Often you hear people(gurus) say they make huge money ($100K, $200K) by renovating, eg. buy $250K, sell $400K after reno. For those actually doing it I think how the money is made is to buy way below the median price for the area. So the trick is to buy at $250K in an area where the median price is $400K, may be spend $50K on reno, and then sell the property at the normal sell price. So how money is made is not because of some awesome renovation skills, but buy low and sell at the normal price. No bank will value a property for $400K in an area where other properties are only worth $250K.
The myth of making $zillions by reno
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It's very easy to find or create examples to pump up the figures to suit a particular agenda.
I've seen spruikers say that, for a fee, they can improve your rental return by $<insert huge amount here> through a $<insert even bigger amount here> reno workshop or mentoring program.
Even if the examples they quote are genuine, how do they know what the before and after rent would have been? The person living there before may have been on an excepionally low rent for a variety of reasons.
I own 3 properties in a group of 5. Each has been renovated to a vastly different standard.
The difference in rent return between them is not that huge for a variety of reasons. The main one, I believe, being the time of year I advertised them for rental. That seems to make a huge difference with respect to what people are prepared to pay.
It also depends on the tenant, too. I bought a property once and asked the agents property manager for a rent appraisal letter for the bank. He told me something that has stuck in my mind - there is always someone who will pay anything for a particular property. The real question is - is this the tenant you actually want to rent to.
In my view, the tenant themselves is more important than trying to squeeze the last $5pw or so out of them.
I agree with you OTM, it's a long bow to draw when trying to create a nexus between the $$ you spend on a ren and the return you get. There are many other factors at work inthe equation, none of which help the gurus sell their product or service.
I've seen spruikers say that, for a fee, they can improve your rental return by $<insert huge amount here> through a $<insert even bigger amount here> reno workshop or mentoring program.
Even if the examples they quote are genuine, how do they know what the before and after rent would have been? The person living there before may have been on an excepionally low rent for a variety of reasons.
I own 3 properties in a group of 5. Each has been renovated to a vastly different standard.
The difference in rent return between them is not that huge for a variety of reasons. The main one, I believe, being the time of year I advertised them for rental. That seems to make a huge difference with respect to what people are prepared to pay.
It also depends on the tenant, too. I bought a property once and asked the agents property manager for a rent appraisal letter for the bank. He told me something that has stuck in my mind - there is always someone who will pay anything for a particular property. The real question is - is this the tenant you actually want to rent to.
In my view, the tenant themselves is more important than trying to squeeze the last $5pw or so out of them.
I agree with you OTM, it's a long bow to draw when trying to create a nexus between the $$ you spend on a ren and the return you get. There are many other factors at work inthe equation, none of which help the gurus sell their product or service.
The old saying "buy the worst house in the best street" is what to go by.
You need to live in it as well while you do the reno, otherwise you have CGT to add to all the other costs that eat up most of the profit which all the TV shows always omit to mention.
Do all the work yourself and try to do it cheap - unless you have the financial position to buy into an area like Malvern or Kew to begin with where you need to it it with the best fit-outs and use quality tradesmen.
Hi Rob,
Would you mind expanding a little on your comment "The main one, I believe, being the time of year I advertised them for rental. That seems to make a huge difference with respect to what people are prepared to pay."?
I'd love to hear your experiences on the best and worst times of year for advertising for rent. Thanks.
Caroline
Would you mind expanding a little on your comment "The main one, I believe, being the time of year I advertised them for rental. That seems to make a huge difference with respect to what people are prepared to pay."?
I'd love to hear your experiences on the best and worst times of year for advertising for rent. Thanks.
Caroline
These results are, I believe, for the average and even not-so average property investor, are very few and far between.
