Just boring ROI stuff

From: Michael Croft


Hi Paul,

Last things first; I have never (touch wood) been asked to stop using/converting something to a better use by a department or council. Mind you I haven't always asked for their opinion either ;^)

$10k 'sunrooms' can add $100 per week in some cases - as the missing family room on a house or an extra bedroom in student type accom. This is a yield of 52%. Sleep outs i.e. enclosing verandas with custom made windows/sliding glass doors. My best was a $2,000 window door combo which added $80 pw, a 208% yield. Look for houses with patios/verandas under main roof line, these are the easiest to do, and if they look a little boxy after the addition, tack on a pergola to break up the slab side (if visible from the street). This last point is for the revaluations.

Garage conversions are a cinch, the plumbing/drainage will cost you about $5k plus pc items. Realistically I have converted double garages to nice two bedroom units for $15k and received $150 to $190 pw for them. Garages start out boxy and private open space is created with courtyard walls (6 foot timber) lattice and pergolas. A 2.4 meter wide sliding glass door fits beautifully into a single roller door space.

I have walled off half of 4 bed ensuite homes and turned them into 2 plus 2 bed units. The cost is usually a second kitchen and associated drainage plumbing and sometimes another door to an ensuite making it 'two way'. Cost about $10k and rents up about $110 pw, so about a 57% roi.

I have paid to have three bed houses relocated to the rear of larger blocks. Council permits a must on these. Cost $20- 25k plus service connections. You've already paid for the land once so it comes free to the second house. Best ROI to date of 71%.

I recently bought a doctors surgery with house above. Small market for this these days. Converted the surgery which had heaps of drainage and plumbing points to two flats and reno'd the house upstairs. ROI for conversion 142%. The rent went up from $360 to $580 pw and turned the property into an 11% yielder in an area where people swear blind your doing well to get 5-6%.

Fire rating and separate metering are the basics for peace of mind (yours and tenants) but in addition I focus on amenity. I like my tenants to like where they live - saves me heaps of hassles, in fact the last hassle I had was a Vietnam vet going off the deep end about ten years ago. The place needed an insurance paid reno anyway ;^) I routinely add pergolas and private courtyards on the multiple tenancies. This is for the tenants and the revals.

I have converted old high pitch roof space into two extra bedrooms, converting the classic two bedroom semi into a four bedroom 2 bath one. The laundry was huge and so it went into a cupboard and an extra bathroom created. Cost $30k (yes I lashed out on this one) rent doubled and valuation up $120k.

So you see there are more ways than one to skin the proverbial.

Hope this gives you something to go on, and I might just post this to the forum.

Michael Croft
"The best parachute folders are those who jump themselves."
 
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Reply: 1
From: Debbie .


Micheal

Brilliant post. I was wondering, how do you go about arranging separate meters when you have converted a garage, and would you go to the hassle of obtaining a permit from council to put a second tenancy on the property. Reason for asking is that some councils impose all sorts of restrictions for dual occupancy.

Thanks,
Debbie
 
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Reply: 2
From: Colin Mills


That first paragraph should be in capital letters. Of course there are a million and one ways to cram more tenants into the same living area and thereby increase the return. But what about the local council? I've lost count of the number of opportunities I've had to let go. Why? Because they would have been illegal! Contrary to popular belief most councils are not just all bark and no bite. They have the authority to issue a compliance order to rectify any illegal work. Try selling a property with a compliance order hanging over it.
I use a Town Planning consultant to advise me on any prospective purchases and/or alterations I plan to make. He is not cheap but he saves me a lot of headaches in the long run.
 
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Reply: 2.1
From: J Parker


Michael,
I have a question for you regarding decks/pergolas etc. If I was to add one of these onto a property how would i go about it? Contact a builder first or ask the council? I am aware that these need council approval, but how long would it take to get approved? I would only want to lose 2-3 weeks rent after settlement adding one of these on, so what is the best and fastest way about it? I am talking about Brisbane BTW.

Loved your post- really makes me think about the possibilities! cheers, Jacque :)
 
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Reply: 2.1.1
From: Sergey Golovin


Is it when that pergola is self-standing/supporting and not attached to the house and less the 9 sq. m you do not need any permit to build it (NSW)? And you do not need tradesman?

Or is it other way around?

