Loans for house requiring renovations

Hi all,

First time posting here but long time fan.

Looking for some advice around getting a loan to buy a house which is need of some renovations to be able to be rented.

Currently I earn 69k before tax pa, low living costs. Currently going through the pre-approval but my mortgage broker has indicated I can probably borrow up to 450k for an investment loan. It will be my first purchase ever.

I have found a property that I believe is at a good price. At the very least it would need new carpet and a few rooms to be repainted to be in a rentable state. At $50/sqm for carpet, this equates to around $5000 for carpet, and I'll budget 5k for the two rooms that would need repainting. So 10k in reno's required before it would be in a rentable state.

To majorly increase its desirability for tenants it would also need to be repainted both interior and exterior, polishing of existing wooden floorboards and new turf (another 20k). At some point in the future I would also like to renovate the bathroom (another 15k), but it can be leased as it currently is (simply has an old finish).

My question is - will the bank be more hesitant to lend me the money for a house requiring renovations before it can be rented? If so, will the fact that it is only minor renovations make a difference? I only have a deposit of 40k so the loan would be 90% LVR.

Anyone who has experience in this area please chime in.

Many many thanks.

Cheers
MrMango

 

They would only be concerned if no working kitchen or bathroom probably.

But how would you find these costs?

 

Hi Terry,
Thanks for that. When you say how would I find these costs - do you mean how would I estimate them? I would just conservatively allow $15k for a cosmetic reno of the bathroom. All the other estimates I’ve made for painting and resanding etc have been just based on very conservative pricing if I was to engage a contractor to do it.

 

Thanks heaps Wylie, good to know that I can get it done for less!! I’m planning on buying interstate too otherwise I’d just DIY, but if I can get it done at that price then I think the numbers will indeed add up. I’m just hoping the bank loans me the extra 20k that i want for the renovation costs.

 

How would you pay for them?

 

Oh right. Yes a very good point. Is it possible to get a loan which will cover the property purchase plus the extra 30k required to do the renovations? Or would I have to stump up the funds from my own pocket?

 

Out of pocket at 90% lvr

 

Bummer.

another question then - if I was to subdivide the property and I had enough equity in the property to cover the subdivision costs, would the bank let me refinance for that purpose?

 

Subdivision is the changing of one title into 2 or more titles. You would need the banks permission to do that as they will be the mortgagee. Generally they will do this as long as the value is more than before.