First thread & first renovation

[Somerville]

Hi all,

I usually spend my time on Somersoft reading however I feel that I should contribute more to the forum. I would also like to give you the run down on my first buy - reno - sell.

Roseville (Sydney's north shore)

Purchase: $426 000 Reno: $20 000 Sold: $522 500

The whole process took about 4 months from purchase to sale.

It was a 2 bedroom, first floor unit in a '70's 3 level block with undercover parking. 5 minute walk to Roseville or Chatswood stations.

Pics:

Kitchen being removed

Having fun removing said kitchen

Kitchen gone

Finished kitchen

The living room

 

[Somerville]

Finished living room

The bathroom

Tiles & wall in bathroom being removed

A very empty bathroom

Finished bathroom



The renovation consisted of the following:

Remove existing kitchen.
Relocate the plumbing for the sink to the window.
Relocate the gas lines to where the sink was
Install a new kitchen with Caesarstone bench top, double bowl sink, stainless gas appliances and polyurethane cabinetry.

Completely gut the bathroom.
Remove the wall between the toilet and the rest of the bathroom.
Install a beam (to engineers specs)
Re-tile entire bathroom to the ceiling and install new toilet, vanity, shower screen, bath & tap ware.

Remove the doorways between the kitchen and living room to open the space up and to bring more light to the unit.

Install a gyprock ceiling throughout the entire unit to cover up the vermiculite.

Install down lights throughout.

New paint, carpet, light switches, powerpoints, door handles & built ins.


I have definitely learned a lot through this whole process. I am glad that I was able to keep to my budget of $20 000. It helped doing a lot of the work myself. Because of the area I needed to keep the renovation to a high standard. I won't retire off this deal but it was fun & I did it while working full time.

Thanks for looking,

Nate.

 

[vbplease]

Great job Nate, thanks for sharing.

Can I ask - did you engage an interior designer before starting? and for the display furniture?
What do you think set the sale price - other reno'd units, or is about the price of a brand new unit in that area?
Can you share the return on investment including borrowing, selling costs etc. ??

 

[mystery]

Somerville, ....

Firstly let me say that you've done a brilliant job, ... the finish looks stunning, but having said that I would have expected you to have made a greater profit return for that amount of effort. I can't help but think that the purchaser got the best of the deal.

Let me explain ....

Based on your figures of purchase price and reno cost versus sale price you made $76,500. Does this figure take into account your costs like :

- stamp duty, legal fee's etc on purchase
- four months loss of rent and interest repayments on your loan
- selling agent fee's and legal costs?
- Plus I would imagine you'd be up for capital gains tax

I'm not trying to rain on your parade as I've done several reno's myself and understand how difficult and demanding it can be. I'm just wondering what the true profit you made after all costs and if it was worth the amazing effort you obviously put in.

From my perspective, ... If I was going to put in four months of hard physical work I would want a better return for my effort.

I commend you for your initiative ..... but after taking into account all the costs associated with purchasing /selling the property and looking at the true net return ..... would you do it the same way again?

All the best

Mystery

 

[Somerville]

Thanks for the replies. I'll have to keep this brief as I'm late for work. Here is a further break down of the figures:

Gross profit = $96 500

Expenses:

Renovation $20 000
Holding costs about $5000 (as I didn't have a mortgage for 4 months, that was the amount of time between exchange of contract when buying & selling)
Selling fees $5600 (got a good rate from a friend)
Stamps about $15 000

= $45 600

Net profit = $50 900

The furniture was borrowed from a friend (although I have now bought it all from him for $2000). Legals were free from my brother. I just decided on the interior design myself. Yes, I will have to pay capital gains tax.

Like I said earlier. This wasn't the most amazing deal. It was however almost guaranteed as I know the area very well. I only really did the fun work to the unit as I had trades people doing just about everything else.

Thanks.

 

[Propertunity]

Somerville, like the others let me say that the job you've done looks fantastic - what a great result mate!!