Why?
a. The so-called reno delights are almost in all cases, never bought (or even priced by the sellers) in a range that make a quick renovation and sell profitable. The phrase that comes to mind is over-exuberant bidding. The mindset is we will pick this up cheap because no-one would want this, spend some time, money and effort and make a killing.
b. There are never (well at least what I see), timelines associated with the purchase, reno and sell. Sure you can buy and update but do you need to keep for 1 year, 2 years for example before you can realise the gain?
c. Renovations Knowledge & Costs
The experts are probably tradespeople or have a background in that area, which makes them far more knowledgable about costs and the ability to reasonably challenge estimates or do things in an alternative way. For people doing this the first few times, they cannot hope to have the same level of knowledge and expertise.
d. Renovation project planning
More often than not, timing slips, delays with tradespeople, work/family pressures and priorities delays even the best laid plans. Not withstanding any requirement around plans, permits etc
e. Nothing is ever mentioned about CGT, holding & selling costs. The headline numbers sound impressive, but when you deduct all these other costs, is the net result worth it?
Its certainly viable & not a myth (we have some exposure in this area..) but for mine there are three considerations.
Firstly you really need to know your market, and to be able to see something where other people don't. As I think has been mentioned already if its advertised as a renovators delight or development potential, its already overpriced.
Secondly you need to buy well, not all the value add is purely because of the renovation, but rather the fact that you've bought below what the market might consider as current value. Can be tough to do, especially when coupled with the first point.
Lastly you need to keep your costs down. This will vary for each property but it'll really mean you need to become more hands on - ranging from sourcing your own materials to doing the actual renovation yourself. If you can do the renovation cheaper than the 'market' can do it then that'll help the bottom line.
Firstly you really need to know your market, and to be able to see something where other people don't. As I think has been mentioned already if its advertised as a renovators delight or development potential, its already overpriced.
Secondly you need to buy well, not all the value add is purely because of the renovation, but rather the fact that you've bought below what the market might consider as current value. Can be tough to do, especially when coupled with the first point.
Lastly you need to keep your costs down. This will vary for each property but it'll really mean you need to become more hands on - ranging from sourcing your own materials to doing the actual renovation yourself. If you can do the renovation cheaper than the 'market' can do it then that'll help the bottom line.
No doubt some people make money by reno, but the gurus don't tell you the nitty gritty, such as they spent months day and night doing the reno, or after expenses (cgt, commission etc) the numbers don't look so flash after all. I used to be tempted to try reno, but I think there are easier and quicker ways to make money in property.
Such as?
Says me who has quite the shortlist of places that would make a quick buck with either renovating or subdividing, on the offchance we get into a position to buy again ...
Hi Rob,
Would you mind expanding a little on your comment "The main one, I believe, being the time of year I advertised them for rental. That seems to make a huge difference with respect to what people are prepared to pay."?
I'd love to hear your experiences on the best and worst times of year for advertising for rent. Thanks.
Caroline
In my experience, late December and January are the peak letting times for my properties. Lots of competition for the available stock.
I've found June/July/August to be quite ordinary. A few lookers, but they don't exactly beat the door down.
I've not really tried at other times of the year, so can't comment outside of these months.
When I do my rent reviews, I always send the tenant listings of similar properties in the area, so they get an idea of what's available.
It's no coincidence that I schedule my lease expiry dates and rent reviews at the same time each year
Rob
Normally I would agree with you December/January usually best time here as well. However, I have just had one vacant, turned it around in 2 weeks, new vanity, carpet, blinds, heater and paint, pheww!! PM put rent up $70- a lot I thought on a 2 bedroom unit - we had an open on Saturday and had 6 through and 4 wanting to rent it.
I believe our rents and vacancies are still being affected by the bush fires, as we are only 30 minutes drive from some of the worst areas. The PM told me mine was the only vacant place on the books.
Chris
Normally I would agree with you December/January usually best time here as well. However, I have just had one vacant, turned it around in 2 weeks, new vanity, carpet, blinds, heater and paint, pheww!! PM put rent up $70- a lot I thought on a 2 bedroom unit - we had an open on Saturday and had 6 through and 4 wanting to rent it.
I believe our rents and vacancies are still being affected by the bush fires, as we are only 30 minutes drive from some of the worst areas. The PM told me mine was the only vacant place on the books.
