The myth of making $zillions by reno
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I have bought and renovated many houses in the last 8 years - and never sold. I run a course specifically about being prepared the reality behind for the get rich quick renovation strategy. In my mind it is really hard work not, that is not just locating the property with a twist or one that is clever but then project managing the subsequent reno on budget and time.
I make sure by the end of the course everyone feels the pain and the cost of the reno process. It is important that all the costs, including holding costs, selling costs and the cost of blowouts are considered. I am not promoting anything here just letting you know I attended the spruikers courses and I felt the reality was very different - if everyone could do it and it was easy they would ( OK to be honest even if it was easy only 30% would do it).
My first property bought in 2001 at $425k had a 6 mth $50k reno and revalued at $700k - it was clever - I then had equity to buy subsequent properties - last month I kicked out the 6 overseas uni students and did a $40k reno it is now worth $1.2mill. Sounds to good to be true? Sounds easy? it wasnot. It required lots of hard work and when we slept on the blowup mattress last weekend and spent 16 hrs cleaning the place - doing things the cleaners refused to do - with no hot water and starting at 5.30am each morning to get it done (OMG I even unwrapped the toilet brush from the plastic that I left there 7 yrs ago to give you an idea of the state of things), I had to focus on the outcome and how it fitted into the big picture.
Was I lucky? Did it take hard work - you bet. Incidentially the rent has gone from $660pw to $850pw and I am negotiating a 3yr lease with 5% increases annually for this residential property this week.
If you are prepared to do the work in finding the right suburb, looking for the twist and putting in some sweat equity then it is possible to be lucky. My advise is focus on your end goal, work out how the proeprty fits into the end goal and recognise the work you need to put in to make it happy - beaware of all the costs , efforts and the frustrations along the way but the deals are out there, if you want it you can too can be lucky.
PS Just back from an auction tonight in helping my sister buy her first home a 100m2 2br unit - with a 20k reno this a can be a 4br unit renting rooms out at $250pw in a good growth eastern suburbs area of Syd - maybe the luck is contagious - she will be sleeping in a dive for 6mths until she can afford the reno - small cost to pay.
Hope this helps
Jane
I make sure by the end of the course everyone feels the pain and the cost of the reno process. It is important that all the costs, including holding costs, selling costs and the cost of blowouts are considered. I am not promoting anything here just letting you know I attended the spruikers courses and I felt the reality was very different - if everyone could do it and it was easy they would ( OK to be honest even if it was easy only 30% would do it).
My first property bought in 2001 at $425k had a 6 mth $50k reno and revalued at $700k - it was clever - I then had equity to buy subsequent properties - last month I kicked out the 6 overseas uni students and did a $40k reno it is now worth $1.2mill. Sounds to good to be true? Sounds easy? it wasnot. It required lots of hard work and when we slept on the blowup mattress last weekend and spent 16 hrs cleaning the place - doing things the cleaners refused to do - with no hot water and starting at 5.30am each morning to get it done (OMG I even unwrapped the toilet brush from the plastic that I left there 7 yrs ago to give you an idea of the state of things), I had to focus on the outcome and how it fitted into the big picture.
Was I lucky? Did it take hard work - you bet. Incidentially the rent has gone from $660pw to $850pw and I am negotiating a 3yr lease with 5% increases annually for this residential property this week.
If you are prepared to do the work in finding the right suburb, looking for the twist and putting in some sweat equity then it is possible to be lucky. My advise is focus on your end goal, work out how the proeprty fits into the end goal and recognise the work you need to put in to make it happy - beaware of all the costs , efforts and the frustrations along the way but the deals are out there, if you want it you can too can be lucky.
PS Just back from an auction tonight in helping my sister buy her first home a 100m2 2br unit - with a 20k reno this a can be a 4br unit renting rooms out at $250pw in a good growth eastern suburbs area of Syd - maybe the luck is contagious - she will be sleeping in a dive for 6mths until she can afford the reno - small cost to pay.
Hope this helps
Jane
I very much doubt a $50k reno doubles the value of your property.. you either purchased well under value, or waited many years for capital growth.
lol, 100m2? that must be a dog box! and you have 4 bedrooms in that.. sorry but this story doesn't add up.
Doubting fine - it was a phenomenal return and I can see how it seems to good to be true - Twist 1 bought two properties one bill of sale 2 separate titles - this alone one knocked out most of the competition as toal purchase price was 975k - I took one title someone else took other
twist 2 - 3 mths of attending every auction and many rental open homes meant we could spot the opportunity - is that a twist? not really but something that contributed to the substantial gain - CG over 6mths will not double your money obviously but part of the buying process was finding high capital growth suburbs with a median price of 450k in 2001 5km from CBD Melb and understanding the future growth was the key to being able to double the value in the future.
twist 3 - one property was commerical and needed a kitchen and bathroom so changed zoning to residential and put in amenities that never existed in a tired old building
twist 4 - painting from 6.30am to 7.30am every week day 6pm -11pm every night and 20hrs of painting the 3 storey monstrosity every weekend for months. Sweat equity - not that I have not now recognised my value and I now know it is better to get a professional to do that.
