Advice needed on getting this deal over the line…

[ozi]

Hi all,

I’ve just had a look at a property which I am interested in buying, but need some advice on a few issues. The property is located around 7-8 km from the Melbourne CBD and in a quiet area. There is a bus stop around 100 metres away and train station about a 5-10 minute walk away. The property isn’t listed with any agents and the way I found the property was by doing a letter box drop in the area The property was owned by a man who passed away 6 months ago and is now in the hands of his sister, who is pretty motivated to sell as soon as possible.

Here are the details:

- The house is in a quiet location, situated on a corner block (600 sqm). I think I could comfortably sub-divide the backyard (~ 300 sqm) and build a small unit with its own street frontage.

- House is brick.

- 2 bedrooms in total with a separate single bedroom bungalow in the backyard, so I guess it’s a 3 bedroom home.

- Large lounge room and separate formal dining room.

- Air conditioning in lounge, plus gas heater and separate wood heater.

- Decent size kitchen which was updated about 10 years ago. Lino flooring could do with an update and maybe the cupboards too.

- Very small bathroom which was updated 5 years ago. Consists of a full shower, toilet and wash basin. Would be good if it was larger, but I guess it is functional and good enough for a rental.

- Single garage with remote roller door.

The house is in very good condition, but the inside is quite dated. The things I don’t like are:

- Old (but in very good condition) red floral design carpet throughout the bedrooms, hallways, lounge and dining room.

- Old (but also in very good condition) floral design wallpaper (3/4 length of walls) in bedrooms, hallways, lounge and dining room.

- Recently painted “blue” ceilings and “green” walls!!

- Outside is ugly orange 50’s era brick.

- Roof tiles seem to be in ok condition but could do with a clean and preferably a nice paint.

- Gardens are very bushy and need some cleaning up.

I have a rough vision of what I would like to do to this property and this is where I need some advise (mainly on costing and feasibility).

1) Remove the carpet throughout the house. There are floorboards underneath, but it is difficult to see the condition of the boards without removing the carpet. What is a rough price on sanding/polishing floorboards? The house isn’t very large. I would probably give this to a professional to ensure it is done properly.

2) Remove the wallpaper and repaint interior. I can do this myself, but not too sure on the wallpaper removal. The paper is the thin, smooth finish type. Can I paint over it or isn’t this recommended? I’ve read that the paper can be removed using a steamer and/or chemical solution. Any ideas? I think there are wooden panels under the paper, but not certain.

3) Clean and paint the roof. I have access to a compressor and paint gun so will probably give this a go myself too. Any tips? Is it expensive to get a professional to do this?

4) I have 2 options to create a 4th bedroom:

Option 1: put a wall up between the lounge room and dining room and make the dining room a bedroom. This would be the cheapest option. The only downside is the kitchen will then need to double up as a dining room and it might not be large enough.

Option 2: Knock down the wall between the lounge and kitchen and have a large open plan living area, which joins to the kitchen. I could then put a wall up between the lounge room and dining room and convert the dining room to a bedroom.

Sorry I know this must be hard to visualise! Has anyone had any experience knocking down walls and erecting new ones? What is involved? I’m guessing there may be structural issues in knocking down a wall. Any advice on this would be appreciated.

5) Give the kitchen a mild makeover, i.e. new flooring and maybe new cupboard panels.

6) I won’t go into the sub-division/building side of things too much, from my initial discussions with the council planning officers, they believe it is viable to sub-divide and build a house in the backyard. New units in the area are selling for around the $300k mark and rent for around $250-$270 p.w. The existing house would rent for around $200-$220 p.w. as is and probably $240-$250 p.w. after renovations.

I am currently in negotiations with the vendor. She has spoken to 2 agents who say it would sell for around $320k-$350k. This sounds about right for the area, but given that I would need to spend a bit doing up the property, I don’t want to end up paying too much. The vendor hasn’t given me an exact figure, so I am wondering just how motivated she is. She just told me to make an offer! I was thinking of going in with a low ball of around $270k - $280k, just to see what she says. I think I would be prepared to pay around $310k - $320k for the property given there are no structural defects. Any ideas/tips?

I should also add that I don't plan to sell the 2 houses on completion and would be keeping them both as rentals.

Sorry for the long post. Any help/comments would be appreciated.

Kind regards,
Ozi

 

[Ace73]

Hi Ozi,

If I was you I would get some recent sales data of homes that have sold in the area, work out what your costs for reno are and then present your case to the vendor. If realestate agents have already given her a figure of $320k - $350k then I'm guessing she will be thinking that she could at least get the lower end of the range. So you will have to build up a strong case for anything lower than that. If you can get some recent sales data of houses that have sold for the low 300k mark (if any) and then also argue your case that the house needs major work which will cost say 30k (just guessing here), you might have a much better chance of getting it for less than what she has already been quoted by the agents. By just going in with a low ball offer might put her off. Also work out what the selling cost would be if she was to go with the agents and factor that into your offer as well.

