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How much have you spent on your IP renos?

Discussion in 'Renovation & Home Improvement' started by Otie, 7th Jul, 2016.

  1. Otie

    Otie Well-Known Member

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    We are about to purchase our first IP. In the suburb we are looking to buy, almost all of the houses are 1970s builds. Mostly ex housing commission stock, brick but on stumps with timber floors.
    Every one of the properties I have looked at, has been in original condition, almost completely untouched from the day it was built. My assumption is that people of this era didn't fix things unless they were broken.
    It also seems that the majority of these auctions have been deceased estates.
    The houses all need a fair bit of work done to make them comfortable for tenants.
    I would like to know the max $$ amount or % that other experienced investors usually spend on doing up IPs to make them attractive enough to tenant.
    Is there a max amount you put your foot down at per property?
    The property we are looking at is around the 400k mark, some good renovated homes in the suburb have recently sold between 500-500k. We are not renovating to sell though, only to make liveable and comfortable (also attractive) for tenants, and to sort of start fresh so that we are not constantly replacing breaking down things.

    From our rough guesstimates, have not yet sat down and had proper quotes or anything, but to make the property decent, we would need to do the following;
    (The house is 3 bed, kitchen, lounge, with a small extension which consist of an extra room (possibly could turn into 4th Bed, and a walk through mud room type room, potential second bathroom)

    -Replace original kitchen with new 4-5k max inc appliances
    -Replace bathroom (full reno)- this will only cost us materials as we have a bathroom renovation business (also have wholesale trade accounts which will also reduce costs) We can put in a high end look bathroom for around 2k including floor to ceiling tiling doing all labour ourselves (well husband anyway).
    -Strip all floor coverings, sand and polish floor boards throughout - (currently has carpet and lino, but original timber boards underneath)- expecting this to come under 3k.
    -Re-paint throughout (don't know how much to expect to pay for this.)
    -Replace window coverings throughout- probably roller blinds? What ever is most affordable and modern looking. $2000
    -Replace heater- heater looks like it from the 70s- feel uneasy leaving it as I would never forgive myself if it was unsafe and I didn't know. Probably just put a cheap split system in? $2500
    -Replace HWS? Or relocate it to outside if possible (this is probably more of a want then a must, it just looks a million years old) $$1600?
    -Install Wardrobes to 2 bedrooms Master already has an old one I want to just paint
    -Roof- it is a tiled roof looks unsightly, has that mouldy green patchy stuff on it, needs at a minimum a good pressure wash and seal, if budget allowed a re-spray if it wasn't too costly.
    There is a repair needed where there is a leak between the join where the original house is joined to the new bit.
    -Garden would just get a tidy up, as would not have much to spend on this.
    Stumps are good as is the floors, no warping or sinking etc.

    If I get the house for 370k, I will have 22k left to spend on renovations,
    Though if it goes for 390k which I am expecting, I will only have about 18k to spend on fixing it up.

    Are we cutting things way to fine only allowing 18k renovation budget? We are in Melbourne if that makes any difference. Will be sourcing cheap materials on eBay, gumtree and through our wholesalers etc, and doing as much as we can ourselves. I appreciate everyones opinions and would like to hear your experience.
     
  2. Foxdan

    Foxdan Well-Known Member

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    Sounds like you are looking to do all the things you would like for YOU to live in it. A lot of those things you want to do will not increase the rental at all. Do the minimum to get the best rental return on the property and have least amount of vacancies.
    Also your budgets above don't look high enough. Kitchen replacement and appliances for 4K (??).

    I think you need to address each item and ask "Will this increase the rent?" If so, does the rent increase justify the investment outlay to do it as a suitable return on investment?

    If it doesn't increase the rent, you might just be eating away at your deposit for your next investment property.
     
    sleekgeek, ellejay and Gockie like this.
  3. Propertunity

    Propertunity Exclusive Real Estate Buyers Agent Business Member

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    As a rough rule of thumb, I spend 10-15% max of the property purchase price on a reno to make it worth 20-30% more in end value. ie get a min $2 return for every $1 reno spent.
     
