Buying, Renovating, Re-Valuation, then Re-invest

Hello,

If the market where you're buying isn't moving upwards price-wise, & you buy a significantly under-market price property, are you always able to revalue the property after you've renovated the property immediately?

Which banks will do this?

Do you need to have a building contract for the reno for the bank to substantiate the re-valuation, or have you found the banks will still do the re-valuation if you do the reno yourself?

EG: Pay $200k, reno @ $20k, re-val @ $280k; 90% at $280k = $252k less loan of $190k = $62k to be used as deposit on next purchase.
 
Hello,

If the market where you're buying isn't moving upwards price-wise, & you buy a significantly under-market price property, are you always able to revalue the property after you've renovated the property immediately?

No.

Which banks will do this?
I believe most banks will want 6 mths between signing contract & re-val. Maybe other people have different experience.

Do you need to have a building contract for the reno for the bank to substantiate the re-valuation, or have you found the banks will still do the re-valuation if you do the reno yourself?\
No building contracxt necessary.

EG: Pay $200k, reno @ $20k, re-val @ $280k; 90% at $280k = $252k less loan of $190k = $62k to be used as deposit on next purchase.
Looks good on paper but the most important thing is, if prices in the area are not moving up this increases the risks of the strategy. You are right to focus on buying under market but just be sure that there are comparable post-reno sales at the $280k mark. No comparable sales nearby, no suitable reval.
 
I've built a strategy around doing just that.
Like Ms Jade says, though, watch those comparable sales. Without those to back you up, your valuation has nowhere to go. Bad news.
Most banks won't even look at a reval and re-fi scenario until 6 months has elapsed, so you need to factor in holding costs for that period of time, as well.
 
Hi Col,

Yes agree with the others - however, I have had clients reval sooner than 6 months and get some excellent results. Probably better to factor in the longer time frame in your analysis though just to be on the safe side.

Purchase well yes, but also look (as the others have said) at comparable sales of renovated properties to give you an idea - before you buy - of potential 'fat' in the deal. Its also worth talking to local agents to gauge what properties have actually sold for recently so you know your upper limit in terms of profit potential. A good place to start before talking with real estate agents, is to jump onto realestate.com.au etc...

One of the most important things to consider is the cost of your reno VS the value that the reno adds to your property. Of course your aim is to spend as little as possible while modernising and improving the property as much as possible. Before you renovate, there are a number of things to pin-point:

  • who your target market is (families, retirees, students, professionals etc...)
  • what your target market wants (storage, security, space etc...)
  • what your budget is (I usually recommend 5-7% of the pre-reno property value - though this is sometimes negotiable depending on the property and its location)
  • what you will do to the property within your budget that moves you towards what your target market places value on (and makes it stand out from other similar properties in the area)
  • what you will do to the property that makes it a middle-of-the-road property for the area (not the best house in the worst street or the worst house in the best street)

The best piece of advice I can give is to make sure you can justify every single decision you make during your renovation - including what property you buy, how much you spend on it, what you do to it (including all colours, products, finishes etc...) and then how much you ask for it (and ultimately sell it for).

Think of the property as a business. The closer to what your target market wants, the more you will sell it for. People will compromise on price (ie pay more) if your property fulfills their physical and emotional needs over and above other properties they are considering. So, if you can get that right, your property will be in a league of it's own.

I hope that helps!
 
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