Early in your investing career, how did you manage to fund renos?

[MsAli]

I'm still early in my investing game and often come across purchases that need more than I can afford at this stage. I have cash from my first IP top up but I know it will take me only so far if I am to build sweat equity. I'm talking a reno around $20k + I have some savings I can use but ideally, I wouldn't want to touch those.

I don't live at home and been working for 4 years, earn well and able to take decisions where I need to stretch myself a bit...but at times feel a bit risk averse when it comes to spending a little more (using loans) when it comes to renovations.

I was keen to know how people managed their IP renovations early on in their investing careers. Some people I've met, have maxed out their credit cards to even fund their PURCHASES, let alone do renos just with credit card money!! Which I found was amazing.

I was thinking along the lines of these ideas:

a) take personal loan (and pay off quick i.e around $1500 per month) - but $20k isn't a small amount for a personal loan

b) use some savings, take out 10k cash from credit card, get another credit card and do a balance transfer for 6 to 12 months with low or 0% interest

c) Do most of the reno myself [Not an option for me but people would do it. I'm not very hands on and I work in the city so it will not be easy for me to be present there all the time]

I'm looking for encouraging experiences where people have stuck it out and successfully gotten there THEMSELVES financially (not along the lines of borrowing money from parents - nothing against others - but I despise it when people flaunt their success which in fact is their parents' work - each to their own).

Looking forward to hearing!

 

[luce.rocks]

We would usually do what we could with a LOC from the previous reno/refinance and that would take us about 70% of the way through the next reno, and when that LOC ran out we'd finish the rest pretty slowly, pay-cheque by pay-cheque. Tax return time also helped. BTW, I did these with my mum, but I hardly consider that cheating. We both put in $ and sweat.

 

[MsAli]

I understand Luce. I didn't mean to say that investing with parents was wrong as eventually I intend to invest for my parents. But what I was referring to was entirely depending on parents for your purchase/reno...

It is amazing that you made it work - pay cheque by pay cheque....inspiring indeed. We've done similar stuff. Like me and my sis literally held two properties that we bought as first homes at the same time. While we reno-ed mine and we lived in hers. That one was rented out and then we reno-ed my sister's. We were able to take out equity for one purchase each in the areas we were looking.

It sounds like it worked for you. Did you take a loan out? Or decided to finish the rest later? Also did you have tenants in place? How big were your renos?

 

[Dazz]

Hi MsAli,


We've only renovated one IP, about 14 years back.


Was on contract at the time, had a two month hiatus from work, before gaining another contract. Used that 2 months to fully renovate a house that had been trashed by Tenants. Took 60 solid days, with the wife and I doing most of the grunt work. Cold early morning winter starts, difficult with very young kids under foot. Paid a retired builder to do the structural bits we couldn't.


Ended up costing 25K all up. Paid for with savings from work.


Put new Tenants in and they completely destroyed the place.....back to square one.


Gave that malarkey up as a bad joke and have never done it again. Sold the house and decided never to do business with grots again. Best decision we ever made.

 

[luce.rocks]

The first one we lived in while we did the reno. Bought for $120k and probably spent about $20k. Current value $240k. This one we did everything pay to pay basically, and we relied a lot on rellies and friends to help, e.g. building the pergola.

The next one was unliveable, so we stayed in the first place and did most of the reno before we moved. Bought for $150k, probably spent about $60k ($40k LOC from previous reno, and the rest pay to pay). Current value about $305k.

The third one we bought a pair of semis that we didn't do much to. Just spent about $15k for a cheap new kitchen & bathroom in one of them. Funded it from LOC on the second reno. Later spent about $20k to get them subdivided and a new roof for one of them. Funded that from tax return.

Last one was a a 1 br flat in Sydney. Spent about 5k repainting and recarpeting. Can't remember how we paid for it. Probably from a tax return or leftover $ from a LOC somewhere.

Basically the first one was the tough/slow one, then we used equity from that for deposit and reno costs for the next one and repeated process that a few times. Nothing ground breaking

We're both anti-credit (except for mortgages, duh!), even though we usually have at least one back-up card that we use if we have to and then pay off the next time we refinance or get a big tax return.

 

[Blacky]

Yep - bitten off more than I can chew then chewed like f***.

When I first got into property I took on a second job, rented out a room in my flat and lived like a hobbit for a while.

I have taken personal loans, credit cards, car loans etc to get into a property. Its not an ideal way to do it but it can work. It depends on how much risk you are willing to take on. I have won some but I have also lost some too.
Also - if things get hard, do you have the ability (or are you willing) to increase your cash flow (ie, take a second job). Can you significantly cut your expenses - I used to be able to live off about $200p/w including my rent (no way known to man I could do that now of coarse).

