renovating waterfront property for profit

[Polina]

Hi all,

Just want to get some feedback from people if anyone has done this "strategy" before and how it panned out and any advice they might share.

We bought a $1.5mil waterfront property to renovate and sell after 1-2 years, while living in it. The logic behind it (selfish reasons of waterfront living aside) is that you will put pretty much the same amount of EFFORT into a reno as you would on a $400k property (my partner is doing the reno himself, have been working in the field for over 5 years), and although the costs would be higher going after all the 5 star fixtures and fittings, you will end up with a much higher dollar figure profit, and tax free one at that.

The property here varies widely in price due to I believe waterfronts running on emotion rather than comparable sales. For example, the house 2 doors down where the agent told us he was expecting low twos fetched close to $3mil at the auction a couple of months ago. I would like to say that is what we are aiming for, but our land I think is worth $500k less. But still an ideal final sale price of $2.5m and very likely one of $2m is on the cards, and that is aside from any CG over the period (this year our suburb had 0.2% CG according to API so hoping for a greater one next year - southern Syndey). Also we would be in a position to simply refinance and capitalize interest while we wait for someone to "fall in love" with our property, we wouldn't be pressed to sell by a certain deadline.

So once again, looking for some advice from people who have done it in the past as a strategy, what to look out for, what to spend on, what to skimp on, etc. Also, is that saying true that waterfront properties grow faster than the suburb average (14% average as opposed to a usual 10% over a standard 7-10 year property cycle). We haven't had enough time or experience in the market yet to determine it ourselves. We have only been investing for the past 1.5 years and what a turbulent time it was indeed...

 

[Jontxu]

Hi Polina, It sounds like you have a great property in your hands. I would suggest you inspect (as many as you can) similar properties that are for sale and see what sort of features they have, what have the owners done in terms of renovations, fittings, etc, I guess what I am trying to say is be careful and do not overcapitalise.

I bought my own place here on the Northern Beaches ($722K), 2.5 years ago, not technically a waterfront property however two blocks back from the water. We did a $20K reno and got the bank to re-value and they came back with $890K. We could have spent a fortune and gotten the same result (valuation) = less money to play with.

Obviously my numbers are “smaller” than yours, but I think the fundamentals would be the same.

With every property that I buy for myself or for my clients, I always have an exit strategy, make sure you have one. In my case, land is 850sqm, dual zoning (commercial and Resi) I can build (and I will for sure) 8 apartments or 3 townhouses or a mix of commercial and resi, however I am going to enjoy it for a few years.

Listen to the market, enjoy your property and remember that waterfront property does “hold” up value more than non waterfront, however less people can afford it.

Jon Salvador
www.headinghome.com.au
For investors … from investors

 

[Dazz]

Just want to get some feedback from people if anyone has done this "strategy" before and how it panned out and any advice they might share.

Hi Polina,

We were thinking of getting into this strategy a few years back, but gave it up and let it fall back into the buy and hold category.

We came to realise that it didn't matter what we fiddled around with or improved on the house - even to the point of smashing it down and putting up a brand spanker, at the end of the day the dirt is what people will pay a premium for - the elbow room (frontage) and front row seat (riverfront) so to speak.

Not sure how it will be long term....we paid so much for stamp duty and 'in costs' we are reluctant to offload it. The growth has been OK over the three years we've owned it, but that doesn't help the cashflow hole that bleeds every year. We pump in over 60K p.a. just to hold it, after all rents and costs....so it better grow or it's gone.

It's the last ressy property we ever bought. Have a squizz at the view...

 

[Qlds007]

We bought out place at Minyama in 2000 for $775K and havent done a lot to other than stay the odd weekend.

Bank valued it in 2007 at $2.7 so guess capital growth has been steady and better than money in the Bank.

Remember they arent making any more of it (naturally) so think hard before you sell.

 

[Thrawn]

My parents bought a canal block in Qld for $650k in 2005, valuation last week.. $630k.. been trying to offload it for a year... just no buyers around

 

[wylie]

Nice view Dazz. Would love to see what the place looks like. It looks like it is a 1930s house judging by the fence and gates?

Wylie

 

[FrankGrimes]

I'm more interested in where you found a waterfront in Sydney for $1.5 Million? I'm guessing Sutherland Shire somewhere? Como, Illawong?

Would be curious to know.. Would love to see some pics and hear about how the renovation goes!

Good luck!

 

[ari gold]

trawn i cant understand why there isnt much interest in canal homes i personally love them and was considering getting one on the gold coast.

I think people are more keen on beachfront than canal, but at the beach you cant have your bloody huge boat behind youre house can you rich people!!!

 

[Ausprop]

I think the strategy is very sound. In fact I advocate it, amongst a broader financial strategy

 

[BayView]

Polina,

We own a PPoR on the hill of Arthur's Seat in Dromana, Vic. This area starts about 500m from the beach and continues to go up the hill to the National Park (between the freeway and the Park, basically).

There are a lot of houses there with great Bay and City views, but there is no more land there to develop, except maybe about 6 or 8 blocks.

The land alone is worth more than the brand new townhouses down on the flat, within 400m of the Bay in many cases.

