Renovate and Sell or Hold Long Term

Current Situation:

PPOR - Value $700k, Loans (IP deposits) $300k
IP1 - Value $950k, Loan $550k
IP2 - Value $800k, Loan $500k

IP1 is in middle ring Newcastle and Capital Growth has been high last 2 years since purchase

If I spend $100k and renovate IP1 I think I could sell for $1.3-$1.4M less agent commission of approx. $40k. This would leave me with approx $500k of cash compared to my current equity in IP1 (including deposit on PPOR) of $250k.

Problem is I’d lose out on the Capital Growth on this location in the future. I could repurchase though around this area with my profit.

Renovate or hold? I’d like to accelerate profits so I can retire earlier in the long term (15 years away).

 

Capital gains tax on ip1?

 

How could I forget! Would be about $150k. Much less attractive option for the risk with only profit of $100k

 

Is it feasible to combine the two strategies?
If your estimates are accurate, spend your $100k to renovate but then don’t sell. You’ve manufactured an additional 250-350k equity in IP1 which you could borrow as a deposit for a further IP (assuming the bank would value it according to your estimate). You don’t dispose of the property and therefore continue to realize the future capital growth, no CGT yet and no selling agent fees to be paid.
Issues to be considered in addition to the bank valuation and ability to meet serviceability on further borrowings are;
1. Would there be demand in the rental market for this property after the renovation?
2. Could you justify a sufficient increase in rent to make the renovations worthwhile/service the additional borrowings on that IP?
3. Can you afford to have a period of vacancy during the renovation?
Being a buy and hold investor, not a renovator and having no insight into the Newcastle market, I cannot speak to the viability of your figures, but thought the strategy might at least be worth consideration…
Interested in others thoughts.

 

So you have to ask, after the reno (with cost risks), selling costs, cgt, then costs to buy back in the same area….

 

How sure you are with the gain after 100k reno? What are you adding using the 100k? To me 100k might not be a lot of value add.

 

Thanks everyone. Agree $100k isn’t enough value for the risk involved, re-purchase costs id have to pay and the CG id miss out on while I rebuy