Hi investors.
This is a continuation of my first “Where to start thread” and I am looking for advice on a potential first buy I am looking at.
The strategy I am following is to find a +CF property with the potential to add value to help me get into the next one & hold it.
I am anxiously looking at a property that is 15 years old, 4x2x2 720m2 low set brick, elevated on a rocky hill. Onthehouse has it valued considerably above my offer. the property next door, not all that different sold in early 2016 for what onthehouse puts it at.
It needs work, but from what I can see it is cosmetic, old carpet, paint peeling off guttering & some basic landscaping. Now it needs more than that but it is purely from an aesthetic need, the colour of the paint & tiles is all blue/purple 90s dated yuck. Condition is more than passable, it’s just so ugly it’s almost funny. So a full internal paint + resurfacing of ensuite & kitchen is needed as well as potentially floor tiles in living aria + what was stated earlier.
If I can secure it for the right price I am considering it however I won’t have a lot of liquid cash left after the sale, perhaps 10k.
These are the options I’m considering / my thoughts on it…1, If I was to get a favourable valuation I would put a tenant in it & do nothing but the bare minimum to make it rent-able & turn my attention to working towards the next one. Two issues, while good rent could be achieved I would estimate $30-$40 even $50 per week less than achievable. Quality of tenant attracted also an issue. I could save to lay out cash for the improvements in 6-12 months giving me time to research pricing & options at leisure rather than feel rushed to get it done in 4-6 weeks after purchasing with a demanding job & young family. Based on what some of the older run down properties are renting for in the area I am confident I can easily cover costs at the lesser rent.
2, Get into more debt & reno it before putting a tenant in guaranteeing a better valuation & higher rent immediately.
3,Why has another investor not snapped this up already? Agent claims vendor was initially seeking to high a price with work that is needed, negotiated down recently & after a failed contract now just wants it gone? What should I be wary of outside of building & pest reports?
4, All my wife sees is the colour & cosmetic issues, she can’t help but look at houses from the POV of her living in it herself. How have others dealt with similar experiences? It conflicts with my strategy, she understands the theory but when presented with a property that has value adding potential the reality puts her off. She would happily buy a new HLP because it looks nice.Thanks in advance.
S
Hi Simon,
Sounds like it could have merit. Re things to check, apart from Building/Pest, do stop by the Local Council to ensure they are not planning on resuming the property any time soon. Also, swing by there at different times through the day and night to get a “feel” for the area. Is it full of barking dogs at night, or arguing couples, or bikies, etc….
How is it for infrastructure – schools, shops, transport, etc?
I would be tempted to do “the basics” before renting – it is harder to do a reno with a tenant in place. And, if you get a good one, you won’t want to throw them out to do a reno in 2 years time. Fresh carpet is inexpensive – go for commercial grade rather than “fluffy, plush” and keep it neutral coloured.
Is it tenanted or inhabited right now? If not, maybe the vendor will allow you to “get in and fix it up” ahead of settlement – but that would need to be negotiated, so don’t just assume you can do it. Make it a condition of the contract.
Even if you had to put $5k on a Credit card, keep in mind that the short-term cost (if providing you with an extra $50 per week in rent) can quickly be paid off. e.g. $5k at 20% interest is $1,000 a year which is $20 a week. So, if you have to pay $20 a week to make $50 a week, is that good? ;) The extra $30 a week can go toward paying it down.
Or spend the $10k, but keep some access to short-term funds IF needed (that could be a credit card).
Your wife’s POV is quite common – use Steve’s expression “Buy problems and Sell solutions” to explain to her how it goes. By buying that problem, YOU TWO get paid for its solution.
i.e. No-one else wants to buy it because it looks ugly !! THERE is where your Equity can be built. I would be looking hard at it, if it were me, ;)
Benny
Hi Benny
Thanks for that.
The property is vacant so access (if I get it across the line) once unconditional is a good idea to try for. The property is 1km from a train station, 5-6km from a major shopping centre with several smaller options closer & a variety of schools. The area is quite respectable for the location.
Work I think needs to be carried out.
Carpet in four bedrooms
Paint through out internal including window frames as they are blue/Purple as well.
Some
Resurfacing of kitchen benches, possibly cabinets as well,
Pantry door needs painting,
New cook top
Dishwasher
Handles?
Small amount of gardening, turfing, planting & mulching.
Gravel to tidy up a section of parking to the side of the driveway & house.
clean up & paint guttering? not really a priority at this stage.At this stage the blue grey floor tiles will have to stay, as will the blue tiled ensuite.
What experience does anyone have with resurfacing kitchens & bathrooms? does it last if done well?
Thanks
S
Hi Benny
What experience does anyone have with resurfacing kitchens & bathrooms? does it last if done well?