For the benefit of readers and because I am a believer in long term buy & hold, let me crunch some numbers. (assume you borrow all the money)
Buy, reno, sell
Purchase Price $426,000
Stamp Duty $14,660
Reno $20,000
4 months holding @ 7% IRs $10,749
Total costs to date: $471,409

REA comms @ 3% $15,675
Total costs $487,084
Profit before tax = $35,416
Assume tax @ 30c = $10,625
Take home profit =$24,791
OK so you keep about $25,000 - not too bad for 4 months work in addition to your normal day job.

BUT let's say you'd kept the property and simply refinanced at the end of the reno.
Buy, reno, hold
End val $522,500
Refi @ 90% LVR gives you $470,250 which is almost exactly what the property has cost you at the end of the reno BEFORE you engage a REA.
You have retained equity of $52,250 which is almost double what you took home in cash after you sold & paid tax.....and you still have an asset growing in value each year. Of course in the sell case you have no asset any more so you are locked out of its CG forever.

Look, obviously we don't know what your strategy was going into this. If it was to make $25K in cash free and clear, then you succeeded and well done . Some people do this a few times to build up cash for the one they finally want to hold.

And I apologise in advance for using you as an example, but the number speak for themselves (and yes, I know I have left out legals, loan set up costs and MI in the refi part - but these are small bikkies in the overall scheme of things).

*edit* I was posting this as you were posting your real numbers above

 

[Brett IP]

Excellent Job

For all that you did, and using tradespeople, Im surprised it only cost $20,000 for the renovation.

Well done

 

[wobbycarly]

Nice reno! I won't touch the numbers! But thanks to those that did.

 

[Somerville]

Excellent Job

For all that you did, and using tradespeople, Im surprised it only cost $20,000 for the renovation.

Well done

Thanks for that.

I saved costs by gutting the place myself with a few friends and beers. I also sourced everything for the place myself although licensed tradies did most of the work. I painted it myself too. The kitchen was supplied including bench top and appliances for around $7000.

 

[Somerville]

Somerville, like the others let me say that the job you've done looks fantastic - what a great result mate!!

For the benefit of readers and because I am a believer in long term buy & hold, let me crunch some numbers. (assume you borrow all the money)
Buy, reno, sell
Purchase Price $426,000
Stamp Duty $14,660
Reno $20,000
4 months holding @ 7% IRs $10,749
Total costs to date: $471,409

REA comms @ 3% $15,675
Total costs $487,084
Profit before tax = $35,416
Assume tax @ 30c = $10,625
Take home profit =$24,791
OK so you keep about $25,000 - not too bad for 4 months work in addition to your normal day job.

BUT let's say you'd kept the property and simply refinanced at the end of the reno.
Buy, reno, hold
End val $522,500
Refi @ 90% LVR gives you $470,250 which is almost exactly what the property has cost you at the end of the reno BEFORE you engage a REA.
You have retained equity of $52,250 which is almost double what you took home in cash after you sold & paid tax.....and you still have an asset growing in value each year. Of course in the sell case you have no asset any more so you are locked out of its CG forever.

Look, obviously we don't know what your strategy was going into this. If it was to make $25K in cash free and clear, then you succeeded and well done . Some people do this a few times to build up cash for the one they finally want to hold.

And I apologise in advance for using you as an example, but the number speak for themselves (and yes, I know I have left out legals, loan set up costs and MI in the refi part - but these are small bikkies in the overall scheme of things).

*edit* I was posting this as you were posting your real numbers above

Thanks for the well thought out reply. I think that you're preaching to the converted when it comes to holding properties instead of selling them however. I have always been a firm believer in buy & hold strategies. I currently own 4 properties that are a long term investment & I'm trying to build on this. The purpose of this project was to just free up some extra cash that I can use for other property. I don't think that the bank would have been so generous to value it right up to where it sold as it's about $100 000 higher than any other sold for in the block.

