Renovate to refinance...before a falling market starts?

[chunho01]

Hi, I'm a fairly young and inexperienced investor, and I am currently considering renovating my IP to manufacture and pull out some equity for my next purchase.

With interest rate so low and house prices driven so high, I am worried that a falling market would follow. Regardless (presence of bubble is not the main question here):

Should I renovate and refinance now to a higher valuation, keep the funds in an offset account, and wait for a price fall before buying my 2nd property? (Assumption: if price would fall next year)

 

[Jess Peletier]

I tend to think 'get equity out while you can'. You never know what's around the corner, and if you believe the market may not be conducive to your strategy later on, it makes sense to do it now.

 

[Redom]

I tend to think 'get equity out while you can'. You never know what's around the corner, and if you believe the market may not be conducive to your strategy later on, it makes sense to do it now.

Yes yes yes!

Take the money out before it becomes harder and harder to do so. Read this for my views on how things may change over the year:
http://somersoft.com/forums/showthread.php?p=1260893#post1260893

A LOT of my Sydney clients are withdrawing equity and having it as a 'warchest' for: a) to help them ride the tide if things go wrong and b) invest down the track.

Cheers,
Redom

 

[Azazel]

I tend to think 'get equity out while you can'. You never know what's around the corner, and if you believe the market may not be conducive to your strategy later on, it makes sense to do it now.

Yes yes yes!
Take the money out before it becomes harder and harder to do so. Read this for my views on how things may change over the year:
http://somersoft.com/forums/showthread.php?p=1260893#post1260893
A LOT of my Sydney clients are withdrawing equity and having it as a 'warchest' for: a) to help them ride the tide if things go wrong and b) invest down the track.

Some good advice from both posts here I think. Looking to do similar myself (although small funds for a minor reno).

 

[albanga]

Totally agree with Redom and Jess! Take it whilst you can.
But an often misconception I believe from people is "If the market collapses I will just buy up everything".

Firstly if you did not draw the equity then your property value has also decreased and you don't have any!

Secondly if you did, you may still find it difficult to get a loan as lenders are not going to be too keen to lend as per normal if everything falls to bits.

 

[Jamie M]

What's your tolerance to risk like? Can you sleep at night if your LVR goes beyond 100%?

I'm an advocate for releasing equity whenever you can - but you need to consider the downside of leveraging up in a market which may have peaked.

Cheers

Jamie

 

[Jess Peletier]

What's your tolerance to risk like? Can you sleep at night if your LVR goes beyond 100%?

I'm an advocate for releasing equity whenever you can - but you need to consider the downside of leveraging up in a market which may have peaked.

Cheers

Jamie

This is true - but you also have to remember that you're under no compulsion to actually spend the money once it's available. If the market does tank/rents fall/interest rates skyrocket, wisdom might dictate that you leave it where it is.

However, if you don't make it available while you can, you don't have that choice.

Of course, if you're crap with money and will spend it without properly considering the risks and consequences, that's a completely different story. It's easy to assume most SS'sers are pretty financially literate, but that may not always be the case.

If you have a broker helping you, they should be able to advise you in the context of your actual situation.

 

[chunho01]

What's your tolerance to risk like? Can you sleep at night if your LVR goes beyond 100%?

I questioned having LVR above 100% also, but other than the psychological annoyance, what are the negative implications of LVR 100%+ if I leave the pulled equity in an offset account, and if I have a super stable job allowing me to ride out any market crash?

This is true - but you also have to remember that you're under no compulsion to actually spend the money once it's available. If the market does tank/rents fall/interest rates skyrocket, wisdom might dictate that you leave it where it is.

However, if you don't make it available while you can, you don't have that choice.

I am thinking the same, if I don't pull the funds out now, it may not be there in future when I need the funds.

 

[chunho01]

Refinance within 12 months after settle?

I forgot one very important note, what if this is all within 12 months of settlement? Would it affect the viability of this plan? (ie. risk of valuation coming back exactly the same as settlement bank valuation)

 

[Jamie M]

You won't know until the valuations come back.

If the market hasn't moved a great deal - then it's likely the valuation will remain the same as purchase price.

If the market has picked up and/or there's been some improvements to the property since purchase (which it doesn't sound like) then the val might come back higher.

Best bet is to get a couple of valuations ordered and see how they stack up. Desktop vals would be a good start - there's not a whole lot involved so you can quickly find out the result.

Cheers

Jamie

 

[jpcashflow]

Hi,

Jamie makes some really good points, just get a couple of valuations and see where it is.

Just keep in mind that if you are looking at refinancing focus more on the long term of the property rather then just for renovation.

How much are you looking at spending on the reno?

 

[chunho01]

Just keep in mind that if you are looking at refinancing focus more on the long term of the property rather then just for renovation.

How much are you looking at spending on the reno?

The plan was to reno -> refinance -> funds ready for next purchase (whenever that is, approx next year)

I am considering this now, because tenant is moving out earlier, and it would be easier to reno before re-lease, but also means reno falls within 12 months of settlement (not a very long period).

Property currently doesn't have a functional yard/garden; only a small 'enclosure' (fenced by ugly rusted fence) is accessible through a tiny laundry room back door. My plan is to install a patio door at kitchen, demolish old rusted fence, and fence up the side with picket fence to create a sideyard (house is corner block). Approx $5,000. 3br house was bought at $370k.

Much chances for some gain based on that reno?

 

[Jess Peletier]

It's really hard to say without knowing the market and the property. The functionality will appeal to tenants though,so you might be able to get a better rent which is a bonus!

Getting rid of a jungle and replacing it with a neat modern garden gives good bang for buck in my view- not necessarily expensive but can make a good difference to perceived value. The worse the yard the better