Doubting is fine, however I am happy to prove it. Happy to share the mistakes ( like doing the painting myself and delaying the reno) and strategies that made it work.
Jane
So as most 2br units range from 65m2 - 85m2 - what makes 100m2 2br unit a dog box?
No need to say sorry tell me what does not add up? I am happy to explain the plan. The floor plan allows a 8.7m*3.7 ie 32m2 living area to be split in half making a 3rd bedroom - the small kitchen can be moved into the living area with the large kitchen being made into the 4th bedroom. Alot smaller furnished bedrooms near the uni rent for $200pw. Each room has a fridge and is big enough for a double bed with builtin wardrobes in all but one ( kitchen).
Maybe you are right it and maybe it doesn't addup - the builder has already submitted the quotes and worked through the plans, the works starts next year - I will let you know if it is a dismal failure. If it is 'only' a 3br it is still just cashflow positive with a 95% loan and 7% interest rate, 6km from CBD Syd in the Eastern Suburbs next to the uni - the fall back position is not that bad.
Jane
Knowing that 100m2 living is a small gov home, and yes some are 4 bedrooms.
great thread guys? lots of ins and outs. my take on this is buying the cheapest piece of crap in the area, i have had agents call me saying i have one for you, because its got some holes in the doors, and walls , so i have a look , and say thanks , but when you find somthing with holes in the doors and no walls thats the one i want, people "renters" are house proud too! they will pay the extra, if its all pretty and modern, but its maximum potential, should not exceed the area's heighest sale . this over capitisation will send you broke.
others i have picked up was before the "reno" kings were stars, and most wanted a new home , i have seen homes saying "newly renovated" and sticky beaking, through learned the building skills from these folks are very poor, its ugly finishes, make for a new reno, to be done,
My favorite saying is that if its mission brown buy it,
great thread guys? lots of ins and outs. my take on this is buying the cheapest piece of crap in the area, i have had agents call me saying i have one for you, because its got some holes in the doors, and walls , so i have a look , and say thanks , but when you find somthing with holes in the doors and no walls thats the one i want, people "renters" are house proud too! they will pay the extra, if its all pretty and modern, but its maximum potential, should not exceed the area's heighest sale . this over capitisation will send you broke.
others i have picked up was before the "reno" kings were stars, and most wanted a new home , i have seen homes saying "newly renovated" and sticky beaking, through learned the building skills from these folks are very poor, its ugly finishes, make for a new reno, to be done,
My favorite saying is that if its mission brown buy it,
there you go, you yourself just said it.. the profit wasn't only from a reno, it was a combination of other factors which made you the profit.
What I'm saying is a generic $20k reno isn't going to make you such money..
A typical bedroom is say 3m by 3m internal = 9sqm. Add for wardrobe (1.5m long at 60cm deep) and walls and you are at say 12.5sqm of floor space per bedroom. So 4 bedrooms areonly 50% of the floor area. A bathroom is fine at 1.8m wide by 3 m long , so 6sqm there. A kitchen at 10Sqm is large, a living room at 4 by 5 m (20sqm) is good enough for a shared house where most students spend most of their time in their room.
So we are at
4 bedrooms 50sqm;
Bathroom 6sqm
Kitchen 10sqm
Living room at 20sqm
That allows 14sqm for halls (1m wide) and other stuff like an alcove laundry slightly larger rooms etc.
I have seen 2 bed student apartments at 42sqm and one bed houses at 100sqm... it's all in the design.
I have also seen houses opposite universities that are 6-7 bedrooms and a kitche/meals area and 2 bathrooms. the other living rooms converted into bedrooms.
cheers
RightValue
Yep you are right - my mistake - if you buy any ol' place, in any ol' area, with no research, no plan, no strategy and no idea and then spend $20k on a reno with no time frames or budget and expect incredible returns - I agree that is the realm of la la land.
Any spruikers/educators/mentors I have heard speak have always suggested that buying right was the key and renovation the opportunity to create equity quicker. To think otherwise is the same as going to Vegas with the $20k.
IMO a 3m x 3m is a very small bedroom.
The current bedrooms in this place are 2.4*4.7m, 3.5*3.8m the new bedroom ie half the living area is 2.9*4.0m and the smaller bedroom ie ex kitchen will be 2.4*3.4m. Three can have builtins and a double bed if required but as uni students, I think a desk, shelves and king single would be the order of the day I would of thought with builtins as well, I cant get enough of strorage.
After all we could dumb it down and turn the 2br into a 3br unit open up the kitchen to the living area and create a large living space - but uni students do spend most of their time in their rooms so having had student accomodation before I don't think there is much cashflow benefit in that just capital growth creation - a 3br unit is worth $80k-$100k more than a 2br unit so the reno would of done its job even if we only achieve 3brs.