Chris
I agree with both these points.
Also, if you have a property near a beach, then make it available for rent in the summer months rather than winter.
subdivision, strata titling, granny flat etc, for me full reno is just too much hard work, even though you can pay tradies to do most of the works.Please feel free to expand on what these strategies are....
I do the renos but i hold the place after i reno it. Basically, buy the worst house in a good street, or buy a house that you see something special in (and that you can get a good deal on), then carefully renovate it and increase its value. The you get it revalued and then you rent it out.
Don't go and sell it as the various fees and taxes will eat your profit.
But if you buy and reno and hold, you increase the value, get more equity and you make your profit from the increased equity (and also the increase in rent that you'll most likely get).
One example (which i have just done), is buy 35 year old house with original kitchen, bathroom and carpet. Pull out the kitchen, stick a Bunnings Flatpack kitchen in, new tiles on kitchn floor, put new tiles in the bathroom, stick a skylight n the bathroom, new amenities in the bathroom, rip the carpet out, sand and polish the floorboards underneath, new curtains from Spotlight, new powerpoints and light sockets everywhere, stick an alarm in. Then get it revalued. You may have increased the value (and your equity) by at least 30k-40k by doing the above. But i repeat, don't sell it. Hold it and rent it out.
You do have to be prepared to either live in it while you are doing a reno (not recommended if you have a family), or have the cashflow to cover the mortgage on this new place (and your existing PPOR) while you are doing the reno on it though.
Thanks
g
Don't go and sell it as the various fees and taxes will eat your profit.
But if you buy and reno and hold, you increase the value, get more equity and you make your profit from the increased equity (and also the increase in rent that you'll most likely get).
One example (which i have just done), is buy 35 year old house with original kitchen, bathroom and carpet. Pull out the kitchen, stick a Bunnings Flatpack kitchen in, new tiles on kitchn floor, put new tiles in the bathroom, stick a skylight n the bathroom, new amenities in the bathroom, rip the carpet out, sand and polish the floorboards underneath, new curtains from Spotlight, new powerpoints and light sockets everywhere, stick an alarm in. Then get it revalued. You may have increased the value (and your equity) by at least 30k-40k by doing the above. But i repeat, don't sell it. Hold it and rent it out.
You do have to be prepared to either live in it while you are doing a reno (not recommended if you have a family), or have the cashflow to cover the mortgage on this new place (and your existing PPOR) while you are doing the reno on it though.
Thanks
g
I know someone who does this, and does this well. He is a registered builder though.
As BayView mentioned above, the guy who does this buys in blue chip suburbs and spends a couple of hundred k on average.
An example, bought an old place in Camberwell ripped everything out internally, extended, fixed up the facade and it looks brand new. Sold it for prob a mill more than he bought it for. He isn't on the tools but he has the next reno lined up to commence as soon as the other is finished. As such he has a solid trade base.
Generally he does high end stuff but have seen him reno a coffee shop in Balwyn and do a block of 6 units in Oakleigh.
As far as I'm aware, he now has 2 projects with one ready to go in Balwyn as soon as him and his family return from a 6 week trip to Europe.
As BayView mentioned above, the guy who does this buys in blue chip suburbs and spends a couple of hundred k on average.
An example, bought an old place in Camberwell ripped everything out internally, extended, fixed up the facade and it looks brand new. Sold it for prob a mill more than he bought it for. He isn't on the tools but he has the next reno lined up to commence as soon as the other is finished. As such he has a solid trade base.
Generally he does high end stuff but have seen him reno a coffee shop in Balwyn and do a block of 6 units in Oakleigh.
As far as I'm aware, he now has 2 projects with one ready to go in Balwyn as soon as him and his family return from a 6 week trip to Europe.
These can all be good ways to make cash out of property, certainly, but I don't know that they are easier than renovating. I tend to find it's often easier to get a tradie moving than a council officer.
