Basic q'n - Finance for IP + renovate

[emptyvessel]

Hey there,
just wondering if someone can broadly advise what the "best" choices are for funding IP purchase + renovating it? I am talking smaller reno's in the $10-25k range.

I am thinking just LOC as deposit and then drawing down on LOC to pay for reno costs.

Can I just borrow the whole lot? E.g. Purchase price + costs + "renovation budget".

I apologise if there are threads on this already. I did search, but nothing really helped. I know lots of folks do this, so it can't be very difficult.

Thanks a tonne,
EV

 

[Peter_Tersteeg]

If you're using a LOC to fund a desosit and then renovation costs, you are actually borrowing the full purchase price, plus costs, plus renovation funds.

It is possible to borrow renovation funds against the property being renovated, but not practical in a renovation for this size. It involves fixed price construction contracts which most people don't do for a small renovation.

The other way to fund a renovation is to have cash set aside for it.

 

[emptyvessel]

Thanks PT. The cash option was my last and obvious choice.

What if you had a company (i.e. A company I control) that provided a fixed price contract for the $20k renovation? Is that feasible for borrowing the whole lot?

And is there any reason why that company can't be your own that then subcontracts and project manages the work out to others?

The obvious question is how does a +/- 20% cost over/under run get handled?

 

[Aaron_C]

You can't do it without a fixed price contract. Plus any fixed price contract has to be with a registered builder - it can't be for any company you just made up. You're best off using cash or a LOC.

 

[emptyvessel]

Easy, LOC it is. I am happy with that strategy. Simple, familiar and accessible. At least in my circumstance.

It is a core driver for me not to inject any more "external" cash into my "equity engine". Gave it "startup capital", now it needs to grow by itself.

That said, maintaining open minded flexibility in all plans is wise in order to reach the desired outcome.

 

[Peter_Tersteeg]

It is a core driver for me not to inject any more "external" cash into my "equity engine". Gave it "startup capital", now it needs to grow by itself.

If you've got equity available, then use the LOC method. By far the easiest method to meeting your requirement.

 

[Brett IP]

We are in a similar situation, sorry to jump in on the thread.

We are at 70% LVR and have approximately $50k of renovations to do. Fencing, Driveway, Kitchen.

I dont want to use a cent of our cash as whatever we spend on the property in one hand using the LOC, will be in the offset offsetting the interest on the other main mortgage. We are looking in to the future and catering for the fact that it may once again become an IP.

For some things such as paint, other things we do ourself etc, even invoice payments, can I use a credit card and pay that credit card off with the LOC? Its hard to buy things with a LOC.

The credit card has been used for other things before, not anymore though, so whatever I buy for the house will be the only thing on the statement for that month.