Economics of an old terrace renovation for first PPOR

My partner and I are (seemingly endlessly) looking for our first property, and given the current and likely future market, now may have the potential of getting a very modest terrace house in Sydney (~$1-$1.1m budget).

This does not buy you very much in Sydney unfortunately, but we have noticed there are some terrace houses which are a little run down, with their original very outdated floorplans, but still have sizeable backyards selling for around this price point.

I've seen many beautiful terrace renovations, where some of these very old, and often unassuming properties look quite average from the front, but from the back they look absolutely stunning after major renovations.

We are purchasing the property on our current combined salary, but both have the potential to increase this materially in the next 5-10 years which could enable us to afford this kind of renovation.

Wondering if anyone has experience in renovating an old terrace property either as an IP or PPOR and wondered what the general thoughts are - is this fraught with danger given the general age of terrace properties, or can this be a sensible way to increase the value of these properties in the long run?

 

In which suburb is the terrace?

 

Inner West (I use the word 'inner' lightly there, happy to go 10-15km from the CBD, understand the east is generally out of our price range, but there are some properties in the west that might fall into our budget!).

https://www.realestate.com.au/property/16-smith-st-marrickville-nsw-2204

I'm not sure the above property would be within our budget, but a good example of the type of property I'm talking about. The layout isn't fantastic, very small kitchen, but the yard out the back is quite spacious (relative to some others).

 

What I’ve seen work is a substantial cosmetic reno that transforms a large run down house with an impressive wow factor. Bought and sold relatively quickly in a rising market. What is more risky is the structural reno that involves Council approvals and extensions taking huge time and money.

 

I have spoken to a few friends that did something very similar but all 4-5 years ago. Bought a 2 bedroom terrace in the inner west, spent 4-6 months and 150K ball park on it. Ended up selling it in the next year for a higher price and moved to a larger place slightly further out. But that was a very different market to the one we find ourselves in today.

So it depends on what your long term plans are, if you aren't going to look to move in the next 5-10 years I think can be very worthwhile...

 

Really depends on how far you want to go with the renos, it's very hard to say.

My clients bought a terrace at Waterloo and spent just over $200k on a complete refurb.

 

It's hard to be helpful here without having seen the property and without understanding what renovation you have in mind.

What I would say, is that this type of property usually sells for about $1.1m in Marrickville, or perhaps slightly more. So I think you have identified something interesting/promising. The question then becomes how much will it cost to fix, and will you get your money back, and that's a bit difficult to say from the photos. Good luck though, you seem to be on the right track.

 

I'm not too familiar with the terraces, but thought their width was at least the size of a room + hallway.. the one in the link is only 3.5m wide?
If doing a proper reno i.e. an extension in the upper level to get more rooms and refurb of the kitchen, surely 4.5m would be the minimum to get a high end finish?

 

I remember seeing some really nice reno pics of a terrace.. found it.
One more Sydney terrace reno - before & after pics

@Mel Morgan

 

I've done quite a few terrace renos in the inner west and east ranging from flips under CDC to larger extensions as PPOR (similar to the link above). I think I've posted about at least 3 of them.

Its definitely a potential strategy and good way to add value. It comes down to creating a modern comfortable family home, but often will cost more than expected to complete the major reno due to unexpected problems around foundations, rising damp, old walls/timbers, neighbours, boundary issues, etc

The DA can often be challenging too as these are generally in Heritage Conservation Areas. Happy to answer more specific questions.

PS thats pretty glitzy virtual styling there, I think you'd be disappointed when you get to the empty house!

 

I've bought a lot of terraces in my time. Not in Syd. But same same
I think the key is just buying it; ie the land and bones (if it's run down), cheap enough. Renovator's delight can easily turn to renovator's nightmare in this stuff.
In the end I opted to buy already renovated terraces in a downturn and found that much better
I sold an unrenovated one at the peak of the market for $2m a few years back - was pretty high price the guy paid. To bring it to modern standards would cost $500-600k. You can get a renovated one in better locations/better neighbouring suburbs now for $2-2.2m. Point is, if you overpay the land, you won't make money

 

Try for cosmetic renovations only such as new paint, kitchen, flooring and bathroom which you could do for $50k and get a capital gain. Start looking further in old houses is often scary and expensive.

 

Noticed this a lot over last couple years in inner melb suburbs; single fronted Vic terraces in complete run down condition selling for 1.2, serviceably reno'd selling for 1.3 and ones with 'good' renos for 1.5, say.

Nobody was going to buy a renovators delight at 1.2, bring it up to scratch and make any material profit at 1.5 one you bake in change over costs. And if they did the time/risk/stress would surely not been commensurate to the return at all.

 

Adding to this - I recently bought a small (75sqm land, 50sqm internal) one bed terrace in the inner west. Quiet street but very close to shops and the floor was concreted so that greatly reduced termite and damp risk. Previous owner extended the bathroom into the courtyard. The potential is to add an extra storey and turn it into a 3 bedder 2 bath and possibly a rooftop garden to compensate for the smaller courtyard, and I intend to keep the ground floor layout.

One builder I spoke to estimates up to $350k - does that sound right to you? I was only expecting to spend around $200k although I’m only thinking of doing the extension a few years down the track so costs are hard to gauge now. It is rented out now as an IP, may be my retirement/downsize pad in the future. Approved DA has a 5-year time limit before construction starts though. Neighbours have extended up so there is precedent.

As a broader question , do you think it’s worth forking out $200k+ for a structural renovation? I’ll either need to sell an IP to fund that or through a refinance cash out, or maybe even downsize my PPOR. Or maybe I’ll think it’s all too hard and end up doing nothing!

 

If that terrace was in a different street, it would have sold for $1.2m+.
I've done two terraces - spread a long time apart so I had time to get over the trauma.
If I was looking for an old house in the inner west, I would look for one where there might have been a reno, say, 15-20 years ago. I say that because the person who did that reno likely had to do work on the structure: roof, floors, plumbing and electrics. If that has happened (a building inspector will tell you), you might be able to get away with a $50K makeover and end up with something pretty good.
If you are buying a place where little has been done to it, you are looking at $200-300K for a decent reno - more for something flash.
I reckon it's a good time to buy. Look for something liveable with 'good bones', as they say. Give it a spruce up and do a reno down the track.

 

My terrace was actually renovated by the previous owner (in a basic but liveable way), that’s why the floors were slabbed and bathroom extended. Location-wise is great, just 2 min walk to woolies at the end of the street. The tricky thing is if I start the DA process and get approval, I’ll basically have to come up with the renovation funds within 5 yrs before the DA expires. Sinking $200k+ into a reno vs. using that money for another property deposit needs some serious thinking.

 

Wow that’s atrocious from the council. Huge difference between starting, which you would have satisfied, and finishing the development. I didn’t realise there was a deadline to finish anyway. Did the original planner just told you verbally that you had more time? Reminds me to not rely on verbal assurances and get these things in writing.

 

Is it in Newtown?

 

Haha, yes