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  4. Otie

    Otie Well-Known Member

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    Yes, You are correct, some of it is what I would want. Rent will only increase approx $30 per week max The kitchen is almost not usable though, only consists of a sink, 2 cupboards and a stove.
    My sister just renovated, and put in an ikea kitchen for the 4k, however hers is high gloss 2pac, I would be going a cheap laminate, thats where I pulled that from, however we have a cabinet maker we use on our bathrooms and based on what he charges us for our work jobs etc, I would get change from 4k. Appliance packages (oven/stove/ranghood) I have seen for $900 in stainless steel.
    I do agree that I need to look beyond what I would do if I was living there.
    What would be the max you would look to spend?
     
  5. Otie

    Otie Well-Known Member

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    As a %, if we spent the whole 20k, it would be less than 5% of total house value.
    My main question is could you do a renovation with that type of budget? Has anyone done one on a completely original 70s or 80s house
     
  6. Foxdan

    Foxdan Well-Known Member

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    I'd do the ones that would increase your rent and would make it easy to tenant. So if you can do kitchen and bathroom as cheap as you said, I'd definitely do those plus paint and generally tidy up the house.
    If it's a housing commission area, remember that what you place value on, the tenant might not so only raise it to a standard that suits the client. No point having a high end bathroom if it will become a meth lab

    Id leave the rest unless you thought it was a safety risk or it will cause damage to the property of you don't fix it.

    I would call a local property manager and ask them what they would recommend as well. The local tenants might not care about upgrading any of it and might pay the same regardless of your renovations. Your not living in it so detach yourself from whether it's "nice" to you.
     
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  7. Otie

    Otie Well-Known Member

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    So true. Thanks for the advise.
     
  8. Bayview

    Bayview Well-Known Member

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    I have done 5 renos in my time, and of course; most of them were older (one a 1926 Californian bungalow).

    Basic rule of thumb is get at least $2 for every $1 spent, and 10% of the property value is not unrealistic.

    Here's a quick example of two recent ones;

    Our own PPoR; pre-reno value was circa $650k - reno cost approx $85k for all materials, Council permit for new deck, etc. Sold for $850k. I did most of the labour. We went a bit overboard to mtry and attact a "higher-end" buyer who wants a "Nothing to do" property...probably could have spent $50k and still presented a nice property, but maybe not the same sell price.

    This is a higher budget than yours, of course; but you can do a lot for $20k - you will need to do a lot of the work yourself though. For eg;

    An IP (in Kalgoorlie in 2014 - near end of Mining boom) - 2x1 bed 1989 unit - value pre-reno circa $240k. Spent $7.5k....should have spent more, but was broke - renos needed doing to get a tenant, though. I did all the labour.

    Even on such a small budget; it still had all the necessary repairs done, new carpet and blinds throughout, light fittings, bathroom reno, new heater, built-in pantry and a few other bits.

    Value of the property has not increased of course as you would expect post-Mining boom, but is tenanted.
     
    Last edited: 8th Jul, 2016
  9. Otie

    Otie Well-Known Member

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    That is good to hear. I thought perhaps I was wishful thinking that 18k would cover it. Now I have some confidence. Almost everything will be done ourselves where possible, and if I could spend half that even better.
     
  10. bob shovel

    bob shovel Well-Known Member

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    I think your prices are reasonable but its the things in between that need doing plus miscellaneous costs that may blow it. Allow a 15% buffer on top while planning

    You'll make your "$1 gets you $2" return easily as you are diy. Kitchens through a kitchen mob will be double your budget plus appliances so you're getting $2.50+ return there. Bathroom you're hitting $3 ;)

    Overall you need to look at the place as a package and that your reno works at one end of the house are to a similar condition to the other half but slightly better off course . Don't over capitalise with the extras just stick to basics which it looks like you're doing- the roof is a "nice to do list" unless it needs urgent maintenance, it won't really affect the livability. ...but will affect the front facade. You could diy the front face roof with a quick clean perhaps.