Good luck.

Andrew

 

[beech]

hi Ozi,

you will have to work out the end values of what your planning to do.(sub divide)

you say finish brand new unit 300k
original with reno 250k ?
total 550k?

you would want at least 80k profit from reno & build to get most of your original 20% deposit and costs back out.

so,550k -80k = 470k
to build new,sub div,reno,plans etc = 170k

i would look to purchase this property for maximum 280k +stamp duty 15k(295)k otherwise its a very risky proposition.


Another idea would be to spend 10k on reno,hold for 12 months while getting rear sub div,then sell the original home for 250k?and build at the back the new unit.

 

[ozi]

Hi Ace,

I plan on getting some recent sales data in the next day or so. I have an agent in the area on side who is more than happy to print me past sales results off REIV, so I'll have to give him a call tomorrow

Thanks for your comments beech. Being my first development, I really haven't done a thorough analysis on this front. I've spoken to a few developers who have told me to work on rough figures of $1400 per square metre to build. Does this sound correct?

So very roughly:

110 sqm house = $154,000

I'm guessing plans, sub-division, etc will be around $15k - $20k

So lets say $175,000 in total. Does that sound about right?

I should also point out that I am thinking about owner building, to give me a more hands on approach. Whether this would work out cheaper than handballing it off to a builder is something I would need to look into.

I would say the end values would more likely be $280k for the old house and $300k - $330k for the new one ($580k - $610k total).

$580k
- $175k (plans, sub-division, build new house)
- $20k (reno old house)
- $80k (profit)
------------------
= $305k (purchase of house + stamp duty)

I would need to check on the end values but I think they are about right for the area.

Please tell me if my estimates are way off here.

Selling the old house after getting the plans and permits is an idea, but I would prefer not to exercise this option. I think selling would only eat further into any profits I have made (i.e. stamp duty, CGT, sales commission, etc...). These costs can be avoided by holding onto the property which is what I plan to do.

Regards,
Ozi

 

[Bargain Hunter]

I am currently in negotiations with the vendor. She has spoken to 2 agents who say it would sell for around $320k-$350k. This sounds about right for the area, but given that I would need to spend a bit doing up the property, I don’t want to end up paying too much. The vendor hasn’t given me an exact figure, so I am wondering just how motivated she is. She just told me to make an offer! I was thinking of going in with a low ball of around $270k - $280k, just to see what she says. I think I would be prepared to pay around $310k - $320k for the property given there are no structural defects. Any ideas/tips?

Ozi,

There is alot of good advice being given in reply to your thread; pricing strategies and negotiation techniques.

At the end of the day you need to clearly determine what the property is worth to you. Only then should you start to negotiate, otherwise you will be caught by the whims at the time. So fix a price clearly in your mind.

The fact they say they have approached a couple of agents (whether they have or not) is a good sign as it is a selling signal. It is also clear that they are willing to negotiate and give you first offer. So all good for you.

So present them with your offer. If they want more information, present the recent sales data, let them know that you expect to spend some money improving it but only the basics, you don't want them thinking you are a greedy developer.

Finally, sell them on why they would be better off dealing with you instead of an agent. Agents always inflate prices to get a listing, you won't have to pay any agents fees, you won't be inconvenienced by people coming and going all the time, you want have to wait twelve weeks to get what I'm offering today.

Also there may be other considerations which are in the mix. Do they want to live there for a while (extended settlement or rent back). Is it a hassle to sell, what about the other costs (I want exactly $X in my hand), perhaps covering their legal costs will get them over the line.

Good Luck and keep us posted.

Andrew

 

[ozi]

Hi Andrew,

Thanks for your advice. I've realised that going in with a lowball offer isn't going to work unless I have data to back it up. So what I am going to do is:

1) Use recent sales data in the area to help me determine what the property is worth and hopefully use this to show the vendor why I think the property is worth $X amount.

2) Come up with a list of renovation costs and work out what the end value will be after renovations. I'll make it clear to the vendor that the property is dated and selling it in it's current state wouldn't fetch the high end values such as some of the other properties in the area (which have been renovated) as most buyers would consider the renovation costs when making an offer.

3) Let the vendor know how much it will cost her to sell through an agent and how long this could take, and at the end of it she still might not get the price she is after.

4) Make it clear that I am after a quick settlement. The house is vacant and she doesn't plan to live there or rent it out. Its just sitting there costing her money.

I'll be meeting with the vendor tomorrow. I'll keep you all posted.

P.S. I just found out the rateable land value for the property is $280k and capital improved value is $350k. I know this doesn't reflect market value accurately, but is this a rough indication of what the true value is?

Regards,
Ozi