At the end of the day, would i do it now? No - Im not more risk adverse, I just have more to lose. I also cant be bothered living like a hobbit - I have a life style which I like to maintain.

Cheers

Blacky

 

[luce.rocks]

I used to be able to live off about $200p/w including my rent

I hear you! It's a great life skill to master. My mum is a single mum and raised me on a school teacher's salary. Growing up we had 'brown rice weeks' but it meant I could show horses. Later we still had brown rice weeks, but it meant we could send me to uni in the city. Later again, I moved back in with mum and we continued to eat brown rice so we could afford those IPs.

There were a few shining years of prosperity when I was living in Spain with hubby before the GFC, but now we're back in Australia and starting over. Luckily I know how to survive on brown rice, and it's a skill I'm now teaching hubby

Point being, sacrificing some things means you can afford other things. Ultimately, I'd rather know how to ride horses, have a degree, have travelled, have a few IPs, than have none of those things but have eaten steak all my life.

 

[MsAli]

@Dazz, I've read that story of yours before on SS and how you decided to never do it again. How have you found commercial property to be? Hear there isn't much equity but cash flow. What would be your top three recommendations for one seeking cash flow positive commercial properties? Any books you can suggest reading?

I may be emotional but I enjoy reno's though have only done small ones thus far.

@Luce, that's indeed inspirational. You have done some big renos needing a lot of cash. Kudos to your mum for doing this while being a single mum. I don't think I could cut down on food but have sacrificed in other ways...like when I started working I didn't splash my money on overseas holidays like many people my age do/did.

@Luce & @Blacky, the only thing I can cut on is Foxtel I believe. But I have it there just for family. Also, have been diligent making my lunch at home every night of late. I calculated I was spending anywhere upto $3000 lunch eating out. But I think I was still conservative with my spending. I see people at work who would easily spend $50 at a lunch including wine etc. But those people also say that they only rented out their PPOR which was trashed and would never ever have a tenant in their property nor would they buy an IP because they don't want people trashing it. I don't waste money and am pretty selective about what I buy. I wasted enough money while I did my intership at University. At an income of (work experience) at 20 I had $14k saved up - while I was only earning $28k (tax free scholarship) - but I did not have the maturity or guidance to invest that money. Instead I went and bought a $2,000 Sony Vaio laptop with a $300 [useless] extended warranty. The best $2,000 I lost were between me and my sis when we pulled out from 2 brand new unit contracts during the crazy $24k FHBG days on new developments. Since then we've come a long way. So we wouldn't say we waste but have a comfortable life style. And after reading Rich Dad Poor Dad I don't necessarily need pay rises to invest...can keep going forward, regardless of the economy...

Hopefully big renos with big gains will be something I would do. But I also wonder, I don't always need to make life hard for me.

 

[Dazz]

@Dazz, I've read that story of yours before on SS and how you decided to never do it again.

Yep - I guess sweat equity is not for me.

How have you found commercial property to be?

Yeah - really good, it suits my non-emotional personality. I have found negotiating face to face with people far more lucrative than grinding away with a hammer or paint brush.

Hear there isn't much equity but cash flow.

Don't believe everything you hear or read, especially from me.

We've made far more in equity (over 10x) in commercial than we have ever made in residential.

Literally take everything you've read about commercial and throw it out the window. That's what I did, and it's worked well.

What would be your top three recommendations for one seeking cash flow positive commercial properties?

1. Match the property type to your personality.

2. Buy as big as you can.

3. Don't be safe, SANF is for wimps. Take big risks early on.

Any books you can suggest reading?

Nope - none of 'em are any good out in the real world. The level of detail needed in the real world just isn't there in books. No-one has ever put down a real down from go to wo in full detail.


Anyway, you asked. I won't sidetrack anymore - back to the reno stuff.

 

[Rolf Latham]

I hear you! It's a great life skill to master. My mum is a single mum and raised me on a school teacher's salary. Growing up we had 'brown rice weeks' but it meant I could show horses. Later we still had brown rice weeks, but it meant we could send me to uni in the city. Later again, I moved back in with mum and we continued to eat brown rice so we could afford those IPs.

There were a few shining years of prosperity when I was living in Spain with hubby before the GFC, but now we're back in Australia and starting over. Luckily I know how to survive on brown rice, and it's a skill I'm now teaching hubby

Point being, sacrificing some things means you can afford other things. Ultimately, I'd rather know how to ride horses, have a degree, have travelled, have a few IPs, than have none of those things but have eaten steak all my life.

