Experts - What would you start with in the reno game?

[emptyvessel]

Folks,
I am interested in the perspective of the experienced, expert or "old hat" renovators on this forum with this question;

If you were right at the start, contemplating your first renovation, but knowing what you know now, where would you start?
- You only have less than $100k start-up funding
- Don't know much about the practical side of renovating but you "get" the concepts.
- You have a very strict financial and project management discipline

I am interested in this kind of stuff;
1. Would you not do it at all? (aka "Renovation is too hard mate, this game will chew you up and spit you out!")
2. If proceeding, what type of project would you target? (Unit, House. What type of area)
3. What type of return would you expect? (Zero because it is you first go? 10-15% CG. Yield uplift)
4. Would you do most/all yourself and learn? Or would you get someone else to do the lot? Perhaps get someone else to project manage the whole thing?

Why am I asking for your perspective? I value it and I am heavily evaluating renovation as a buy, hold and create equity strategy for myself. So these are some of the basic questions I am asking myself before I go much further. Currently a buy and hold vanilla investor, I am evaluating other strategies as well.

Ta,
EV

 

[emptyvessel]

Darn. I guess all the experts are busy "doing it" rather than typing about it.

Fair enough, some things you just gotta learn the hard way

 

[vaughan]

IP or PPOR?

Do your first reno on your PPOR, that way you can take your time and learn without pressure (or until your Missus gets sick of living on a building site).

For the IP: the key to making money is doing the reno on time and on-budget. Margins are thin, easy to do a whole heap of work for no profit or even a loss.

 

[goonandtell]

we started playing in the cheap end of the pool. I did renos to 2 ppors which had been sold.

We got properties in regional vic that needed work, the return is lower but the holding costs means 'learning experiences' cost less while fixing, also the expectation on finished product is lower. Really helped me get better at working with tradies (especially if i couldnt be on site to meet them), taught the new GF everything she knows about how a house is put togeother what trade does what.

Just completed our first city reno and have 3 more on the go all to different finish levels using a combination of trades & diy.

 

[knightm]

I started cheap on an interstate IP with just carpet, AC, blinds and paint (by tradies not me) and I did literally 1 weekend there fixing up a little courtyard with some gravel timber edging and plants and that was it. Spent about 6k on a 65k purchase, revalled at 115k from memory and rent went from 80pw up to 130pw at the time (a while ago). Numbers change a bit but the rules dont.

If you have plenty of spare cash when you buy and available for the reno than you need it will be safer. Don't start by buying the most expensive ip and spending every dollar you have or 1 mistake you are then sweating your ability to make a mortgage payment. That is what will spit you out. Make sure its cheap, you have plenty of reserve money and the end result if you are going to hold it will pay for itself. = low risk

 

[laurieload]

Definitely agree with comments above, we did our first reno on two successive PPORs (fixed up, then rented out, moved onto next), great BIG MESSY LONG learning experience but worth it!

Leaving a large buffer for your first go I think is also particularly important because chances are it will take longer and cost more than you initially imagined! For example you could keep at least 20K in reserve for whatever you plan, and/or try something that is relatively simple first off - paint, carpet, floorboards, garden, perhaps kitchen tidy up, and/or something like a granny flat conversion under a legal height house (plenty of info about that here) that you could rent out whilst trying to tackle renovation of the rest, etc etc.

Best of luck!

 

[RumpledElf]

If I was doing another one and I had $100k (not that now is a particularly good time) I'd be getting myself a trailer and getting as much stuff as possible off ebay and getting a tradie to install the hard stuff. Until now we've never had a car that can tow, which is a huge problem - have to get stuff from places that deliver.

Mind you you won't catch me doing another reno unless I have enough cash to pick up a house outright. Which might be possible by the end of the year, especially if house prices keep going down at the low end. Pick up a dump for $50-70k, drop $20-30k on it in repairs, sell for low-mid $100s. It works, but its easy to spend lots of money once you bring plumbers and electricians into it.

 

[akiwinut]

Folks,
I am interested in the perspective of the experienced, expert or "old hat" renovators on this forum with this question;

If you were right at the start, contemplating your first renovation, but knowing what you know now, where would you start?
- You only have less than $100k start-up funding
- Don't know much about the practical side of renovating but you "get" the concepts.
- You have a very strict financial and project management discipline

I am interested in this kind of stuff;
1. Would you not do it at all? (aka "Renovation is too hard mate, this game will chew you up and spit you out!")
2. If proceeding, what type of project would you target? (Unit, House. What type of area)
3. What type of return would you expect? (Zero because it is you first go? 10-15% CG. Yield uplift)
4. Would you do most/all yourself and learn? Or would you get someone else to do the lot? Perhaps get someone else to project manage the whole thing?