Thanks
SHi,
Sounds like a plan. I love ugly ducklings. I have done a few resurfacing jobs back in the day. It works to save $ and buy time before a proper reno (I would never bother with resurfacing for resale, the market knows so just do things properly) but to make gaudy colours white for a few yrs its totally fine. Prep is everything. Zinzer oil based or white knight are both good products, just clean soap and grease off surfaces obsessively, then sand with fine wet and dry sandpaper. How much time you put into this will determine whether it comes off or not. White Knight, tub n tile or any decent oil based gloss over the undercoat hold up well if given care and time. Tell your tenants not to scrub, just spray and wipe to clean it.BuyersAgent | Precium
http://www.precium.com.au
Email Me | Phone MeSouth Coast NSW Independent Buyers Agent - Wollongong to Batemans Bay and Regional NSW. DOWNLOAD OUR FREE 14 POINT PROPERTY BUYER'S CHEATSHEET to avoid painful mistakes at precium.com.au
Forgot to say if its shower or bath, and going to get hot water on it make sure the product is rated for that or it will peel when heating up but kitchen cupboards and bathroom, splashback tiles not such a problem. Also I don’t use it on floors as foot traffic will wear it off.
BuyersAgent | Precium
http://www.precium.com.au
Email Me | Phone MeSouth Coast NSW Independent Buyers Agent - Wollongong to Batemans Bay and Regional NSW. DOWNLOAD OUR FREE 14 POINT PROPERTY BUYER'S CHEATSHEET to avoid painful mistakes at precium.com.au
Thanks for the responses guys :)
I have read that repairs are not tax delectable until a tenant is in? Is this correct? I have a PPOR so the property is obviously an investment.
Thanks guys.
Simon
Edit”, Just found the info, crap.
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This reply was modified 7 years, 10 months ago by
Simon.
Hi Simon,
repairs are not tax delectable until a tenant is in?
You gotta lurve “auto-correct” eh – it gives us regular snickers !! :p
I have read that repairs are not tax deductible until a tenant is in? Is this correct?
….. (Just found the info, crap).Yeah, any repairs would be capitalised, and thus would only be recoverable as a CGT saving down the track……
But wait – there’s more.
That would be the official answer, but let’s think a wee bit more about this:-
In essence, this is the “problem” that will pay its own way handsomely. Sure, being unable to claim for the repairs is a bugger, but then, if you had bought it without the repairs being necessary, the price would have been perhaps $20k higher (or more). That is your Equity lift on completion. And, of course, you can look to re-financing within a short period (6 months?) at which time any amounts you paid as repairs can be returned to you via borrowings (and with a bunch extra too?). So you won’t be out of pocket for too long.As well, the new carpet and other new fittings can be depreciated (and at a good clip) so this will have a good effect on any Tax paid (or negative gearing if applicable). Be sure to pay the ~$500 to have a Quantity Surveyor visit the place to prepare a Depreciation Schedule – these are worth their weight in gold to you.
Consider using an airless spray gun to do the painting (or pay someone who can/will do it). Again, it is all about making it “livable” in the most cost-efficient way possible. But then, if you have several weeks, and you like painting, you can add your own sweat equity instead of paying someone else. Of course, if you DO get painting done, leave the old carpet in place until the painting is all finished… ;)
Good luck with it,
Benny
Hi,
I have a few questions for you please if you can help, we would like to subdivide our house block into two and build a new house. Costs sound excessive we are wondering if their is list of processes that make it cheaper to contact specific authorities oneself.
Also can we use a storm water easement ( large drain under ground) and use part of this to drive on for access to back block.
What is the minimum width of drive way access. Thankyou AnnierHi Annie,
The answers will vary depending on the Council area in which the property is located. You would need to approach that Council and speak to a Town Planner, who should be able to guide you,
Benny
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This reply was modified 7 years, 10 months ago by Benny.
Hi Investors.
I am after people’s opinion on how much to borrow for first buy?
I am technically borrowing 100% with a refinanced deposit + 89-91% mortgagee including LMI & Stamp etc.
Should I be kicking in a little extra to get the LVR down to 88%? Or should I keep my $ in my pocket & go high on the LMI.
Loan is interest only at this stage
The property is valued at about 30k over total purchase cost & I am renovating upon purchase. I am debating with myself whether I should throw in 4-7K along with the refinance deposit or keep it in my pocket to help the reno?
Cheers
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This reply was modified 7 years, 10 months ago by Simon.
Usually LMI on LVR of 88% and under are way cheaper than on LVR above 88% so this may be a consideration?
Ethan Timor | Aligned Finance Pty Ltd
http://www.alignedfinance.com.au/
Email Me | Phone MeActive Investor & Broker; Based in Northern NSW, servicing Australia wide; Author of '34 Proven Ways to Maximise Your Borrowing Power' (download free from our website)
88%+LMI is preferable, the cost saving is reasonable as the insurance premium jumps the moment you go over 88.01%+ – I’ve written about the considerations for what LVR to choose here: http://www.precisionfunding.com.au/lmi-friend-or-foe/
Corey Batt | Precision Funding
http://www.precisionfunding.com.au
Email Me | Phone MeInvestment Focused Finance Strategist - servicing Australia-wide
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This reply was modified 7 years, 10 months ago by
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