Serge
 
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Reply: 2.2
From: Michael Croft


Colin is absolutely right, it is council (and neighbor)dependent. As I don't plan to sell any property in the foreseeable future I am not phased by the compliance issue as they are so obviously the sole arbiters of good taste. If this was a concern however and council permission were not possible/desirable/forthcoming I would return the property to its original form (with reno of course) prior to sale.

On another note I am in the process of turning 3 flats back into a single large home. This is because the suburb has moved on again (demographics have changed), the yield will not improve much but the valuation will improve by about 80k for my efforts. This in turn leverages into another acquisition. So in this case cash flow is less important than growth or LVR's.

Michael Croft
"The best parachute folders are those who jump themselves."
 
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Reply: 3
From: Nigel W


Michael

That post is PURE GOLD!

Of course for us mere mortals who are not qualified building inspectors/builders it may cost us a little bit more!

For the time being I think I'll stick to interior makeovers but you've certainly demonstrated what's possible.
 
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Reply: 2.1.2
From: Michael Croft


Hi Jacque,

Pergolas and decks are council dependent. In one area you can deck the entire back yard provided that it is less than 1 metre off the ground, the steps comply and it don't encroach on any boundaries or easements - no permission needed and no handrail either.

Pergolas also vary eg. in the ACT they don't require approval if; they are less than 25m2, don't extend above the fascia line, have no single span greater than 4m and don't encroach on any boundaries or easements.

So get a copy of the councils 'works exempt from planning' or such like or talk to a local chippy.

Michael Croft
"The best parachute folders are those who jump themselves."
 
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Reply: 3.1
From: Glenn M


Michael,


Do you do all of these renovations yourself, or do you rely upon outside Tradespeople?


GlennM.
 
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Reply: 3.1.1
From: Michael Croft


Hi Glenn,

I used to do it all myself (except plumbing/drainage and electrical). Now its a bit of both as tradespeople are hard to come by (bloody FHOG), but I try to sub it all out and just supervise.

I'm doing the painting in one reno next week because I can't pay anyone to do it within my time frame ie before Xmas (all the "must be in by Xmas" people tying up the system). Me? I just want it painted before the carpet goes down. Seems stupid I know as I calculate my hourly rate to be at least 10 times that of a painter - but there you are. I still enjoy it really!

Michael Croft
"The best parachute folders are those who jump themselves."
 
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Reply: 4
From: Michael Croft


OK so I lied! The ROI figures are all a crock. Why? Because I didn't use any of my own money. It was all borrowed funds and so the ROIs are infinite. If I had used my own money they would be accurate ;^)

Michael Croft
 
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Reply: 2.1.3
From: Terry Avery


My builder drew up the plans and submitted to council for permit. Any
builder you select should have the process down pat so why not use them?

Cheers

Terry
 
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Reply: 4.1
From: Michael Croft


Hi all, got a couple of emails asking how did I not use my own money? I usually use opm with equity as collateral. The sweetest ones are when the project is stand alone with no x-coll. All done with before and after vals, some of them hypothetical after vals.

The ideal scenario is; buy property, preferably a good buy (either below market or with heaps of potential or both!), draw up specs and plans for reno/additions, get indicative rents from local PM based on reno/additions, then reval on new plans and rents. This process (IF DONE RIGHT) should leave you with and LVR of under 80%, no LMI, no x-coll, and serviceability to boot.

This is not for the lazy investor as you have to think (use left and right brain) and work! But it is a "no money down" way of doing business that works consistently no matter the market conditions.

Michael Croft
 
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Reply: 1.1
From: Michael Croft


Hi Debbie, sorry for the slow response. Electricity meters can be installed by any sparky and its nice that electricity authorities and councils don't communicate about this - yet. Water meters are secondary meters (not read by council but by you or your PM) that any plumber can install.

Last water meter cost me $150 installed (this week in fact) and electricity meters cost from $200 to $800 depending on how much work has to be done to the board (or even a new one installed).

Michael Croft
 
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Reply: 4.1.1
From: Mark Laszczuk


Michael,
You are are a dead-set legend, mate! Fair dinkum, you're terrific. There are people out there that charge a lot of money for the info. you just imparted for free (but you knew that already). My partner and I are now looking forward to the day that we have the experience to aquire the vision that you have! Thanks for the inspiration!

Mark
'no hat, some cattle'
 
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