Why am I asking for your perspective? I value it and I am heavily evaluating renovation as a buy, hold and create equity strategy for myself. So these are some of the basic questions I am asking myself before I go much further. Currently a buy and hold vanilla investor, I am evaluating other strategies as well.

Ta,
EV

I would'nt call myself an old hat, just old.
The buy, reno and hold is the core element to our strategy. We are in the process of completing our 1st major reno and we are doing it all over again soon.
To answer your questions;
1/ I would definately do it if the numbers stack up,
2/ Houses initially, I feel they provide the best equity gain but we also have a dog so units are out as we live in it while doing it up...will look at units further down the track
3/ dunno, numbers make my head hurt, as long as the equity gain is greater than the cost to do the work then I'm happy
4/ I would do as much as I could and get the experts in to do the stuff I couldn't, a project manager could certainly help but it depends on the value and complexity of the job (I should know, I was one)

I have taught my self along the way which makes the first one tough but the rest a heck of a lot easier. Finding good tradies is probably one of the hardest parts but once you have them look after them, my plumber now does work for 2 of my neighbours. I only used a plumber and sparkie the rest I did myself with a little help from a chippie who lives across the road.
The budget on your 1st one (and more than likely others) will be wrong, you won't think of everything. I have a room by room template to help me out.
Have a contingency, 10% is good, 20% is better, especially if its an old place.
Have a go helping someone else, even just as a labourer at least you'll get an idea of what the work is like.
Use the same suppliers and ask for a discount. I did heaps of ringing around and searching on the internet for prices then went into my local mitre10 and they pretty much always beat the price.
If you don't know something, ask. There are no dumb questions (actually there are, like; will you take a $20k personal cheque for your car?)
There are people who will tell you that if you factor in your hourly rate its not worth it but I would rather do this than sit in a stuffy office again wearing a shirt and tie making $150k - that's what the wife is for...

 

[emptyvessel]

Great insight folks. Your experiences definitely support many of the strategic thoughts I have had on this topic. As well as some gold nuggets that I hadn't considered.

We definitely want to start small. Strategy is to learn and break-even at worst. - Buy sub-200k, well below median for the area. This suburb or within 10 mins So we can easily meet tradies onsite, learn and just do ultra-basics ourselves.
- Budget 15-20k with 3-4k contingency. Including holding cost.
- Target 8-10 weeks completion from settlement. The low loan reducing holding costs.
- gain access to property pre-settlement for quotes and maybe minor yard cleanup
- rent ASAP on completion. Aiming for cf neutral to positive from the outset.
- be brutal with the numbers. If the estimates with contingency don't stack up beforehand, no offer. Move on to the next one.

Questions;
1) Has anyone used an extended settlement with early access to give themselves more time to organize quotes and trades?
2) Any ballpark estimates on what a Reno project manager costs for something small like this?
3) anyone actually used a PM successfully for a gig like this?

PS - I love the comment about this beating the he'll out of being stuck in a suit in an office all day. I have a great job, with a great company and I still get the feeling that I am in a cage more and more.

Questions;
1. Is there

 

[travelbug]

We started on our PPOR (old red brick house). We moved the kitchen, blocked up a doorway, opened it elsewhere, removed gidgy(sp?) brick, pulled out an arch and put in sliding doors, rendered and extended (well tradies did that).

We put a new kitchen and painted our first IP.

We then did a part reno. Removed carpet, painted, replaced lino and put in a new vanity and toilet. All went well but took a couple of days more than we thought.

Our first major one was a nicotine riddled house with 40 year old kitchen and bathroom. BIG job. But we did quite well on budget and time. We were ecstatic with the result. CF neutral and equity gain of $50K so we were hooked (after reno costs).

Depending on how handy you are as to where to start really.
Maybe buy something that just needs cosmetic work (paint, tidy, carpet, maybe new vanity, mirror to update bathroom). Even a new kitchen is no big deal. Rip out the old one. You can get someone to install the new one and tiling the splashback is easy. Get a plumber to plumb in.