Nothing wrong with Brown rice ..............better than 2 min noodles for sure !

ta
rolf

 

[luce.rocks]

Nothing wrong with Brown rice ..............better than 2 min noodles for sure !

ta
rolf

Lucky for us, Mum was has always been a very keen gardener (and a hippie) so we had plenty of home grown fruit and veggies that didn't cost much other than the price of seeds. And we had plenty of horse manure to use for fertiliser!

And we'd buy a bit of 'cheap sheep' from local farmers, before it went off to the abattoir.

Ahh, the simple life

 

[cornflower]

When I bought my first property, I hocked my jewellery for the deposit. It was cash flow positive, so i got my sparklies back over time when the rent came in.

Funding renos was paycheck to paycheck, and a LOC for the bigger stuff (new bathroom etc.) I also like to pay extra into the mortgage each month so you don't feel it, but then you have some cash to do some of the bigger stuff with.

Tax returns work well, and I have been known to do the credit card thing as well. That's not so nice in the long run though so just make sure that you have a plan to pay it off.

 

[laurieload]

Our first purchase was an ancient hovel on a swamp in Rocklea, Brisbane that had been used to grow drugs before the feds came in and ripped all the wires /remanding walls / water hoses out. REA tried to say the last tenants were "a bit rough" but chatting to the neighbours about the weird way the electrical wires were connected directly to the mains revealed all.

It was a very cheap tiny house and a very hard, blo%dy stupid purchase, but it was all we could afford. We funded the deposit from the sale of an old school bus which I bought cheap off a mad welshman from Cooper Pedy and spent 6 mths converting to a camper van.

We basically had no idea what we were doing so spend $30 on second hand trades books and learnt how to plaster/build walls/wire/sand etc etc over the course of 1.5 years and in the meantime worked two respectible jobs and spend every night and weekend trying to renovate with what was left over from our pay. What a godawful life! There was holes in the roof, no ceiling, no bathroom, no kitchen and cooking outside on a bbq for over a year whilst fighting the possums for our food - ahh the good times! Actually it was pure hell and no way would we do it again!

But thankfully in time it did free up some LOC funds - a lot actually - and thank god for that or we would of been out of this property game for good. Now its simply - get out LOC funds from last, use to purchase next so that we don't over extend or have to spend every spare second of our lives renovating like before - rent, revalue, repeat. We only look at what we can afford to buy/reno with that LOC amount. Haven't yet got enough for any large development type deals yet but figure if we keep at it then that amount will grow, slowly slowly.

Anyway MsAli it sounds like you and your sister are on the right track - well done. Its not easy when basically on your own and working full-time. I am sure you will get where you want to get if you keep at it

 

[VYBerlinaV8]

I did my first IP reno project 2 and half years ago - a small block of units. The units needed some structural work, and cosmetic work inside plus new bathrooms.

I used cash from savings to pay for the renos (about $48k all up for 3 units), and used my bro-in-law who is a builder. For me, I took the decision to pay to get the work done propertly, and in a much shorter timeframe than if I had done it myself. It took 4 weeks to get it done.

The renovations improved the rent from the previous $250/wk to $320/wk per unit. So the rturn on my reno cost was almost 23%p.a. and the renos will take 4.4 years to pay for themself (oppportunity cost notwithstanding).

When you embark on renos there are, I think, a few things to consider:
1) How long will the reno take? Typically the property will be untenanted for this time.
2) How will the rent be improved? What will be the return on 'reno investment'?
3) Where dos the property currently fit into its local market? Where will it fit after the reno is done? Where does the demand lie?
4) How much are you going to do? At what point are you overcapitalising?
5) How long will the reno last? When will further reno be required? Is there anything you can do now to make the next reno easier/cheaper without incurring additional cost?
6) What will the reno do for the value of the property? Done carefully, value should be added over and above the cost of the reno.

I believe there is good $$ to be made from renos, but the right pre-conditions have to exist first, otherwise you could be simply throwing money away.

 

[wylie]

In our younger days, we would renovate as we could, between tenants.

Example was a house we bought with horrible carpet, nicotine stained walls, no kitchen to speak of and a horrible bathroom.

Those things needed to be done to get decent rent. We could have rented it as it was (it had been rented to the same people for 15 years) but we wanted more rent.

This purchase was my hubby and my parents. We all just got stuck in, ordered a solid timber (but cheap) kitchen. Twelve years later, it is just as unfashionable as it was when new but it suits the house and stands up to tenants well.

