
Gives you $80K cash for more investmentsEnd result: you own the same $200K property with $160K debt against it, and have $80K in the bank
So to me, this would only be worthwhile if you were changing over to a property that for some reason you knew you were buying for at least $30K under market value, which on a $200K property is not an everyday event…
But as I mentioned in my previous post, if the property that you currently hold is a fundamentally poor investment – eg difficult to tenant, or poor capital growth prospects – then that changes things considerably. Basically, you have to consider whether, if you sold and bought another property instead, the difference in potential between the two properties was at least enough to compensate for the $28K changeover cost.
And to answer your other question about lo doc/no doc loans, these are loans which don't fall into conventional lending criteria ("full doc (documentation) loans"). Basically, instead of having to provide documentation substantiating your full assets/liabilities/income/expenses situation, they rely on "looser" or "softer" evidence. For example, if you have sufficient equity in your portfolio to cover any potential shortfall in case of a default, they may lend on that basis without any income proof required. This is possibly what your situation might be.
Best wishes,
Wow trakka nice post
Makes a lot of sense mate
Add me on msn [email protected] love to catch up with you mate.
I hope that you can forgive me but I am a novice and I happily admit it but if I could be honest as to give some advice from the books that I have spent hours reading.
1. When you say you cant get a mortgage, i know you’re retired but when they say they cant give you a mortgage that basically means you as a person dont qualify because your not earning any income. Do you have passive income? What you need to prove to them is that you have a deal thats worth investing into. If you have capital greater than X percentage I heard they dont even look at your personal situation. In NZ i think its 30% or greater deposit for a house.
2. Like others have said in these posts, are you a property investor or a property trader? One can only give you an answer if you explain your situation a bit more. You want to renovate a property thats fine and you can do a great job but with all the costs involved that trakka has said I dont seeing it being cost effective as a solution.
3. Like you have said the property market is in a decline + high costs of selling do you want a quick dollar or do you want to have a positive cashflow property?
4. What are your goals? Do you want to do this renovation and hope to make enough profit to retire? do you want to keep on doing this???
I hope this helps and feel free to add me on msn
Good luck and look forward to hearing what is your solution.
Sean
Aw, shucks, thanks Sean, for your kind words
Regards,
Tracey
Hi Del
Firstly congratulations on your success so far and i hope you enjoy the forum.
Unfortunately i dont wish to put a dampner on the comments made in respect of lodoc / nodoc loans but thought i should clarify a couple of points.
A lodoc loan is only available for applicants who are unable to provide the normal income evidence when it comes to verification of income in relation to Tax returns for self employed clients and payslips for PAYG applicants and is not a shortcut to endless funding.
With a Nodoc loan no evidence of income is required however in most cases the loans are mortgage insured and the insurers will have limited post code area in which they will provide cover over. Unfortunately depending on the location will determine whether the property location is unacceptable.
You will also find all nodoc / lodoc loans ave relatively high early repayment penalties or deferred establishment fees.
A nodoc personal loan whilst having a higher rate of interest maybe an option especially if the funds are only required over a fairly short perod of time.
Richard Taylor | Australia's leading private lender
Hi Del,
I notice you mention purchasing ex housing commission. Please read my post in general property about precautions you may want to make when doing this. Hope it helps you!
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