What's your reno strategy?

[RedPanda]

I have seen three types of renovation strategies employed by property investors.

1. Buy a property based on different factors (and not primarily reno value addition potential), and then do basic cosmetic renovation, tidy it up, new paint or floor coverings.

2. Buy a property with good value addition potential (potential of manufacturing CG is one of main criteria). In most cases it is the worst house in the street or even the suburb. The objective is to reno it and bring it to above average level. Typically properties in this category are fibro or clad houses.

3. Buy a property which already is at Average level (in terms of value and condition), and then bring it up to Luxury home level (Among the most expensive properties in the suburb). Typically most properties in this category are brick houses and in very few cases, clad but very rarely fibro.

Would like to hear your reno strategy? (even you have a fourth new one

Also how much do you plan to increase value to it in percentage terms. Nathan might come up with a number that most of us can't match but would like to hear about it.

 

[Nathan]

I have seen three types of renovation strategies employed by property investors.

1. Buy a property based on different factors (and not primarily reno value addition potential), and then do basic cosmetic renovation, tidy it up, new paint or floor coverings.

2. Buy a property with good value addition potential (potential of manufacturing CG is one of main criteria). In most cases it is the worst house in the street or even the suburb. The objective is to reno it and bring it to above average level. Typically properties in this category are fibro or clad houses.

3. Buy a property which already is at Average level (in terms of value and condition), and then bring it up to Luxury home level (Among the most expensive properties in the suburb). Typically most properties in this category are brick houses and in very few cases, clad but very rarely fibro.

Would like to hear your reno strategy? (even you have a fourth new one

Also how much do you plan to increase value to it in percentage terms. Nathan might come up with a number that most of us can't match but would like to hear about it.

Hi Red Panda,

I like 40% ROI pa + 100% CG on my capital used.

For example

$10,000 reno

I want value increase of $10,000 ABSOLUTE MIN

and

$4,000pa rent increase or $80pw.

If it is $2000 reno I want a $16 rent increase and $4000 CG increase.

It is hard to predict a small reno though as new carpet or paint may go unoticed.

I prefer to have a 300% CG increase on my capital as this flows nicely onto another project.

 

[BayView]

Would like to hear your reno strategy? (even you have a fourth new one

Buy under market value, spend $5k on a reno and get 'er done in 2 weeks, put up the rent by 50%, get the IP revalled at 30% above purchase price 2 days after renos are finished...

Repeat.

 

[wobbycarly]

Buy under market value, spend $5k on a reno and get 'er done in 2 weeks, put up the rent by 50%, get the IP revalled at 30% above purchase price 2 days after renos are finished...

Repeat.

2 weeks?!? You're a bit slow, aren't you?

 

[TEG]

get the IP revalled at 30% above purchase price 2 days after renos are finished...

don´t banks usually want you to wait min. 12 months before revaluing the property?

how do you get the bank to revalue 2 days after the reno?

 

[RedPanda]

Buy under market value, spend $5k on a reno and get 'er done in 2 weeks, put up the rent by 50%, get the IP revalled at 30% above purchase price 2 days after renos are finished...

Repeat.

If you are able to increase rent by 50% and able to increase property value by 30% with a 5k reno in 2 weeks, you are a genius! Wish I were so efficient.

 

[RedPanda]

don´t banks usually want you to wait min. 12 months before revaluing the property?

I think nowadays you can get the revaluation earlier if you state that renovations have been done.

 

[RedPanda]

I am experimenting with Option 3.

And with these numbers.

10% reno expense.
30% manufactured CG.
6 weeks timeframe.

 

[veseli]

2.
My strategy is to buy worst house in a good area, and than do full renovation inside and outside plus addition, usually extra bathroom and bedrooms, spend about $100k+ and than sell it.

Im doing my second property now, and looking forward to appraisal dates.

 

[Ms Jade]

don´t banks usually want you to wait min. 12 months before revaluing the property?

Some banks do, so you raise a good point: it's important to keep your strategy in mind when determining which bank to go with.

 

[Ms Jade]

I am experimenting with Option 3.

And with these numbers.

10% reno expense.
30% manufactured CG.
6 weeks timeframe.

Sounds like a good plan - especially if you can turn the 10% into 30%. I've always worked on a rough payback of 20% so any more is a bonus (i.e. spend $1 to make $2). The only thing I'd say is to make sure you know that there are comparable sales at the end price before you buy.

 

[RedPanda]

Sounds like a good plan - especially if you can turn the 10% into 30%. I've always worked on a rough payback of 20% so any more is a bonus (i.e. spend $1 to make $2). The only thing I'd say is to make sure you know that there are comparable sales at the end price before you buy.

