Renovating IP after 18yrs; re-let or sell?

[3beautboys]

Hello,

Have been a lurker for a while now, read lots and lots and have finally posted now that I really need some advice. Apologies in advance if I ramble....I'm not sure how much info is required for people to give advice.

I purchased a 1 bedroom 60's built apartment in inner Melbourne in 1994 as my PPOR. It became an IP in 1997 and apart from minor maintenance, it is still in it's original condition.

We have decided now is the time to renovate as unfortunately the trombone set in the bath/shower needs replacing and to access this is through a double brick wall which means the tiles, render and bricks will need to be removed. The building services report said that there was extensive water damage, tiles drummy etc and waterproofing post repair was recommended.

So we have decided to renovate:

* bought secondhand kitchen on Gumtree for $200 that hubby and father-in-law will install. Will buy new appliances (oven/electric cooktop/rangehood/dishwasher ~ $1300 -$1650), replace benchtop/sink/mixer ($250).

* will re-carpet lounge, hall and bedroom (have had a quote for $950), carpet/underlay/installation)

* bought new timber venetian blinds x3 $285

* will reuse shower rail/head / frameless shower screen and bath and will hopefully be able to keep the small mosaic tiles currently on the floor if they clean up ok.

* will need bathroom re-tiled / new toilet / vanity & tap ware / towel rails etc / kitchen tiles to splashback and floor / door handles (not yet costed)

* It will be painted throughout by us.

We own the unit outright and are now wondering once the renovation is complete, is it best to re-let it or sell it on in it's pristine condition? We have always self managed the unit and our current tenant who has just moved out was paying $250pw.

We own our PPOR outright but have a large mortgage on a second IP which may possibly become our PPOR in the next year or two and also wonder if it would be better to sell and put the profits into our offset account on the mortgage?

Any advice would be greatly appreciated.

 

[wylie]

You own it outright so the higher rent after the renovation will be putting money into you pocket year after year, until such time as you really "need" to sell it.

We faced this question on a house that had not been renovated since the tenant moved in 15 years ago. He is probably wishing he hadn't advised us of the water leak, because that snowballed into a full renovation.

We wondered if we should sell once it is freshly renovated, but we will get an extra $100 per week rent. Some of that is due to the tenant having been paying less than market rent. We knew if he ever chose to leave, we would have a major job to do. We wanted to manage when that happened, so we left him there under market until it suited us.

 

[savoys]

it sound like it will look great and once you have finished it, you could get some rental and sales appraisals from the agents, and that will help make your decision. it may be as in Wylie's example that it has been under market rent.

Have you factored in CGT in selling costs?

also , in my opinion if you are going to do alll this work in the bathroom, then do the floor tiles and new shower head, shouldn't add to much costs and will really make a difference.
good luck.

 

[3beautboys]

Thanks for your thoughts Wylie and Savoys.

You are right Wylie, we don't need the $$ from a sale right now, but I'm a bit worried that if we re-let the property, it will get knocked about and by the time we do want/need to sell, we'll have to put $$ into it again.

Mind you, in the 15 years that it has been a rental, I haven't had anyone trash the place (a few who left the place less than clean, but fixable by myself with a hard days labour)!

Savoys, the shower rail/head was new only 12 months ago, so is a current style/shape. I will have to give the tiles on the bathroom floor further consideration...........

Yes, CGT will eat into the profits.....purchase price was $55,000, with the reno, possibly worth $300,000+, but regardless of when we look at selling it, CGT will always be there

We were letting it at $250 / wk, which when I did my research is in the lower end bracket for where it is. Any ideas what an acceptable rental would be once we've done the reno? It's only 4km to the GPO, has WM facilities in the bathroom, Bathroom not ensuite (comes off a hall with wall to wall cupboards), is in a quiet location, in a small block and has undercover parking.

If we were to only get say $280 / wk, then a reno costing say $10K will take 6 years to make back, and that doesn't include the loss of rent while we are doing it up.

If we definitely knew we were going to hold onto it for the foreseeable future, I wouldn't be so concerned, as it would still be along term investment.

BTW, what can you write off and what is considered only depreciable, and over what period of time.

Thanks in advance for any / all replies.

 

[savoys]

You are right Wylie, we don't need the $$ from a sale right now, but I'm a bit worried that if we re-let the property, it will get knocked about and by the time we do want/need to sell, we'll have to put $$ into it again.

Mind you, in the 15 years that it has been a rental, I haven't had anyone trash the place (a few who left the place less than clean, but fixable by myself with a hard days labour)!

All this new work might just attract great tenants for quite a few more years

Yes, CGT will eat into the profits.....purchase price was $55,000, with the reno, possibly worth $300,000+, but regardless of when we look at selling it, CGT will always be there

this could vary depending on your income in the year you sell

We were letting it at $250 / wk, which when I did my research is in the lower end bracket for where it is. Any ideas what an acceptable rental would be once we've done the reno? It's only 4km to the GPO, has WM facilities in the bathroom, Bathroom not ensuite (comes off a hall with wall to wall cupboards), is in a quiet location, in a small block and has undercover parking.

great, should get great rental, talk to some agents

If we definitely knew we were going to hold onto it for the foreseeable future, I wouldn't be so concerned, as it would still be along term investment.

with such a handy position, could there possibly be a need in the future to keep it in the family? kids leaving home, going to uni etc, or as a handy city pad for you in the future

 

[westminster]

Not knowing what suburb it is I don't know if $250 is fair but it sounds awfully low to me. I think you might be pleasantly surprised that it could rent for me when it's finished.

I'm a hoarder so I would keep it if I was you.

 

[3beautboys]

The suburb is Travancore, near Flemington/Ascot Vale here in Melbourne.

I am now thinking more along the lines of keeping it......the selling market isn't great at the moment and even the tenant who moved out said that if the new rent was within his price bracket then he would be interested in moving back in.

Can anyone enlighten me on the question I posed about what you can write off and what is considered only depreciable, and over what period of time?

Savoys.... the kids are still in primary school, so a long way off needing a uni flophouse!!!

 

[westminster]

Lots of good depreciating information at http://www.depreciator.com.au

Download the ebook. Scott is a member here as well if you have any questions

 

[3beautboys]

Thanks for the link Westminster

I appreciate everyone's thoughtful input.

 

[Mr. Fabulous]

Hi 3beautboys, keep it real simple. Ask yourself 'Why do I want to sell an appreciating asset?' If you can't think of a reasonable answer, don't sell!

 

[Buzz]

Sounds like you have made up our mind - however hope this helps.

You should start with where you want to end up, ie your long term financial goal, then decide what decision gets you there sooner? If you keep the property then basic repair to damage, especially if there is the potential for more damage, is a must. As for your other plans the quick cosmetic Reno sounds cheap and easy to do and quick. Good work in not over capitalising on this.

This is a great area and has good demand (I know I loved living there 12 years ago).

At the end of the Reno then check in with what your goals are as the market may have moved up and that might help make your mind up. If your goal is to have a $100,000pa passive income then this property may not get you there, based on its yield and growth but the equity in it could if you leverage it. In that case you might decide to sell and reinvest in a property that might get you to your goal.

As another thought if the tenant is up for it maybe you can offer free or half rent and do the Reno around them whilst they are on holidays to minimise your disruption of income and resetting etc.

I hope this serves you.
Jane Slack-Smith