If you are confident and able to do bigger jobs target that. Or if you are confident managing tradies you can go further. The most difficult thing for most people is time and money management. If you start big there can be big discrepancies in both of these. Smaller means a smaller margin for error. We are getting quicker with each one too. It's about timing the different jobs too. We lost a few days by not getting that right. Some things take longer than you think. Last one was our biggest (fire damage). Complete reno in 30 (long) days.

I love it so it's not a chore for me. I still wouldn't do it for nothing though. You need to at least cover your materials and time. So the end result should be increased equity and increased yield. Otherwise you might as well lay on the lounge and read a book.

 

[emptyvessel]

Thanks travel bug. I have actually learnt alot just reading through your past posts. The video on the fire damaged place was so impressive my missus watched it 3 times in a row!

I believe the small scale cosmetic Reno is our first target. Doing almost exactly what you described above.

I honestly believe we can make A small profit if we stick to budget and timeframes. I just like to think what the risk of downside is. I have determined that worst case is we overcapitalize by a few thousand. Impact being that it takes longer for this property to positively contribute to our portfolio. And that is a perfectly acceptable risk to take.

The alternative to not doing it is lame = always wondering what could have been and the journey it could have taken us on.

Still much to learn before we buy anything and actually do it, but now we have focus on the goal. Awesome.

 

[akiwinut]

Questions;
1) Has anyone used an extended settlement with early access to give themselves more time to organize quotes and trades?
2) Any ballpark estimates on what a Reno project manager costs for something small like this?
3) anyone actually used a PM successfully for a gig like this?

PS - I love the comment about this beating the he'll out of being stuck in a suit in an office all day. I have a great job, with a great company and I still get the feeling that I am in a cage more and more.

1/ Yes, just negotiate early access in your contract of sale. Its not normally an issue if the place is vacant, just be cautious about actually doing work, there are a couple of threads floating about on the pitfalls...
2/ A PM normally charges a fixed % of the total value of the contract, anywhere from 6% to 15% but normally in the region of 8%. You might struggle to find one for a small project, they can also be the most problematic!
Your biggest problem will be tradies not doing the job when they said they would because a better paying job came along in the mean time and it will keep happening till you have a good base of reliable people who know you will pay them on time and buy them beer...always have a back up, just because someone says they will be there tomorrow doesn't mean they will actually turn up...
If I were you I would look for a small to medium builder who can also be your PM, they should have reliable sub-trades working for them, at least until you get the hang of doing things yourself.
3/ Yes I have, because it was me! But to be honest the project is over budget and over time...
Nathan seems to be a master at getting tradies to turn up when they said they would.

 

[travelbug]

Thanks travel bug. I have actually learnt alot just reading through your past posts. The video on the fire damaged place was so impressive my missus watched it 3 times in a row!

I believe the small scale cosmetic Reno is our first target. Doing almost exactly what you described above.

I honestly believe we can make A small profit if we stick to budget and timeframes. I just like to think what the risk of downside is. I have determined that worst case is we overcapitalize by a few thousand. Impact being that it takes longer for this property to positively contribute to our portfolio. And that is a perfectly acceptable risk to take.

The alternative to not doing it is lame = always wondering what could have been and the journey it could have taken us on.

Still much to learn before we buy anything and actually do it, but now we have focus on the goal. Awesome.

Thanks. We've only been seriously renovating for 2 years but have learned a great deal in that time.

When you find something post here if you need help with costing estimates and timeframes. Also order of works. The first thing we do is type a list of things we need to buy and type up an order of works with who will do what.

Great work on setting yourself some goals. Let the fun begin.

 

[Rixter]

Folks,
I am interested in the perspective of the experienced, expert or "old hat" renovators on this forum with this question;

If you were right at the start, contemplating your first renovation, but knowing what you know now, where would you start?
- You only have less than $100k start-up funding
- Don't know much about the practical side of renovating but you "get" the concepts.
- You have a very strict financial and project management discipline

I am interested in this kind of stuff;
1. Would you not do it at all? (aka "Renovation is too hard mate, this game will chew you up and spit you out!")
2. If proceeding, what type of project would you target? (Unit, House. What type of area)
3. What type of return would you expect? (Zero because it is you first go? 10-15% CG. Yield uplift)
4. Would you do most/all yourself and learn? Or would you get someone else to do the lot? Perhaps get someone else to project manage the whole thing?

