Friends wanting to make some money from renovating - any thoughts?

W

wylie

I have a friend whose husband is keen on selling their house (Mansfield). It is in the catchment for a good school, so a sought after area and it will sell well. I think they should hold it unless they really "need" to sell though as prices are rising.

With a $150K mortgage, I think they could rent their current PPOR for about $550 per week.

He is keen on buying a "worst house in good street" house, do it up whilst living there, sell and make some money. If they do this a couple of times they can set themselves up well - both in mid 40s, youngest in final year of school. He is a sparkie but has let his licence lapse as he isn't currently "on the tools". Can he be an owner/builder?

With regards to the six year rule, would they be better to keep and rent their current PPOR (get a valuation before moving out), and then decide which to sell once they know the numbers on the "new" reno, how much profit they would make on each one, before deciding which to assign as PPOR?

I'm not sure of the rules for the six year absence or the circumstances under which they can own two houses, but not nominate which is their PPOR until time to sell one or the other.

They would be buying for around $500K with intention of spending say $100K renovating in the hope of making some profit. If they move in, that profit could be tax free, cheaper stamp duty, but big loan with no tax concessions.

If they stay in their current PPOR, the new IP will have a big tax deductible loan on what they buy as an IP, but they pay higher stamp duty and will pay capital gains tax on any profit they make.

Could they buy a new place, move in for twelve (?) months whilst renovating it, move back to their old PPOR and rent out the newly renovated house which now becomes an IP, and has the big loan which then becomes tax deductible?

Any ideas of which way they should go with this?
 
I wouldn't be worrying about the tax side of things yet.

First thing is whether or not they have the skills to make a profit from this sort of thing - not easy I expect.
 
Thanks for the reply. I think it is very important to worry about these issues now before they decide which way to jump.

Initially, they planned on selling their current PPOR now, buying the next place, but with the Brisbane market moving upwards, the bigger footprint they have, the more profit they can make. So it becomes important to know which is the best option for them, rent out their current PPOR and buy a new PPOR or stay living where they are and buy an IP. Buy in costs, taxation, potential tax on sale, deductibility of loan to buy are different for each scenario and therefore the outcome is greatly affected by their choice.

I think they need to consider capital gains tax, tax deductibility etc now, and not when it is too late.

They are very capable of renovating, have done so before, but not obsessed by property like I am.
 
To me it sounds like a good idea though I think they'd have more fun if they spent less on the IP. Then move back to the PPOR and reconsider from there. I suppose the question is: are they prepared to downgrade or are they trying to upgrade?
For me, renovations are great before I start and wonderful retrospectively. While I'm in the middle of it all - especially living in it - it's just a *?/! up mess that has to be cleaned up and paid for over and over.
About to do the same again myself. :eek:
 
If it is one of those solid 2 story brick 1970-1980 types in Mansfield I would definitely hold on to it if I was in this position. Convert loan to IO if not done already and rent it out. Only the husband knows if he has the necessary skills to complete a Reno effectively and affordably but if would be easier in a rising market.
Mansfield SHS seems to be quite a draw card these days, I have friends who want to send their children there rather than a Catholic/private school nearby
 
hugh72 said:
If it is one of those solid 2 story brick 1970-1980 types in Mansfield I would definitely hold on to it if I was in this position. Convert loan to IO if not done already and rent it out. Only the husband knows if he has the necessary skills to complete a Reno effectively and affordably but if would be easier in a rising market.
Mansfield SHS seems to be quite a draw card these days, I have friends who want to send their children there rather than a Catholic/private school nearby
Click to expand...

Thanks for your input. It is not the husband's skills but his ability to be an owner/builder that I'm not sure about, seeing he is no longer "on the tools" and has let his registration lapse.

As an owner/builder he can coordinate his own tradies as opposed to having to sign up with a builder, at least that is my understanding.
 
wylie said:
Thanks for your input. It is not the husband's skills but his ability to be an owner/builder that I'm not sure about, seeing he is no longer "on the tools" and has let his registration lapse.