There are a lot of houses up there now being renovated, and if a house is renovated to a high level of quality, there are still plenty of cashed-up buyers who will pay for a great house with nothing to spend.

I think your strategy works, but it has to be done with the high-end market in mind, and you would want to really be sure of the costs and profit margins after cap gain tax is factored in.

 

[skater]

Not sure how it will be long term....we paid so much for stamp duty and 'in costs' we are reluctant to offload it. The growth has been OK over the three years we've owned it, but that doesn't help the cashflow hole that bleeds every year. We pump in over 60K p.a. just to hold it, after all rents and costs....so it better grow or it's gone.

It's the last ressy property we ever bought. Have a squizz at the view...

Sheesh, that is sure a low rent for a property worth so much. Is it in WA, where the PM's gouge you as well? No matter what, I don't think I could hold something that was costing me $60k to hold.

 

[Polina]

thanks for the encouragement

Thank you everyone for sharing and for your encouragements.

With our initial mindset of inner city living we did want to split up the large rumpus room into more bedrooms but lucky we got a couple of agents to walk through and give us some ideas prior to making any drastic changes. Sure enough they advised against our initial plans and in addition advised to employ an architect to help with a bit of replanning and rearranging the rooms. The first one we had was incredibly creative and gave us heaps of new ideas and another one is coming next Monday. I guess you are right when saying we need to renovate with the top end of the market in mind, NOT with what we would like or dislike.

For FrankGrimes and those who were interested the area is indeed Sutherland shire - Oyster Bay. The agent told us that compared to many other waterfront suburbs in the Shire, Oyster Bay has remained fairly dormant, so I guess it is another factor in our favor - as people are priced out of surrounding areas they will start looking for a place here. The 3mil place close to use was I think the sales record for the suburb, hopefully first of many more to come

I also posted some pictures in the gallery of how the place looked like when we bought it: "lovely" brick inside and out, abundance of arches and the whole 1970s look.

http://www.somersoft.com/forums/gallery/showgallery.php?ppuser=9670&cat=500

Pity I have no pictures of the Hollywood style bathrooms mirrors surrounded with a row of light bulbs to go with the rest of the house. In other words, lots of room for improvement in the fixtures and fittings. But the bonus is that unlike many other waterfronts in the area which look like normal suburban houses plonked on the waterfront block of land, this one actually has very interesting architecture, built like a little castle, lots of open spaces, etc - all the structural things, the "shell" which we won't be able to alter even if we wanted to is perfect, so its just a matter of upgrading the interior. Just rendering the outside of it will probably give us an instant 100k increase as some already suggested. I think we do that soon and take it to the bank to refinance and release the funds to do the rest of the reno, so it will be more or less self funded in a sense.

L.AAussia mentioned cap gains consideration, there won't be any because its a PPOR, correct me if I am wrong.

I like the idea of having several exit plans, like buying land with further possibility to develop, but since we are just starting out we won't even know how to approach a development project. Next one we do we will definatly look at that aspect of what else can be done with the land more closely, thanks Jontxu!

And I also agree with Qlds007 it makes sense to NOT sell because it is prime real estate. But since it's one of our main RE strategies is to renovate the place we live in (the first reno project was renovating a place we don't live in and it was a nightmare and every emotionally taxing and non productive), we will probably sell to move into another waterfront and do it all over again. This is not a type of property I would keep as purely IP because of the heavy cashflow drain as already mentioned. We are already holding an inner city stand free home where the repayments are well in excess of the rent received and it's hard to convince yourself every month that it's for the best and that short term shortfalls would be more than made up for in long term gains, especially with the market we had here in Sydney.

But since we are actually living in this place and enjoying every bit of it every day, the "cashflow drain" situation actually works really well in keeping us focused, motivated and very grateful. Previously we lived in a paid off house and there was very little motivation to invest, make money and think of the future. But now we get to enjoy a great lifestyle, we have a massive mortgage to pay which a normal salary won't be able to support, so we have no option but to invest, think creatively, expand our horizons and ask better questions of ourselves which lead to much better answers: how do you pay off $12k in mortgage interest each month rather than how to pay off $3k living expenses credit card balance at the end of each month Putting ourselves in this situation and having to find answers to these questions has been the most breakthrough experience in our short investing career

I will be happy to keep a record of the reno as it progresses and of course the final results.

 

[FrankGrimes]

Wow.. That is stunning! I can't believe that was $1.5 Million.. You have done VERY VERY well. My relatives have a waterfront in Como that was $1.4 Million a few years back, but yours looks alot nicer.. They're in a bit more of a swampy part of the Georges River!

It does look a bit dated in parts but it will turn it great!

Yes you are correct - it will be CGT free! Good luck and please keep updating the thread.

.........I'm jelous as!

 

[sailor]

So once again, looking for some advice from people who have done it in the past as a strategy, what to look out for, what to spend on, what to skimp on, etc. Also, is that saying true that waterfront properties grow faster than the suburb average (14% average as opposed to a usual 10% over a standard 7-10 year property cycle).