Why am I asking for your perspective? I value it and I am heavily evaluating renovation as a buy, hold and create equity strategy for myself. So these are some of the basic questions I am asking myself before I go much further. Currently a buy and hold vanilla investor, I am evaluating other strategies as well.

Ta,
EV

EV if I was in your shoes I would be contacting Nathan Birch, a fellow SS forumite, who is very successful at what you appear to be wanting to do.. he is a good bloke and will not rip you off.

 

[Pa1nter]

- You only have less than $100k start-up funding
EV

Is this money to purchase a property and renovate or is it renovation costs only ?

Just trying to understand what you are trying to do?

 

[Jane - Hotspace]

Hi EV,

Some great tips here already.

You don't mention if you have much property investing experience (other than to say you're a vanilla investor). My view is that if you don't get that right (ie buy the right house in the right suburb at the right price) then renovating and expecting a profit - particularly in this economy, is next to impossible. I have been designing/renovating for 20 years and I wouldn't dream of buying a house to reno in the current market without getting it considerably under market value. I know that is an obvious statement to make (buy well) - every investor knows they need to do that. But what does that mean for you and your strategy? You also need to know your exit strategy and this will have an influence on the choices you make when you buy and renovate.

I'm a big fan of property investing courses (if you can find one that is packed with content, has no ra ra and fits well within what you want to achieve). You can learn a lot from books, but it's much quicker to pack all that info into a weekend and then get on with it. I also think a mentor or coach is an invaluable person to have on board. When I first started out, I did a weekend course - absorbed all the info but then didn't do anything for 2 months. I then took on a coach (at a cost of $5k for the year or something) and went on to buy two more houses and a 2x block of units in that one year. I wouldn't never have had the guts or the knowledge to do that on my own.

So getting to the point - I think learn all you can about investing so you have a basic understanding and then pay someone to coach you through the process (you'll get a thorough understanding once you've done a few investments/reno's). Make sure they are experienced at renovating too so you can pick their brains not only about the property transactions but also the reno process.

Its great that you have a strict PM and financial discipline - very important!

And in answer to your questions (finally -sorry I have completely gone off topic!)...
1) Go for it - BUT buy well first. Renovate well, second.
2) Doesn't matter what you buy or where you buy as long as you buy under market value - AND if you are planning to sell or rent, you have plenty of buyers/renters looking for what you have on offer (ie know your target market)
3) Return? Pick a figure that you'd be happy to work for then add it into your feasibility study (some people will be happy with $20k. Others won't get out of bed for less than $100k). I'd suggest not aiming for zero return - how about a dollar figure such as ($30k) so you have your eye on the prize - and if it comes in less than that, at least you made a small amount of money for your efforts
4) Since you have a daytime job, I'd say you're better to get people in to do your reno for you (you just need to make sure this is factored into your 'numbers'). If you take into consideration the extra amount you'll spend in mortgage repayments while the property is sitting dormant, you might as well have paid someone to do the work (and possibly even a PM to co-ordinate it for you). I have paid a PM to do every single reno I've ever done - and I've always made a good profit.

There's so much to know - but I take my hat off to you for asking the 'experts' about what you need to know.

Good luck with it all!

 

[Truly Exotic]

hey everyone, sorry to hijack,

thought my question might be relevant

im looking at doing my first basic reno, maybe kitchen, paint, carpet, clean etc.

assuming its metro VIC, with property prices doing what the rest of the state is doing,

is this the best way to do it?

1. Look for a cheaper property, below the median of the suburb
2. Look for one that is obviously horrible but is structurally fine,
3. Work out how much reno will cost, lets assume $25k for arguments sake
4. going by the 3x rule, $25k=$75k increase in equity, look for a property that is at least $75k below what it should be valued at so in an area where comparable houses are $500k, look for a trashy $425k one?

Am I on the right track? I'm not comfortable at this stage to go for a fire damaged one or with structural damage, I am willing to do regional due to lower entry costs,
am also looking to do as much work possible before settlement (depending on the deal) or within 1 week of settlement, then advertise, and hopefully a tenant within 2 weeks of advertising

 

[vaughan]

1. Look for a cheaper property, below the median of the suburb
2. Look for one that is obviously horrible but is structurally fine,
3. Work out how much reno will cost, lets assume $25k for arguments sake
4. going by the 3x rule, $25k=$75k increase in equity, look for a property that is at least $75k below what it should be valued at so in an area where comparable houses are $500k, look for a trashy $425k one?