As an owner/builder he can coordinate his own tradies as opposed to having to sign up with a builder, at least that is my understanding.
Click to expand...

he will still have to do the prerequisite tests and exams to be owner builder ,being an electrician is not recognised as a trade that will get an automatic exemption from the exam/s.
his past will help with trade scheduling .
 
We did this very successfully when we were young and energetic. Great way to build equity. But it takes a special type of marriage to live permanently in the middle of a renovation. I don't think owner builder licences had been invented then!
 
Heinz57 said:
We did this very successfully when we were young and energetic. Great way to build equity. But it takes a special type of marriage to live permanently in the middle of a renovation. I don't think owner builder licences had been invented then!
Click to expand...

The owner/builder licensing has changed in 2015, and it looks like it's been set up "to prevent people using this system to carry out commercial unlicensed building work".

http://www.fairtrading.nsw.gov.au/f...tion/Major_changes_to_home_building_laws.page

All people on the title of the property are now listed on the permit, so hubby and wife cannot take turns any more, and it's 5 years between permits.

Most significantly, owner builders CANNOT get the home warranty insurance. "If the property is sold within the warranty period, the contract for sale must clearly state that there is no statutory insurance on the property." This will make properties renovated by an owner/builder less desirable for subsequent buyers.
 
jim1964 said:
Good point!!!! Personally i could think of nothing worse than living in a reno,been there done that.Nowadays i take the easy sub-divide sell the dirt approach.
Click to expand...

That is probably a very good point. Wife is happy to put up with some reno, but subdivision and sell the dirt could be a way for them to make some cash without so much renovation nightmare to live through.
 
My ex wife would absolutely love this

She gets to stand there barking orders on what i need to do during the reno even though the biggest reno she has done was to change a light globe

And once the work had started say she is too tired and she is going out with her friends or sister

And then when its all finished it. Take all the credit for the hard work. And upon separation claim 70% of it due to her sweat and tears!! yeah right, sweat from pointing her finger at me and tears due to me not agreeing to paint the walls a rainbow
 
TMNT said:
My ex wife would absolutely love this

She gets to stand there barking orders on what i need to do during the reno even though the biggest reno she has done was to change a light globe
Click to expand...

Just look at the bright side,someone else would be standing there now,and the only tool some people like that have is a empty paper notebook..
 
TMNT said:
My ex wife would absolutely love this

She gets to stand there barking orders on what i need to do during the reno even though the biggest reno she has done was to change a light globe

And once the work had started say she is too tired and she is going out with her friends or sister

And then when its all finished it. Take all the credit for the hard work. And upon separation claim 70% of it due to her sweat and tears!! yeah right, sweat from pointing her finger at me and tears due to me not agreeing to paint the walls a rainbow
Click to expand...

Just because your wife barked orders and did nothing, doesn't mean all wives are cut from the same cloth.
 
hugh72 said:
If it is one of those solid 2 story brick 1970-1980 types in Mansfield I would definitely hold on to it if I was in this position. Convert loan to IO if not done already and rent it out. Only the husband knows if he has the necessary skills to complete a Reno effectively and affordably but if would be easier in a rising market.
Mansfield SHS seems to be quite a draw card these days, I have friends who want to send their children there rather than a Catholic/private school nearby
Click to expand...

Be warned though... I went there and look how I turned out!
 
TMNT said:
My ex wife would absolutely love this

She gets to stand there barking orders on what i need to do during the reno even though the biggest reno she has done was to change a light globe

And once the work had started say she is too tired and she is going out with her friends or sister

And then when its all finished it. Take all the credit for the hard work. And upon separation claim 70% of it due to her sweat and tears!! yeah right, sweat from pointing her finger at me and tears due to me not agreeing to paint the walls a rainbow
Click to expand...

Bahahaha :D
 
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