Do we do basic lift/shift or a complete reno to onsell?

We have to lift a house and move it on the block to allow development. We won't do this for at least another twelve months because rents are so flat that we would be spending $100k to lift/shift (new stairs, slab etc, ready to rent) and have to find a new tenant with rent likely to be less than we are getting now.

I've researched 3x1 and 4x2 rent prices and also sale prices.

Instead of spending $100k with nothing to show for it, we could spend $300k to turn our well maintained but unexciting 3x1 into a more upmarket 4x2.

Doing this would take $200k funds we might want to use down the track, so I guess we could do the reno and decide at the time whether to rent again or sell and take some profit and put proceeds into the sharemarket instead.

We must spend $100k to shift the house. If we can do this reno for an extra $200k (on top of the $100k to lift/shift) that would cost us (IO @ 5%) about $190 per week in interest. Just lifting will cost us nearly $100 per week (IO @ 5%) and we get nothing for that. We certainly cannot ask any extra rent just because the house is higher.

If we do the bigger job, and make the house a 4x2 we would be paying (IO @ 5%) $290 per week interest. I would say there is now way we would get that back if we keep it and rent it. But it seems a well renovated house might see us get what we've spent back if we sell.

I see this as not great return on the $300k spend involved, but if we get back $300k more than the house is worth then it is better than spending $100k for no (or very little) return at all. For the $100k we would have a slab (with plumbing in the slab) so that is part way for someone else to finish and we may get some return on the $100k.

I've always wanted to do another renovation, and this seems like an opportunity without us having to outlay for purchase of the house to reno.

Has anyone done this in Brisbane recently? I guess it is like flipping, but we cannot pinpoint a starting price because the house sits on 900sqm and will end up on 300sqm and will have townhouses behind it. So it isn't as easy as it seems to pinpoint what we lose in land compared to what we gain in house improvement/value.

I will certainly ask some local agents, but I'm curious to hear thoughts from the forum.

 

Cannot knock it down unfortunately.

 

Character precinct.

 

I'm not sure if I understand the comment @Paul@PFI. The slab would be under the newly lifted house. If we don't pour a slab when the new posts go in, we would have just dirt. We would have to remove the old slab where the house sits now. (Actually hadn't factored that cost in... oops!)

We've had two plans drawn. One just a slab and battens to enclose the lower level. The second plan is the bigger job. We have time to investigate further. I'm just doing some homework in my head.

 

Thanks @Tim86 for an interesting idea. I'll think on this, but to be honest, we are adding to the block already with four townhouses behind and we would have all the extra cars for this house having to park on the street. And the biggest hurdle is that the house just isn't big enough for five bedrooms and ensuites. It is a smallish cottage now and even if we double the living space, it still is just a cottage on less than a 300sqm block.

I think as a family home, 4x2 (maybe with a powder room as well?) with onsite parking for two cars, it will appeal to a family who doesn't want a big yard.

But I'll certainly run your idea past some local agents and I'll report back to this thread. We have two houses to do, and the other one is larger and that one could well be suited to this idea. It already is rented to four individual people and that one we will likely hold onto... so food for thought.

 

Thanks @Tim86. The shifting and lifting is approved as part of our DA. My understanding is that we lift and shift, and then when it is on its own small lot, we can apply to build under. We chose the simple path to get the DA through as BCC was very concerned we would try to alter or demolish the houses. We had no intention of doing that, but I understand why they were concerned as there are nearby houses (also not meant to be be touched) that somehow managed to be removed and new houses built.

 

@ycdfdyan I agree with your take on this. Whilst I appreciate the reply from @Tim86 I think making the larger of the two houses into more of a multi-tenant situation will make it hard to sell down the track. It is in very much a family street and not close to any hubs of activity where I think that sort of house would fit in.

We've had a five bedroom, two bathroom house that was rented to students for many years, but the students always found a friend when one left, so we didn't have to advertise. One of our aims is to lower the interaction with leasing and tenants as we get older so I think if we spend money to improve either house, we will turn them into better quality homes that will sell more easily.

Also, I know we can hire a PM, but we also have land tax issues that will get worse as the house values rise and rates, utilities etc. If we do the big reno job and sell, we can minimise the tax by prepaying interest and then look at investing the cash elsewhere to provide income to replace the lost rental income.

@vbplease thank you for your answer. That is what I will do when we are closer to needing to make some decisions. Right now, if we spent even the minimum to lift and move the houses, we would struggle to get the rents we currently do. The $100k spent per house would get us no higher rent.

I think spending say $250k to $300k in total per house would be likely to return at least that and whilst many would say we need to get back what we spend plus some more, it is a little different when we "have" to spend $100k anyway and that $100k spend will give us no more as a rental. It would give us some return if we sell because it provides a house with a slab ready to be built under.

I don't think the higher rental would justify the larger spend, but for a sale I think we could come out with a small profit, or at least break even on the cost to improve the house.

Lots of questions to put to local agents, closer to crunch time.

I do appreciate your comments and I'm happy to hear more.