Am I on the right track?

Yes... but unfortunately the "easy reno" is exactly the type of property that everybody else is looking for. The strategy also involves finding a vendor willing to sell at the price you want.

First thing is to work out what your investment strategy is: buy and hold, reno and flick, long or short term, positive or negative cashflow? All this affects what the deal is and what it needs to work.

I don't work off arbitrary 3x reno rules. Why is it 3, why not 2.5 or Pi? Instead I work out the numbers... lets say you want to go for reno and flick:

Work out how much money you want to make from the deal.
Work out the future top price for the property if it was renovated, and the standard of reno required.
Work out the cost and time to renovate the property to the required standard.
Work out the holding costs for the time to reno and sell.
Work out whether the sale price minus the buy, reno, holding and selling costs, and taxes, is worth it.

There is nothing arbitrary about this calculation. The deal either works or it doesn't.

 

[Truly Exotic]

Yes... but unfortunately the "easy reno" is exactly the type of property that everybody else is looking for. The strategy also involves finding a vendor willing to sell at the price you want.

First thing is to work out your investment strategy: buy and hold, reno and flick, long or short term, positive or negative cashflow? All this affects what the deal is and what it needs to work.

I don't work off arbitrary 3x reno rules. Why is it 3, why not 2.5 or Pi? Instead I work out the numbers... lets say you want to go for reno and flick:

Work out how much money you want to make from the deal.
Work out the future top price for the property if it was renovated, and the standard of reno required.
Work out the cost and time to renovate the property to the required standard.
Work out the holding costs for the time to reno and sell.
Work out whether the sale price minus the buy, reno, holding and selling costs, and taxes, is worth it.

There is nothing arbitrary about this calculation. The deal either works or it doesn't.

great answer!!! thanks for that, id appreciate your feedback on the following paragraph

to be honest, this is my line of thinking,
I have some figures in mind, and it goes something like this
Advertised for $160k, current rental my guess about $170pw
Purchase for $150k, renovate $18k+$2k costs, total cost $170k,
Being a low end purchase, im intending to make it neat/new on a budget, ikea stuff, cheaper shiny door handles etc. with no unnecessary luxuries
new rental $220-230pw, that will give me a yield of 6.7%
new value of $220k, which is $50k profit

Im in my early 30s, with very few commitments, im in the property game for the long run, so zero cash flow at this point in time is fine, I would rather get a good deal thats neutral and positive later, rather then go for small cashflow now and sacrifice CG.

so, with 10% deposit + 13% for renovations, I have approx $50k equity for a first project, and ok cashflow, sure its not positive, I assume its neutralish,

My intention is to keep it as long as possible to take advantage of the rent increases and CG, in the meantime, if I find heaps more other projects and need cash, I will either sell it or refinance it

 

[knightm]

great answer!!! thanks for that, id appreciate your feedback on the following paragraph

to be honest, this is my line of thinking,
I have some figures in mind, and it goes something like this
Advertised for $160k, current rental my guess about $170pw
Purchase for $150k, renovate $18k+$2k costs, total cost $170k,
Being a low end purchase, im intending to make it neat/new on a budget, ikea stuff, cheaper shiny door handles etc. with no unnecessary luxuries
new rental $220-230pw, that will give me a yield of 6.7%
new value of $220k, which is $50k profit

Im in my early 30s, with very few commitments, im in the property game for the long run, so zero cash flow at this point in time is fine, I would rather get a good deal thats neutral and positive later, rather then go for small cashflow now and sacrifice CG.

so, with 10% deposit + 13% for renovations, I have approx $50k equity for a first project, and ok cashflow, sure its not positive, I assume its neutralish,

My intention is to keep it as long as possible to take advantage of the rent increases and CG, in the meantime, if I find heaps more other projects and need cash, I will either sell it or refinance it

1 overall your equity assumptions look ok, lots of people on this forum have repeated that kind of deal a few times over. Remember you make your money when you buy so the easiest way to do the above really well or screw it up is to negotiate another 20k off value or pay 20k too much (numbers used are arbitrary, you get the gist)

2 dont assume its nuetralish cashflow. You know what happens when we assume. Do some modelling. Use the spreadsheets in the forum to model rent and interest and other costs plus tax issues so you know its gonna make or cost you x$ per week.

3 Go for it.