Could someone talk me through a cosmetic reno from research to reno

[Achimy]

Hi All,

I'm a bit confused into what goes into identifying something that has the potential to have value added to it through a cosmetic reno.
For example, let's say you identify an area which you can afford, you start looking at numbers only (yields, vacancies, stock on market blah blah). And then you are satisfied. After that you identify the value of properties (compare like with like, and see how much unrenovated, vs renovated properties sell for). You've identified all that, but then what happens when you actually find a deal. Could someone give me an example of how they knew their end product vs their starting, and how did they obtain the quotes of how much it would cost to fix and at WHAT STAGE DURING THEIR PURCHASING/FINDING/OFFERING THE PROPERTY DID THEY FIND OUT THE EXACT COSTINGS OF THE RENO?

Do you first offer on the property, have your offer accepted, and then get quotes on renovation during cooling off, OR, do you know simply by experience, or do you just send pictures to tradies before you offer, and ask them how much it costs to fix/tidy up (maybe give em an example of what you want to turn it into and you get quotes accordingly?).

I am a first time investor, but I'm not sure how to go about offering in accordance with having enough margin to add value, and not knowing how much it would cost me to do reno work on a property...

Could someone explain like I'm five the exact steps they went through, from identifying an undervalued/untidy property to offering and negotiation (and rationale/calculations for the offer) and then the reval of the end product. How did you know how much reval you'd get? Do you just ask agents how much rent can come in if you renovate and take their word for it or how much it would cost to tidy the place up?


Mind you, I want to buy a property I can add value to as my first one because I don't want to buy and hold and wait forever, I would like to make sure I can move forward in my portfolio in the least amount of time.

Regards,
Achimy

 

[The Y-man]

Cosmetic reno is just that - cosmetic. Start small.

So:

1. not big money - most stuff you can get a price for at Bunnings/Masters/Spotlight.

2. the only quotes we've needed were carpet (which they can do by showing a floor plan) and painting (we do it ourselves these days)

As a first time, the "reno" should only need:

- Light fittings (don't do anything fancy like changing placements etc - just change the lamp shade)
- Door handles (inclding kitchen cupboards)
- Curtains/Blinds (again, don't get a quote - go Spotlight)
- Carpet (take floor plan to shop for quote)
- Paint (Watch a paid professional once or youtube )

If the property needs any more than that, don't go in for it (may cost you too much / too much hard work)

Once you get more experience, you can go fancier like new kitchen etc etc
You'll be shocked what the list above can do to a property.

The Y-man

 

[LeoT]

Cosmetic reno is just that - cosmetic. Start small.

So:

1. not big money - most stuff you can get a price for at Bunnings/Masters/Spotlight.

2. the only quotes we've needed were carpet (which they can do by showing a floor plan) and painting (we do it ourselves these days)

As a first time, the "reno" should only need:

- Light fittings (don't do anything fancy like changing placements etc - just change the lamp shade)
- Door handles (inclding kitchen cupboards)
- Curtains/Blinds (again, don't get a quote - go Spotlight)
- Carpet (take floor plan to shop for quote)
- Paint (Watch a paid professional once or youtube )

If the property needs any more than that, don't go in for it (may cost you too much / too much hard work)

Once you get more experience, you can go fancier like new kitchen etc etc
You'll be shocked what the list above can do to a property.

The Y-man

Y-man, that's REALLY a lite cosmetic reno!

Leo

 

[depreciator]

Backing up a step, Achimy, there is no guarantee a cosmetic reno will have any impact on the val of a property. Valuers see through that sort of thing.
If you manage to reconfigure the place an add an extra bedroom or put a new kitchen and bathroom in you are more likely to get an increased val, but now we are talking more than cosmetic stuff.
Y-Man's list is a good guide. Somebody else will chip in with an estimate of what a cosmetic reno like that would cost - maybe $10K? Depends on how much you do yourself.
Look for properties that have good kitchens and bathrooms - they are the most expensive rooms to fiddle with, so it's great if somebody else has done that.

 

[Achimy]

Okay, then what about negotiation regarding a properties condition. How do you negotiate the price down. How do you say on the spot "oh look mr agent, this is gonna cost me heaps to fix, I need to factor in reno costs this amount of reno costs here's my feaso gimme price discount pls." Does it come from experience, and using pest and building inspector to further negotiate?

And then is the sole purpose of a cosmetic reno to increase rent/to get a tenant in faster?

So is the adding value when you do substantial reno such as a kitchen or bathroom/bedroom reno?

How to make money if buying and holding with the least amount of effort :S (what I mean by that is what is the cheapest way to add value and grow my portfolio with a buy and hold strategy, is it to simply buy at discounts and pull out equity?).

Regards,
Aseem

 

[LeoT]

Generally a full cosmetic reno is about 5-10% budget of the current value of the place. No fixed rule though.

Leo

 

[Sexyv40]

Perhaps I can add some humble advice.

Still needs to be in the right street and close to normal facilities. We looked at some apartments in North Melb that were part of a big block of 40-60 apartments (not sure if previous housing commission) and the whole street was big blocks of aparments. Even though some had good reno potential the overall block and street put me off, did not have a good vibe. I prefer finding an apartment block that is not too large and mixed in with houses. Sorry got off track.

Re Reno look for the easy cosmetic stuff...

For example we just did some minor stuff to our Kensington apartment and the agent reckons we could get an extra 20k at least

- pretty much repainted majority of inside and filled some minor cracks
- re painted kitchen and bathroom ceilings'
- new shower curtain and shower rail above bath
- re did some grouting and silicone sealing in bathroom
- new vanity in bathroom ($250) cost more to install
- new toilet seat lid (looked grubby)
- split system air con in main bedroom.
- new light in kitchen
- fan / led light in main living area.
- previously done vertical blinds to all windows - got rid of dodgy curtains
- new switchboard
- new mixer for sink (replaced old tap)

So small cosmetic things can add up.