Most reno's that I see, particularly for the buy-reno-sell deals, tend to yield about $30-60k after costs (incl tax). A lot of variables in between, of course, but I know a few couples where one person works a decent job (for serviceability as much as anything else) while the other partner earns more than they do by turning over maybe three of these deals every year.
Plenty of ways to skin a cat. I don't know that a great many people make zillions out of reno deals, but hey, there is money in there.
So what we have learnt is gurus market an angle and don't give you all the facts. Hardly ground breaking.
The reality is in all aspects of life someone will try to hock you something using dubios fundamentals and marketing because they stand go financially gain from it. Doesn't matter if its a can of coke or a get rich quick seminar. Like getting full disclosure from a financial advisor its on your own shoulders to check it out and protect your own interests.
Every strategy can work buy not all are for everyone. Like property as an asset class, you need to figure out what is best for your own situation and apply that to your investing strategy.
Cheers
Greg
The reality is in all aspects of life someone will try to hock you something using dubios fundamentals and marketing because they stand go financially gain from it. Doesn't matter if its a can of coke or a get rich quick seminar. Like getting full disclosure from a financial advisor its on your own shoulders to check it out and protect your own interests.
Every strategy can work buy not all are for everyone. Like property as an asset class, you need to figure out what is best for your own situation and apply that to your investing strategy.
Cheers
Greg
Thanks Rob (and others).
Caroline
(and others).Caroline
What you forget is as you hold it, these renovation which you have done, in time date, and your back to square 1. unless your increased rent actually covered your renovations, your essentially throwing money away. The house will grow in value at the same rate regardless on the condition of it. its land which appreciates, and building depreciates. The newer the IP, the more it depreciates.
so you spend $20,000 in renovations, and get $70 a week more. It will take you 6 years to get your money back. by then you will need to do it all again.
So your so called $40k you made, is not locked in. Infact you will find your renovated property grow slower than a renovated property as the building depreciates more.
I'm sorry i don't agree with you.
Lets put it this way. Suppose there are 2 identical houses sitting side by side. You own one and i own the other (hi neighbour).
Anyway, these houses are both 30 years old. i renovate the kitchen in mine, stick new curtains on mine, new tiles, a bit of paint, rip out the carpet and polish the floorboards. Do a spot of landscaping etc. You don't do any of that. So whose house will be worth more if they both go on the market at the same time?
Basically I've added value to my house by doing jobs that many people do not want to do.
OK - let's jump ahead 20 years. So our houses are now both 50 years old. I haven't touched mine for 20 years, and you still refuse to update yours. So now the kitchen in yours is 50 years old, and your carpet is ratty and the bathroom would be rather old and uncomfortable and the tiling would have growths in the grouting. At least mine would be newer and possibly more presentable to a certain degree.
Who'se house would be worth more then?
Doing the renovations is all about adding value to the house. That extra value goes into your equity.
If it is your choice to not do renovations on your home then so be it - but i believe that the renovations add extra value and increase equity and potential resale value in the house.
Thanks
g
Lets put it this way. Suppose there are 2 identical houses sitting side by side. You own one and i own the other (hi neighbour).
Anyway, these houses are both 30 years old. i renovate the kitchen in mine, stick new curtains on mine, new tiles, a bit of paint, rip out the carpet and polish the floorboards. Do a spot of landscaping etc. You don't do any of that. So whose house will be worth more if they both go on the market at the same time?
Basically I've added value to my house by doing jobs that many people do not want to do.
OK - let's jump ahead 20 years. So our houses are now both 50 years old. I haven't touched mine for 20 years, and you still refuse to update yours. So now the kitchen in yours is 50 years old, and your carpet is ratty and the bathroom would be rather old and uncomfortable and the tiling would have growths in the grouting. At least mine would be newer and possibly more presentable to a certain degree.
Who'se house would be worth more then?
Doing the renovations is all about adding value to the house. That extra value goes into your equity.
If it is your choice to not do renovations on your home then so be it - but i believe that the renovations add extra value and increase equity and potential resale value in the house.
Thanks
g