Hubby and dad put in the bathroom with a plumber hooking it up. Queenslanders are so easy because access is a breeze.

We had the floors polished and we painted ourselves. Probably two or three weeks in total to allow for the floor sanding.

When hubby and I were a bit younger still, we would simply to the absolutely necessary things, and between tenants, as we had time and a little more money, we would do the next necessary thing, raise the rent and wait for the next week between tenants to do something more.

This meant that over time, the houses became more attractive to tenants and we could increase the rent more than we would have had we just put in new tenants without doing anything.

At one stage when we ripped up carpet, we couldn't afford to have the floors sanded so we stained some estapol(?) ourselves and painted the floors. We knew we would be making it difficult for the sander when we could afford to have it done, but it made the floors look so much better. We did that twice between tenants, and the floor sander cursed us when it came time for him to do it. He had to use so many more sanding belts due to the clogging up, but by then we could afford the extra .

I loved doing it, still love it (but I did get a bit sick of painting houses inside) and in a week we get to do it again for the son's purchase. I'm looking forward to it. There is something satisfying about seeing a place transform from ugly to fab and know "we" did it.

 

[MsAli]

@Dazz, thanks for listing those out. How do you figure out what personality goes against which property type? When you bought your first commercial property how much did it cost you? What was a deposit? What was the rental yield like?

Agree with taking bigger risks. I'm a bit risk averse and trying to change it by stretching my mind about the possibilities out there.

@Cornflower, that is gutsy and inspirational! I don't know of many people who have put jewellery on the line. Especially in my culture where jewellery is OFTEN a be all and end all of assets (perhaps due to affordability back home).

@laurieload, again inspirational!!! and thank you for your words of support!! Sometimes you need it. I have a bad habit that I end up comparing myself to others and it's good to hear some re-assurance (albeit that reassurance needs to come from within)

@VYBerlinaV8, I've been looking at a property (the rental return change you talk about) I've put multiple offers and my last and final offer. It has been on the market for 5 months but the vendor obviously is not realistic and wants 5k more that I would not pay. As you list out the questions I see time spent renovating/project managing, rent lost, big initial outlay. I've left it to the agent to figure it out with the vendor. I guess the last thing I can do is, offer a 30 days settlement. But then where they have lost 5 months they may lose a few more months till they get the "perfect" offer for the condition the house they are selling.

@Wylie, thanks for sharing your hands on experience. In my teens I was quite active but at that time I didn't have the money to buy - now I'm 26 - even then I just can't be bothered picking up the paint brush. May not be the best of attitudes I guess, but I guess I can use my mind well else where strategically than do it myself...Have to admit, don't have the skill either, other than owning a small drill that we bought from Bunnings between me and my sis

On a side note, promotions are being announced at work. I work for one of the most prestegious "employers" in Australia. I got my first corporate world promotion last year so none for me this year. I have only realised, it's not what I want. People see their titles as everything but I've been questioning, what's the point really?! Reading Kiyosaki has changed my mental landscape in just a month!!! Now my self development is the priority. How could you really do well and fit a performance appraisal criteria and still be unsatisfied within? How could you set "career" goals but really not invest that time in your own life (material/non material) goals instead??? It's uncertain and scary to be doing your own appraisals but glad I'm doing something I can be the boss for and set and appraise my own goals!

 

[goonandtell]

we do what ever it takes at this stage.

Usually CC debt which gets cleared when a refi comes allong. Its not ideal but its the easiest cash we can access and we build the interest into the budget. We do some work outselves when it makes sense but more and more is getting oursourced as we find reliable trades people.

 

[matto_]

I really enjoy reading the "personal experience"threads, thanks for starting msali.

We are still in the, diy mode, although trying to move more towards getting in help.

Or first prop we pretty much did things add time went on and we could afford it. We did all the work ourselves, except a couple of items.

 

[Nathan]

Worked two jobs, saved, saved, saved, used second hand materials (wouldn't do it again), poured in sweat equity, and budgeted really really fiscally.

I once has a dollar a day challenge to eat for $1 per day for lunch as the $10 lunch would have killed the budget. Whilst we don't have to go to extremes, this is funny looking back 8/9 years where I started my first renovation.

Tax returns, equity, etc are all other avenues, and one I even sold my car to fund the deposit (was my 18 yr old dream brand new car I had purchased cash).

Hope this gives some inspiration, but don't do anything too crazy

 

[MsAli]

@goonandtell, yep that's the idea. Just pressed for time to be hands on

Pleasure Matto

Hope this gives some inspiration, but don't do anything too crazy

Indeed as always But we are considering doing something crazy, not that it will help the renos