Buy, reno, reval, repeat?

[Richard Feynman]

I'm looking to accelerate my acquisition of assets over the next 7-8 years.

After my next purchase, I'm going encounter serviceability walls at every step so boosting cash-flow is an important consideration--pivotal in fact.

The more ideas in my mind, the more collisions and new outcomes, so spill your thoughts--I'm open to everything.

One scenario I'm contemplating:

1) Buy below intrinsic value AND 10-20% below suburb median
2) Reno back to (or a little above) median price and attain much higher yield
3) Reval and pull equity (enough for new deposit and buying costs)
4) Repeat, when cashflow allows

The ideal outcome would be to create cashflow neutral--or positive--property from day one (enabling me to purchase frequently) but I don't imagine this is too probable. Either way, manufacturing equity and boosting cashflow are both important.

So, what do we reckon? Can I tweak this plan? Other ideas to consider? Anyone experienced at pulling this off?

Yes, increasing my income is part of this plan too.

 

[bashworth]

1) Buy below intrinsic value AND 10-20% below suburb median
2) Reno back to (or a little above) median price and attain much higher yield

Sounds good but a lot of run down properties now have thousands added for 'Potential' and you will be loosing money while the reno is going on. They are not all as quick as 'The Block'

 

[D.T.]

RF
Considered buying in other cities or towns other than your own as might have better yield?
Considered trying to increase your workplace earnings via promotion, overtime or 2nd gig?
Considered buying income producing shares so as to increase home loan serviceability?
Considered talking to broker about which lenders you should be using that favor your circumstances and goals?
Considered talking to accountant about purchasing in ownership structure with (re)fresh serviceability?

 

[Richard Feynman]

Sounds good but a lot of run down properties now have thousands added for 'Potential' and you will be loosing money while the reno is going on. They are not all as quick as 'The Block'

Right you are on that one.

I have been predominantly keeping an eye on apartments in original condition (mostly built late 60s). I know there can be less scope for adding value, but a new/updated kitchen, bathroom, new floor and repaint was the type of stuff under consideration. I've seen a stack of these going for pretty reasonable prices in areas of interest.

D.T., very valuable.
Yes. Anything in Australia, in an area with strong growth drivers now and into the future, is under consideration.
Yes, as mentioned.
No. I didn't imagine the returns would help given the initial outlay of capital. Can you provide some examples where share purchases would help serviceability?
Yes, in terms of getting ownership structures right but not with the foreknowledge that a different ownership structure might improve serviceability. Can you elaborate?

Cheers folks.

 

[beachgurl]

I have done this for the majority of properties I own or have owned. Like Bashworth said, many houses are at a premium unrenovated but there are some out there that are priced well. From my experience they require a little creative thinking/reconfiguration to get to neutral/positive.

 

[Corey Batt]

Very simple strategy that I do, works very well in Adelaide where you can have strong CF+ to start with and unrenovated dives aren't seen as chic.

 

[Rolf Latham]

a better strategy with loans not needing lmi

we have lots of experience with clients getting stuck with poor vals and not being able to move on due to lmi shock.

ta
rolf

 

[Singo]

That is a good strategy and we have done it a few times. But you may not be able to get equity enough to for deposit and purchase costs of next purchase. But should be able to cover the deposit.

But if you buy an unrenovated property in a moving market, you will be gaining more. If you can add a room within the house, that will add some quick equity.