when is the best market to renovate ?

[Property Meister]

was wondering for the rennovating experts out there, a strictly hypotehtial

if you were going to try your hand in doing renovating full time and as a option for the first time,

and assuming it would probably be a 2 site subdivision or a build a dwelling out the back of a 2 siter, and either rent them both out or sell one of them and rent one of them to access equity,

which market is the best to do it in? falling market, rising market, or a plateau market,

my expereince tells me that you make your $$$ when you buy, so you need to get it at a good price,

according to this, buying now would be bad because you might get it at a good price, however in a few weeks it might be worth less judging by what seems to be happeneing in melb........

comments much appreciated

 

[Propertunity]

Renovating to add value works best in either a flat market (where you can get a $2-3 increase in value for each $1 spent) or a rising market (where the market gives you a lift as well - often people think it was all their renovation that gave them the CG - but in reality it had probably less to do with the reno than just a rising market).

The worst market to do it in - is in a falling market. No-one wants to spend $s on a reno only to have it worth less than the purchase price & reno costs at the end. This is a real possibility in a falling market.

 

[Aaron Sice]

during boom markets - anything.

during downtimes you need to look for suburb by suburb discrepancies. i recently identified a possible renovating niche profit in some west surburbs (perth) property and i can see this in a few key southern suburbs too.

renovating for profit is a strict business and you need big balls to make it work well. anyone can do it but i consider it almost like share trading.

 

[Property Meister]

so assuming that the melbourne market is in a flat market or even slightly falling

if you made the assumption that the market was going to be totally flat for 2-3 years,

then would now be the best time to take the plunge?

 

[Aaron Sice]

what's your project and exit strategy?

cosmetic or structural reno?

will you end up with "just another" 4 bed house in a 4 bed house suburb, or are you looking for 3 bedders in 4 bed suburbs because the 4 bedders are selling at a premium and the 3 bedder is "too cheap" or are you looking to put a 4 bedder in a 3 bed dominated suburb?

 

[Property Meister]

what's your project and exit strategy?

cosmetic or structural reno?

will you end up with "just another" 4 bed house in a 4 bed house suburb, or are you looking for 3 bedders in 4 bed suburbs because the 4 bedders are selling at a premium and the 3 bedder is "too cheap" or are you looking to put a 4 bedder in a 3 bed dominated suburb?

thanks aaron,

that was a tongue twister

well, I was looking at buying in a cheaper suburb, say up to $350k,

say a 600-700sqm block, square block

either tearing down the existing crappy house , and building 2 units

OR

building a newer townhouse at the back.......



its all just a thought at the moment though...

 

[Aaron Sice]

how do new houses or reno jobs stack up in your area? i'd personally need to get a good deal on the overal initial purchase to be left with a house-only mortgage for the rear to make the figures work to a decent 25-35% IRR after sale - or produce a yield that will cover ALL costs.

if the house is good, i'd do a front reno, add some niceties and build on the back. sell the front house and keep the rear with an ITWV for max depreciation benefit on the new construct and better yield on the new house.

but that's only what i would do if the fgures worked out. what you do with your money is your own business.

 

[Graemsay]

I don't know if it's the same in Australia, but after a decade of boom house prices, and a slew of shows like Property Ladder, vendors became convinced that any wreck was worth a fortune. So I frequently saw "projects" that weren't that far off the cost of a renovated place.

(Interestingly, though, I've heard that houses needing only cosmetic work tend to be good value...)

So my contrarian take would be that boom years are a bad time to pick up a project.

 

[Property Meister]

this is how I see it from a complete property development property novice point of view, feel free to comment

in a falling market, BAD because your property could be worth the same AFTER rennovations hence a complete waste of time and money

in a booming/rising market GREAT because anything you buy at market price, by the time you even start doing anything your property would have risen, so there is much more room for error

in a flat/uncertain market (possibly melbourne now) OK, because buyers might be able to snap up a good bargain, prices won't go down, and any rennovations should increase the value of the property.....

or have i missed the point completey???

 

[.toe]

For renovation (as opposed to development), any market is good, though in a fast rising market it can be hard to find a deal. If you can finish your renovation within a couple of months and your valuations show a decent profit then you wont go wrong. It's getting the deal to the stage where it projects a decent profit thats the tough bit.

I'd say think twice about development during a falling market as the timeframe adds risk to the equation.

 

[Property Meister]

yes I agree, I would not touch it in a falling market because there is id say at least a 50% chance that any value adding would be eroded by the falling market (obviously it depends on the extent of the rennovations)

I am just trying to work out, whether for a first project to do a tear down and then subdivision, or do a rennovate FOLLOWED by a dual occ, or just do a dual occ in the first place.... naturallly dual occs would be the ideal but probably hte hardest

 

[Graemsay]

Sarah Beeny (the presenter of Property Ladder - see above) once commented that the direction the market moves in isn't that important if you're a serial developer.

Her argument is based on price rises and falls being neutral over the long run. If the market shoots up whilst completing a project, then the next one will be more expensive to buy. Conversely a fall means that the next will be cheaper. So it's a case of doing better than the benchmark, rather than worrying about absolute returns.

 

[Aaron Sice]

So it's a case of doing better than the benchmark, rather than worrying about absolute returns.

if the bank won't lend on a development with less than a 25% IRR (or more like i'm finding) - then this isn't going to be much comfort.

 

[Steve Fitz]

Obviously a rising market is best especially if you're just getting into it, as it'll be a lot more forgiving if you made mistakes with your calculations.

I think more importantly it's all about buying well to begin with. If you do you can still make profit even in a declining market.

Sarah Beeny is excellent to watch on Fox - It still amazes me how people don't take her advice, pay the consequences and then say 'we should have listened to Sarah' lol.

Leave emotion out - stick to the numbers - include your salary in the numbers...