Reno help! Have some cash, no finance...which way to go?

[Nicky]

Hi everyone.

I'm a complete newbie to this site and am really starting from the bottom here with respect to property (I live in Melbourne). Please be patient while I explain my situation as I am not sure of the best way to move forward.

I have tried to keep this brief, but it is a bit long...thank you in advance for reading all of it.

Last year I renovated my home and increased the value by $80K after spending only $8K. This home was then sold, as my ex and I split, and we split the cash.
PRO #1...I have some cash...for easiness sake let's say $75K.
CON #1...I have no equity. But the home I sold was in my ex's name, so I am still eligible for first home buyer's duty reduction (and FHB grant but I don't want a brand new home).

So I got the renovation bug, and this is where I have set my sights as to increase my income. My job is on an even time roster, so lots of time to project manage renos (would start with cosmetic).

I have been researching my chosen suburbs to buy, renovate and sell in which suit my entry-level budget and feel pretty clued in as to what is a good deal, how much I should spend and roughly how much I could increase value for. Basically I'm ready to buy.
PRO #2...I have been very thorough in my due diligence and feel like my risks would pay off.
CON #2...I have recently started working as a sole trader and do not have enough documentation to get finance (according to a broker I saw).

But I am so keen to make a start that I thought rather than wait till my 2 years is up, I could approach people NOW who seem to be having a hard time selling their older houses, and offering to renovate it for them as I have the cash ready to go. They would pay me back my reno costs (would agree to keep it below 10% of property value) plus a % of final value difference upon settlement.

Q1. Tips on getting finance for new sole traders? I really don't want to have to become an employee again just to get finance, as contracting for myself is working really well. The mortgage broker I saw said no one would touch me for 2 years. Would I be better off converting my sole trader status to company, and paying myself wages? Or is this a waste of time? Was the broker being unhelpful because he knows my loan would be short-term and he would get no commission from it?

Q2. If I can't get finance and decide to approach owners to reno their houses for them, what traps am I setting for myself? Would this idea work? How much would I expect a builder to charge me to oversee this type of project (I project manage the lot, but need someone with a builder's licence) for a 3-4 bedroom cosmetic reno (a rough $$ range is fine).

Q3. I have been thinking that buy/reno/sell multiple times is a good way to get my cash up, but would I be better doing a buy/reno/hold as PPOR firstly and using equity of this PPOR to do further renos?

Q4. Am I screwed and should just do a shout out for a JV?

Thanks in advance for any tips and heads-up you can give me.

 

[Aaron_C]

Are you doing the same job as a sole trader that you were as a PAYG employee? If so then it is possible for you to get a normal loan. If not, then it's pretty much sit and wait for 2 years.

 

[wylie]

But I am so keen to make a start that I thought rather than wait till my 2 years is up, I could approach people NOW who seem to be having a hard time selling their older houses, and offering to renovate it for them as I have the cash ready to go. They would pay me back my reno costs (would agree to keep it below 10% of property value) plus a % of final value difference upon settlement.

Please don't take offence at this, but why would someone already having trouble selling their house pay you to do a cosmetic reno when you are not a builder and they would have no clue about what you are capable of? How would you find these "clients"?

It sounds like Selling Houses Australia, but I've never worked out whether the labour is involved in the money given up to do the renos - I doubt it really, but maybe it is as most seem to be over three day or so with a big team.

Would this idea work? How much would I expect a builder to charge me to oversee this type of project (I project manage the lot, but need someone with a builder's licence) for a 3-4 bedroom cosmetic reno (a rough $$ range is fine).

I couldn't imagine any builder would want you project managing them. As to "how much", this really is hard to judge. We've done easy renos, mostly painting, maybe new bathroom and just "dressing" for sale, but we've also done complete gutting of house and new kitchen, bathroom, complete repaint, remove walls, close up doors. Six years ago, we did a partial reno on an IP we just bought, ripped up carpets, polished floors, new bathroom, refurbished the old kitchen, painted whole house, cost $17K, did it ourselves (except trades, and floor polishing).

Last one we did twelve months ago on an IP that hadn't been touched for 15 years (one tenant), ended up costing us about $55K but that was a complete rip out everything and start again reno, and did include a builder who did the structural work as we had some things that we could fix but we chose to pay a builder/engineer so any future building inspections won't scare buyers away, as the evidence is there of a sagging patio (now fixed). Both these houses are long term keepers and I suspect you'd need to be very careful renovating to sell someone else's house. I cannot see big money in that.

We "project managed" the whole reno, including the portion the builder undertook, and that was the most expensive part of it. I just think you will struggle to make money as well as the builder making his margin of profit on the job.

I have been thinking that buy/reno/sell multiple times is a good way to get my cash up, but would I be better doing a buy/reno/hold as PPOR firstly and using equity of this PPOR to do further renos?

I reckon if you can buy a run down place, reno it carefully without overcapitalising, whilst living in it, and then sell, and do it a couple of times, you could make money. I reckon this is a better way than trying to do what you are suggesting.