My opinions/advice relates purely to renovating on the waterfront...which I've been doing with the Beach House for the past 8 months.
Firstly, I've had a keen eye on what I replace in terms of metal fixtures and fittings in the house (eg fans, door knobs, hooks, etc). Everything has to pass the "won't corrode near the sea air" test. So this stuff is a wee bit more expensive, but well worth the investment.
Secondly, is ventilation. I get massive sea breezes at times, and have louvres every where to catch any zephyr within cooee. Saves on aircon and running the fans.
Thirdly, I've considered what vegetation will grow in sand, and cope with salty air.
So that's about it so far...I'll write more as it comes to mind.

Love your idea of renoing water front properties for future sale. Tis a grand plan for wealth creation, and you get to live in a nice area at the same time.

 

[wylie]

That is a LOVELY looking place, a bit dated, but what an opportunity to make a really gorgeous place. The view is just so peaceful. I don't know the area at all, but that price seems like it was a good buy.

I would also love to see more photos as you renovate it.

Wylie

 

[Ajax]

Unusual question-do people find living by the water (say in a harbourfront property-Sydney Harbour, Georges River or Port Hacking ) can improve your general sense of well-being? Have lived with beach views for the last 8 years and become a bit blase about it after a while though am always happy on returning and smelling the salt air. There are bonuses like watching whales migrating north in April/May and returning in September/October and swimming whenever you like.

I suspect harbourfront (particularly with a berth or mooring and a yacht) would be quite an enjoyable existence.


Ajax

 

[BayView]

Unusual question-do people find living by the water (say in a harbourfront property-Sydney Harbour, Georges River or Port Hacking ) can improve your general sense of well-being? Have lived with beach views for the last 8 years and become a bit blase about it after a while though am always happy on returning and smelling the salt air. There are bonuses like watching whales migrating north in April/May and returning in September/October and swimming whenever you like.

I suspect harbourfront (particularly with a berth or mooring and a yacht) would be quite an enjoyable existence.


Ajax

Absolutely! I have to be near, and be able to see water.

Calming, and gives you a feeling of space and freedom.

Being up higher looking down on it is a bonus as well.

 

[markp]

Hi Polina
The stategy is excellent. I am not so sure about on selling it when you have completed the reno? You will be back at square 1 with a bunble of cash looking to buy a prime property????????? It might not be that easy to replace.

 

[RPI]

Hi
I agree with the waterfront strategy also, though I live in mine and have no plans of selling but do suck the equity out of it. I can't remember the exact figures in Brisbane but inner city waterfront has done around double the growth of existing over the past 30 years.

Also, in my market anyway, the waterfront stuff has had good CG no matter what the rest of the market is doing.

2 distinct parts

LAND
Saying that a place round the corner that was already done sold for 2.1mil last year and the new owner did a little bit fencing etc but mostly the sort of improvements you might make for your own please living in the place, just went on market and has had offers just over the 3 mil mark. Represents 42% growth over the year. Consistent with other waterfront growth in the suburb. Rest of inner south eastern suburbs supposedly did 29% sept-sept so exceptional growth anyway but still exceeded significantly by waterfront.

I think some canal fronts don't do well because they are to far away from mouth/ don't have deep water access/ cleanliness problems etc. Also canalfront can often have had all the vegetation removed for construction and lots of houses crammed in looking across the water at each other. And is some areas there is just so many canals (some areas of the gc) so it hardly makes a scare resources when there are hundreds or even thousands of them within a few K's. Most canal estates were designed to have as many waterfront places as possible so scarcity is not really factor. Somewhere like the goldcoast might have 100's of canal front homes for sale accross the city at anyone time.

Inner Brisbane riverfront for example has a small supply in any given suburb primarily only double figures. So if you want to move into Inner Brisbane on the water there might be a max of 5-10 waterfront places (houses or land not units) for sale at anytime. If you want a particuloar subur maybe none for sale so you have to wait along with the others who are waiting so when one comes on the market you can expect a lot of bidders/offers.

Also developers don't put large tracks of parkland on the waterfront because the land is more expensive then dry blocks 50m away. Natural waterways tend to have parks that have been therefore a long time, take New farm park in Brisbane or the botanic gardens for example. Huge tracts of land that can't be built on thereby reducing availabilty of waterfront land.

But if you take somewhere like Minyama on sunny coast there are not that many, blocks are bigger and houses tend to be of better quality.

Hey Maybe my suburb will do even better this month now its the PM's area.

BUILDING
It doesn't take that much more expense to greatly increase the value of a house on the waterfront. put in large glass windows in a house might cost you a couple of grand. Do so in a non waterfront house and you may getter a better look into the backyard behind you, depednign on how much light lets in you might get your money back or even make a small profit. do so in waterfront house and you can increase the wow factor immensely and often your sale price.

Chances of overcapitalising on a waterfront house is minimal. The land is a much greater % of total value.

Thats my 2c anyway so in summary yes think it is agreat strategy

 

[XBenX]

Hi Polina,

Know the property, nice buy.

Have you considered a renovation that includes two attached dwellings. Would help with your holding costs, and you have a bit of land to play with.

XBenX