Jane
Ok, lets break down this $50k "killing"
+ stamp duty on IP [$4500 in QLD for IP, not FHO]
+ interest on $210K @ IO 6% for 3 months [$4000]
+ the opportunity cost/time spent lost doing the reno [$8000 - relative to the work I do in my spare time as a freelancerr]
+ Agents fees (5%/18K + 0.25%/Balance) [$7000]
+ Capital Gains Tax [$265k - ($210K + $4.5 SD + $4k Interest + $7K Agent) @ 30% = $11.8k)
+ stress & loss of quality family time (cant put a cost against this)
-------------> leaves you with around $20K net.
No thanks, I think I'll pass....
Renos are fools gold for 90% of the people looking for the "wealth" answer...the other 10% make it work (and 90% of them would be doing something else if they only knew how)
We're in what I'd consider a 'very small' house, but it is quite standard for the area (literally cookie-cutter versions of the same house all over the place). Its about 100sqm, with maybe another 20-30sqm of verandahs.
3 bedrooms at around 3x4 each, lounge 5x4, kitchen 5x5, bath/laundry also 4x3ish. Its squeezy but it works. And we bought waaaaaaaaay under value so our $20k reno + $10k subdivision seems to have quadrupled the value of the place (including the land) (most houses seem to sell for $180k each in 2009, land $50-60k each, we bought ours for $65k in 2008 - there's a lot of CG in there, not just value add). Slightly larger renovated houses are going for around $300k. We bought extremely well.
My old house has a 4x4 bedroom, 2 4x3 bedrooms, a 4x6 lounge, 4x4 kitchen, 4x4 lounge, 4x4 bathroom, 3x3 laundry. All measurements are rounded down to the nearest metre, all the 4m's are actually all exactly 4.3m in both houses, its a feet-and-inches thing. The internal walls in my old house are all half a metre thick, which makes drawing up floorplans a bit tricky.
Looking at lots of project builder floorplans I'm finding modern houses seem to have bedrooms at 3.2x2.8 or therabouts, with the master 3.2x3.6 plus robe and ensuite. But modern houses have much larger living areas than old ones.
3 bedrooms at around 3x4 each, lounge 5x4, kitchen 5x5, bath/laundry also 4x3ish. Its squeezy but it works. And we bought waaaaaaaaay under value so our $20k reno + $10k subdivision seems to have quadrupled the value of the place (including the land)
(most houses seem to sell for $180k each in 2009, land $50-60k each, we bought ours for $65k in 2008 - there's a lot of CG in there, not just value add). Slightly larger renovated houses are going for around $300k. We bought extremely well.My old house has a 4x4 bedroom, 2 4x3 bedrooms, a 4x6 lounge, 4x4 kitchen, 4x4 lounge, 4x4 bathroom, 3x3 laundry. All measurements are rounded down to the nearest metre, all the 4m's are actually all exactly 4.3m in both houses, its a feet-and-inches thing. The internal walls in my old house are all half a metre thick, which makes drawing up floorplans a bit tricky.
Looking at lots of project builder floorplans I'm finding modern houses seem to have bedrooms at 3.2x2.8 or therabouts, with the master 3.2x3.6 plus robe and ensuite. But modern houses have much larger living areas than old ones.
freelancing is great if you can do that type of work - but the majority don't have the possibility of doing such. hubby is on good money but no overtime on the expectation that if the work needs to be done, then it will be done - so no point in him spending weekends at work and paying a tradie. i am unskilled and have been out of the workforce for over 10 years, so i'd be looking at a minimum wage type job.
so, using yours and bc's figures, $28,000k net for 3 months work ... or nearly $2,500/wk income after tax.
not a bad income, imo.
A big thank you to all the posters. As a first time IP purchaser considering a reno, your time, expertise (and passion on the subject) are greatly appreciated.
Only thing to ask now, is if anyone has a reno calculator or spreadhseet to keep track of costs?
Sorry to steal your work, but there is no point re-inventing the wheel!
Cheers!!
Only thing to ask now, is if anyone has a reno calculator or spreadhseet to keep track of costs?
Sorry to steal your work, but there is no point re-inventing the wheel!
Cheers!!
Molly , every home is different, and every product, so think about the one you might do and run the numbers, bathrooms and structures are a biggie, and this changes the entire picture, in every home, some might need a basic paint, others walls can be shifted, its one of those learned things, and getting your hands very dirty, is the best start on YOUR spread sheet you could ever have. But by all means ask as many Q's as you can because we at SS LOVE to help!
Depends what kind of renovations are done. You can add another bedroom, another ensuite.. and you're in a different price bracket. Do up the floorboards yourself. From personal experience, i haven't made more than 100K but around that figure is achieveable. Also helps if you are in the china focus markets (like in melbourne, balwyn, box hill, doncaster). If they like your renovation, they do pay top dollar.
More, more, more.
I love hearing from people who aren't interested in chasing a profit from renos. Just one less competitor
Alternatively I love people who are renovating near our places, I always drop around - offer a hand. The way I look at it, the more they increase the value of their place - the more they are increasing the value of my place!!!