I think it depends on the area. I started out with Option 2 and then discovered that Option 3 does offer better returns if done right in certain areas. I am expecting 30% to be absolute minimum though. I do have examples of people doing 50% (and even more) in some areas so I'm drawing inspiration from them and trying to emulate them.

Of course I work out comparables of the finished product before I make a decision to buy.

 

[BayView]

For those not up with my sharp (or dull? ) and subliminally sarcastic wit (or lack of?)...

I was joking.

 

[BayView]

Of course I work out comparables of the finished product before I make a decision to buy.

Good point.

I think the best gauge would be to see what the brand new dwellings and recently renovated versions of what you are looking to buy are selling for.

Then try to find one similar which is dirt cheap, do the reno as cheaply as is feasible, and then hopefully you have built in some CG and opportunity to increase rents based on the results compared to recent comparable sales.

The danger ATM is that if the market is stalling (it is) then you may buy cheap, but by the time you have done yer reno and got it ready for reval the market has "followed you down" so to speak.

 

[RedPanda]

Good point.
The danger ATM is that if the market is stalling (it is) then you may buy cheap, but by the time you have done yer reno and got it ready for reval the market has "followed you down" so to speak.

If the market is stalling, it seems more of an opportunity than a risk to me at current times. Because I don't expect the market to fall anywhere close to 30% (the manufactured CG).

Another aspect is that since the property will be top-end post renovations, they'll also fetch top rents which would make my investment cashflow neutral, so happy to wait out the troughs.

But the upside is that since I'm going to hold the property anyway, when it rises (it will some day) my improved 30% would be worth much more. And at those times, probably I won't get an opportunity to buy what I'm able to buy now.

 

[BayView]

If the market is stalling, it seems more of an opportunity than a risk to me at current times. Because I don't expect the market to fall anywhere close to 30% (the manufactured CG).

Another aspect is that since the property will be top-end post renovations, they'll also fetch top rents which would make my investment cashflow neutral, so happy to wait out the troughs.

But the upside is that since I'm going to hold the property anyway, when it rises (it will some day) my improved 30% would be worth much more. And at those times, probably I won't get an opportunity to buy what I'm able to buy now.

I totally agree.

It's all in the mindset.

I didn't say it was a risk actually; my stance as many here would know is a Property Bull - in the long term.

A stalling market (if you are in a good financial state) is a great opp to buy at a good price, ready for the next "wave".

All the Trolls here who bleat on about "you should sell before you get creamed"; in my case - and I've been in it for a cycle or two - if the market drops today, I still have my rents on the ones I hold, and they ain't goin' down.

Now, if I've managed to build up a bit of equity along the journey, this means I can buy a cheapie in the slump, and when the inevitable rise occurs again, I've increased the footprint just that bit more, and the % returns are compounded.

 

[Dazz]

Our reno strategy has been non-existent for over a decade since the last time we went down that path.


Back in '99 we took an old 3 x 1 dump which had been trashed by Tenants, pumped 25K and 2 months full time work into it, only to raise the rent from $ 170pw up to $ 210 pw. Big deal.


Tenants moved in and looked after it magnificently for 6 months, then she got pregnant and they both buggered off back to Qld to be with her Mum. Did the whole Tenant shuffle, lots of paperwork and work and no money involved for the Landlord. New Tenants went in and summarily smashed the place up, not paying rent for months on end. Joy...back to square one again.


Cleaned the place up again and sold the property. I may be slow on the uptake, but not stupid enough to subject myself to that nonsense again...


Roll forward 12 years and we are about to embark on our 2nd reno. This time it is on a slightly different property, and the numbers look a tad more attractive. We intend to sell after completion, and the payback should be around 1 : 17....so given that ratio I'm prepared to give it another go....but only just.

 

[RedPanda]

...We intend to sell after completion, and the payback should be around 1 : 17....so given that ratio I'm prepared to give it another go....but only just.

Hi Dazz, would you please elaborate what you mean by 1:17... I'm thinking you expect to get 17 dollars back for every dollar you spend.... errr.. seems like gigantic to me.

 

[TEG]

Some banks do, so you raise a good point: it's important to keep your strategy in mind when determining which bank to go with.

do you know which banks allow this?

I am interested because I plan to buy an IP with reno potential, and would like to choose a bank which will revalue the property immediately after the reno is finished.

I am currently with Suncorp and theyŕe policy is 12mnths before a revaluation, regardless of renovations.