    Sounds like you're on the right track. Hws later when that current one blows up .and split system goods for tenant appeal plus depreciation
     
  11. larrylarry

    larrylarry Well-Known Member

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    +1 that's what I do when looking at older houses. I would ask PM what I can do to the property to increase rent. Then you work out if it's worth it.
     
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  12. Foxdan

    Foxdan Well-Known Member

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    Yeah, I learnt to ask the local PMs know what is worth spending money on because some things made zero difference to the rental price. 15k on a new kitchen isn't worth if the tenant will only pay 10bucks more a week for it.
    My standards for a house and what tenants are happy to live in are entirely different. Just do the minimum and save your money for the next IP
     
  13. larrylarry

    larrylarry Well-Known Member

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    Also, kitchen can be cheap but looks good at the same time. Just don't listen to sales guy.
     
  14. EN710

    EN710 Well-Known Member

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    I'd personally think to do these:
    -Replace original kitchen - especially if it is not usable per what you said
    -Replace bathroom (full reno)- since you can do this on a budget
    -Strip all floor coverings, sand and polish floor boards throughout - because I personnaly hate carpet :p
    -Install Wardrobes to 2 bedrooms Master already has an old one I want to just paint - since it sounds easy
    - Needed repairs
    -Garden tidy up

    Maybe:
    -Re-paint throughout (don't know how much to expect to pay for this.) - if it makes the place more presentable

    Umm:
    -Replace window coverings throughout- probably roller blinds? What ever is most affordable and modern looking. - I'd choose cheaper options (curtain?) if possible

    -Replace heater- heater looks like it from the 70s- feel uneasy leaving it as I would never forgive myself if it was unsafe and I didn't know. Probably just put a cheap split system in? $2500 - can you just completely remove it?


    -Replace HWS? Or relocate it to outside if possible (this is probably more of a want then a must, it just looks a million years old) $$1600? If it's working I would not be replacing this.
     
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  15. Brendon

    Brendon Well-Known Member

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    Hi @Otie,
    I think I know the property you're talking about I had a look at it myself and was quite tempted.
    I thought a similar budget for Reno assuming the floorboards were in reasonable condition throughout (which I think they would be) and pending how much you do yourself I think $18k would definitely be enough.
    I don't know if the instant price increase would be huge after a Reno (I could be wrong) but they are definitely needed to make it easily tenanted while prices of the area.
    (This is all assuming it's the property I think it is)
    I think $370 would be a really good price for it, if you can get that, but even a bit more it still looks like a good buy and hold prospect!
    Goodluck
     
  16. Ting

    Ting Member

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    I done my IP last year around 20K in Brisbane.
    It was built in 70 owned by an old gentleman but due to his age, inside was very oldish so I replaced new kitchen for 5K, redo bathrooms for 7K, bought paint for few hundreds plus my own labour, replace hot water system for 1.2K, removed carpet and polished original floor and varnished for about 2K, electrician to replace main switch box for around 2 K(?), add a new wall to create a room from two bed to three bed for 1K (there were spare space allow for this) plus miscellaneous for total around 20K.
    Total reno is 5% of purchase price but by adding one room is where the rent increase most.
    Kitchen, bathroom, floor, hot water, switch box and all miscellaneous are only to bring up house appearing and up to today standard.
     
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  17. DaveM

    DaveM Adelaide Buyers Agent & KFC Strategist Business Member

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    $5-7k tops, you can do a lot with that if you are wise
     
  18. Otie

    Otie Well-Known Member

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    I am pretty sure your onto it- I would like to get it for 370k, less if possible. I am prepared to spend up to 390k max, however that is only because it has the extra room, and I have fear that if I am not prepared to spend up to that, then I will just get further priced out.
     
  19. Otie

    Otie Well-Known Member

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    Sounds just like what I want to do. I also want to turn the extra room which has no purpose into a functional bedroom. I took my mum through some of the houses with me and she couldn't help but laugh and tell me how she remembered the decor from when she was a kid. I think the area Im looking in all the owners are starting to die of old age!
     
  20. Brendon

    Brendon Well-Known Member

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    I would be shocked if it went over $390k and personally really hope it doesn't, just hope no one gets carried away with it!
    Make sure you let us know how you go, Goodluck!