Reno budget and strategy - thoughts?

[cimbom]

Hello,

We have found a house that we might be interested in. It is 2 bedroom and 1 bathroom and in need of quite a bit of renovations. However, I think the prospect of CG after this is very good. As we don't have a huge amount of spare cash at present, my plan is to get a personal loan of some description and do 1 "stage" of the renovation after which I will get it revalued/refinanced and hopefully extract enough equity to pay off the loan (plus change) and re-use this to do the next "stage".

What the house needs is:
- Extension of 1 bedroom and new bathroom. A builder I called said I should expect to pay ~60k for this all inclusive (inc bathroom fittings etc) however this was sight unseen. Perhaps include WIR if not too much more.
- New kitchen (~10k?)
- Renovate existing bathroom inc tiling (~10k)
- Other bits and pieces such as repainting, new light fittings, blinds/curtains, polish floorboards, minor landscaping and other misc costs/repairs (~20k to be safe as other things could come up that we didn't foresee).

Total is 100k. This is the absolute most I would look at spending and I would obviously try to get it done for less than that. I think the final sales price would be ~650k when complete which would give us a 2-for-1 return on each $ spent.

My schedule would be:
Stage 1 - Renovate kitchen and bathroom
Stage 2 - Extension
Stage 3 - Everything else

Does this seem realistic? Anything else to be aware of?

Am I biting off more than I can chew?

 

[Edmond Dantes]

Hi cimbom,

Have you done this before?
Have you taken into account the interest paid on the money borrowed?
How do you know the value after it is being renovated?
What about the home loan interest costs whilst the property is vacant?

I think a personal loan of 100k is a lot, unless you are certain that it is worth the risk. Good luck!

 

[cimbom]

Hi Edmond,

1. I haven't done this before
2. Do you mean the mortgage or the loan for renovations?
3. I have looked at past comparable sales in the area.
4. It won't be vacant. We will be living there as our PPOR for some time before selling.

The personal loan won't be 100k - more like ~30k. After each stage, I will revalue/refinance and use the increase equity to pay off the loan so that the full amount is available for me to reuse again.

Does that make sense?

Thanks

 

[cimbom]

Just realised we can break down the wall in between the laundry room and toilet and convert it into another bathroom which should save a good amount of money. The washing machine and dryer and sink could be put against one wall with a sliding door thingy to cover it when not in use. Didn't think of this earlier

 

[vaughan]

You've checked with a builder that you can knock down the wall? Or are you looking at the floor plan and imagining that it could be easy?

The wall may be structural, it could have electrical wiring or water pipes in it that go to other parts of the house.

Also, currently the only way out of the house to the back yard is through the laundry. Do you really want to make the only way to the backyard through the bathroom?

 

[Shahin_Afarin]

You need to check if its a structural wall before knocking it down. This is a must.

Regards

Shahin

 

[willair]

Hi Edmond,

1. I haven't done this before
2. Do you mean the mortgage or the loan for renovations?
3. I have looked at past comparable sales in the area.
4. It won't be vacant. We will be living there as our PPOR for some time before selling.

The personal loan won't be 100k - more like ~30k. After each stage, I will revalue/refinance and use the increase equity to pay off the loan so that the full amount is available for me to reuse again.

Does that make sense?

Very very simple to work out if you come out the other end with any money left in your back pocket,what does a near-by house sell for with the refit you intend too take on,drop 20% of that then you may have a idea of face to face value..

 

[cimbom]

Thanks for your replies. I was also concerned about the exit door but not sure where that could be moved to - would it better to build the new bathroom and keep the separate laundry? Not sure if a room just used as a laundry adds that much value but there's probably nowhere else it could go.

I was thinking of making the third bedroom behind the dining room. Do you think that would be suitable?

I will be getting a builder to go and have a look at it before I make any offers.

willair - why should I deduct 20%? The prices I am looking at are actual sale prices, not listing prices.

 

[Nemo30]

You could always put a european style laundry against the right wall in the current laundry, rest of laundry then becomes a small hallway out to your new bedroom. New bedroom and ensuite is behind laundry, toilet and other bedroom. Window in toilet is removed and skylight put in.

Dining room stays as is, with french doors (where the window is) out to a deck.


Honestly though, I wouldn't spend this much. I dont think you will get your money back.

 

[willair]

willair - why should I deduct 20%? The prices I am looking at are actual sale prices, not listing prices.

Because that will give a base line to work up from,and an idea of reality
in value,but it always comes back too one item"land-area"zoning now and in the future..imho..

 

[mikezen]

Hi Edmond,

After each stage, I will revalue/refinance and use the increase equity to pay off the loan so that the full amount is available for me to reuse again.

QUOTE]

thats interesting..over how long a period will you do this for?, do u need to wait for a certain amount of time before you can get a revalue done in between renos?

 

[cimbom]

Maybe this will end up being another one of my great ideas but only on paper

I had a ring around to another two builders today who both gave me quotes of 130k just for the extension Gotta love inflated Canberra pricing. Must be built with gold bricks for that price.

Not sure if I should just forget about it or maybe call back the builder I called yesterday for a more detailed quote. It's just concerning that there is a 100% variation in price for the same thing.

 

[vaughan]

I had a ring around to another two builders today who both gave me quotes of 130k just for the extension Gotta love inflated Canberra pricing. Must be built with gold bricks for that price.

Is this the first time you've got quotes on building work?

Moving walls around is expensive. Kitchens and bathrooms are the most expensive rooms in the house.

 

[Propertunity]

Maybe this will end up being another one of my great ideas but only on paper....

Probably. Without wanting to be unkind, I think you are out of your depth and need to start with a simple cosmetic reno to cut your teeth on, before undertaking sdomething like this.

Your strategy of refinancing at each stage is also probably flawed.

 

[cimbom]

Probably. Without wanting to be unkind, I think you are out of your depth and need to start with a simple cosmetic reno to cut your teeth on, before undertaking sdomething like this.

Your strategy of refinancing at each stage is also probably flawed.

I think you're probably right I have emailed another agent in the area to get an appraisal on what we'd be looking at if we kept the house as a 2 bedder but did all the other renos mentioned. I would do it if we could get ~550k for it. Still having a bit of a think.

 

[tobe]

I think its a great idea, BUT, I suggest saving for it rather than a personal loan. that way you will be more careful with what you agree to pay a builder, it will give you more time to mull over the best way to approach the reno, and because its your PPOR, the interest isnt tax deductable.

In terms of revaluing, you can have new valuations done anytime you like, but depending on the market, it may be dificult convincing a valuer that $10k of kitchen work is worth $20k on the val. Valuers have a 10% variance, and high insurance costs, and can be naturally conservative. I think youd have a better chance doing the val either after all the reno's are completed, or alongside a fixed price contract for the completed renos.

Keep all receipts, while its your PPOP now, it may be an IP in the future and these can be used to reduce the capital base/depreciation etc

 

[cimbom]

Thanks for the tips. The other agent just replied saying mid to high 500s once renovations are done. If I end up getting it, think I'll be keeping it as a 2 bedder then