For apartment in North Melb we bought already renoed. I had a limit and luckily we got it under that. Compared to what we would have to spend renovating worked out well. no wonder vendor not happy. What had been done?

We also got approx. $40 per week more in rent without having to do anything.

- full re paint inside.
- all new carpet
- bathroom gutted and completely re-done tiled shower / vanity etc.
- new separate toilet and tiling
- new kitchen new cupboard / benchtops only stupid thing is they kept old stove which looks a bit stupid.
- new light fittings
- new switchboard.

Looks like majority of the stuff was from Bunnings including the kitchen I suspect but still looks good. Here are the pics

http://www.realestate.com.au/property-apartment-vic-north+melbourne-117497483

 

[vaughan]

Okay, then what about negotiation regarding a properties condition. How do you negotiate the price down. How do you say on the spot "oh look mr agent, this is gonna cost me heaps to fix, I need to factor in reno costs this amount of reno costs here's my feaso gimme price discount pls." ...

Basically, yes that's all it is; but you'll only get a discount if some other buyer isn't prepared to pay "too much". Which in the Sydney market right now, is most likely.

 

[perthguy]

I have done a full cosmetic "reno".

I ripped out and replaced what was ruined by a tenant that I inherited. I was very lucky the owner left me many tins of a flat, high quality oil paint. Materials were sourced from gumtree (vanity, kitchen, sink, pavers, clothesline), masters (laundry tub, light fittings, bathroom sink, tiles), more tiles from a tile wholesaler and the rest from bunnings. I got some blinds from a local manufacturer and installed carpet tiles I had sitting in my carport.

Ripped out was: bathroom vanity, kitchen, laundry and carpet.

Then: paint, install kitchen, install laundry, tile bathroom, kitchen, laundry, install vanity, install carpet tiles, install blinds etc.

The kitchen was the biggest bargain. $400 secondhand from gumtree including working stove and oven. There was enough left over to make a laundry cabinet, which I finished off with tiles from a salvage yard and laundry tub and tap from masters.

Note that this is a lower end rental on a lower value house and this level of finish would not cut it for a higher end property.

Rent before: $320 per week. Rent after: $440 per week.

A couple of pics. Apologies for the poor quality.

Any questions, let me know.

 

[pully]

well done. great recycling and resourcefulness plus personal labour.

 

[depreciator]

Okay, then what about negotiation regarding a properties condition. How do you negotiate the price down. How do you say on the spot "oh look mr agent, this is gonna cost me heaps to fix, I need to factor in reno costs this amount of reno costs here's my feaso gimme price discount pls." Does it come from experience, and using pest and building inspector to further negotiate?

As Vaughan said, in a hot market when you start to say that stuff to an agent their eyes will glaze over and then they will look over your shoulder for the next buyer.
A bad pest/building inspection can be good leverage, but the agent will still be hoping for a buyer to some along who won't get an inspection done and be none the wiser about the problems.
Being able to move quickly can help. Agents just want a sale and a fast one is better than a slow one. An extra $10K or so on the sale price is incidental to their commission. If they know you are keen and able to move NOW they are more likely to press your case with the owner. I bought a run down flat in Sydney this time last year and that was the case. I walked in off the street on a whim (it was around the corner) on a Saturday inspection, chatted with the agent, and gave him a signed contract and a cheque for the deposit first thing Monday morning. He didn't even bother calling the other people who were keen on the place.
NB When I sell I won't be using him.

 

[Perp]

Okay, then what about negotiation regarding a properties condition. How do you negotiate the price down. How do you say on the spot "oh look mr agent, this is gonna cost me heaps to fix, I need to factor in reno costs this amount of reno costs here's my feaso gimme price discount pls." Does it come from experience, and using pest and building inspector to further negotiate?

This reflects a serious misunderstanding of property pricing and negotiations, IMHO, which even many property investors still seem to cling onto.

You never "negotiate the price down"; that gives way too much significance to the asking price. The asking price is a semi-arbitrary figure reflecting the vendor's hopes. You offer to purchase for what the property is worth to you. It's not like retail where there's a price on the sticker (though even those are often semi-arbitrary, too). There's no such creature as a "% off" when buying a house, because no two houses are alike, and it's impossible to put a precise figure on a house.

The house is worth what the market's willing to pay.

You're a member of the market, and you offer what you're willing to pay. You don't have to justify or explain your figure; they don't care why or how you came up with that figure, and it really doesn't help them in their decision-making. What vendor ever thinks "oh yeah, that poor guy won't make any money if they pay $X, so I'll sell it for $X minus"?

If you want to try to persuade a vendor to accept your offer, then you should frame it in terms of advantages to the vendor of accepting your offer, such as the attractiveness of your conditions and so on. Or appeals to emotion, e.g. if it's a long-time family home, you might emphasise that you plan to reinstate it to "how it was when grandma and grandpa built it when they got married after the war", whereas you suspect other buyers plan to knock it down.

Sorry if this sounds like a rant; it somewhat is. Talk of "% off" reflects a buyer who's bought into the vendor's illusion that there's such a thing as a "retail price" for property.

 

[perthguy]

I didn't buy mine in a hot market and the property had been on the market for a while. My first offer was refused, so I emailed the agent with a justification for the price, outlining the issues with the property, actions that would need to be taken to rectify those issues and comparably property sale prices. From memory, I didn't outline the exact amounts it would take to rectify the issues. The agent passed the email on to the vendor and the vendor dropped the price. In my case, I got lucky with a property that wouldn't move, a motivated vendor and a motivated agent.