I increased my taxable income by about $50 000 in a few months. I had fun doing it. I also take pride in my work. I did not want to slap something together. I wouldn't be able to sleep at night if I did. I think the buyer got a good property and I definitely learned a lot. I look forward to doing it again.

 

[Thesnowyforest]

was your purchase price at market value at the time of sale?

youv'e inspired me to give a reno a bash regardless if i'd sell or hold

nothing wong with an extra $25k in the pocket

well done.

 

[recruit2]

Can I just say, that looks absolutely fantastic Congratulations on a superb job. Very inspiring..

But looking beyond the numbers, surely a fantastic learning exercise and no doubt you would be even more efficient with the next one you did. And yes $25k after tax certainly nothing to sneeze at, albeit not enough to retire on.

I am interested in attempting something similar in the new year, but with a lower budget, maybe something purchased for under $300k and in the Newcastle area. So if you have any more tips, I am all ears.

What concerns me the most, is that I would be doing it in the middle of a cooling market and run the risk of borrowing up and then not being able to offload it for a good price. As investors definitely need to be smarter and more vigilant in these recent times.

What would make the best typical suburbs/areas for taking on this kind of thing? I'm thinking classier/trendy areas that are in high demand where you are just buying the cheapest remaining properties and bringing them up to par.

Propertunity do you reckon there are opportunities in inner Newcastle for something along these lines, but on a cheaper scale say older 2 bed units in say Merewether or Cooks Hill just for example? Do you reckon Newcastle has the demand and buyer base to be able to renovate and offload something like that and be worthwhile?

 

[Propertunity]

What concerns me the most, is that I would be doing it in the middle of a cooling market and run the risk of borrowing up and then not being able to offload it for a good price.

The under $400K market is not cooling - it is hot! and I don't see that changing for quite a while. Additionally the renovator special market is in high demand - I just came back from a 'preview before it hits the market' inspection in Hamilton and it was 'swarming' with potential buyers . It makes it hard to get a 'bargain' but even at full asking price this particular property has enough fat in it to make it all worthwhile.

Propertunity do you reckon there are opportunities in inner Newcastle for something along these lines, but on a cheaper scale say older 2 bed units in say Merewether or Cooks Hill just for example? Do you reckon Newcastle has the demand and buyer base to be able to renovate and offload something like that and be worthwhile?

To protect against any possible downside, you MUST buy in a high CG area. Those 2 suburbs you've identified would have to be in #1 & #2 hot spot right now

 

[recruit2]

Cheers for the info Propertunity, that is helpful and I have some things to follow up on now.

Somerville, any tips on where you sourced your new kitchen and bathroom fittings from? Can you get stuff like this from Bunnings?

 

[XBenX]

Hi Nate,

Who did you use for the wall removal, (engineer, then builder?) would you recommend them?

What did the ceiling replacement cost?

Cheers,

Ben

 

[Dazz]

Looks fantastic Nate....I wouldn't want to go thru all of that 4 months for 25K, but would be happy to pay the sale price to enjoy both the top lifestyle and the future tax free gains if I was young and it that was going to be my PPoR.

 

[Pa1nter]

Top class job

 

[Somerville]

Thanks all. Dazz, please note that the project had a pre-tax profit of just over $50 000. Not sure after tax though, I'll find out soon enough.

For the amount of effort I put in, I am happy with the result. I know the area extremely well and I paid market value for the unit and sold it for market value.

The hourly rate ended up being something like $500/hour. It's better than getting rooted I guess.

I'm 24 and yes, I was tempted to move in. I really wanted to free up some extra cash for my buy & hold's as I have now hit serviceability after buying #4.

I'll give a full list of the tradies that I used and if i'd recommend them.

 

[porp_e]

Wow it looks amazing, I'm loving the kitchen!

 

[redwing]

looks great and a pro-active step in building some "sweat-equity", thanks for sharing the before and after photo's I'm a big fan of these on the forum

Were the furnishings on view hired for sales presentation?