Renovating for equity

I was recently posting in another thread and somebody pointed out it would worthwhile on buying an old place and renovating it to increase the equity.

I remember reading an article about this about a guy who bought a unit I think somewhere in Sydney that was in pretty old and bad shap. He put about 30k worth of renovations into it and then 6 months later it was revalue at 100k over the purchase price.

Has anyone had any expirience with this and would like to share their story? I really don't know if this is a common thing as I am new to all this but I am curious about it all. As I would like to get equity like that when I first dive in with investing.

Any help appreciated

 

HI mate,

I replied to this in another thread. For this to be successful you need to buy a place that has scope to add value, eg old looking vs newer looking has a large price gap, where a small cosmetic reno can make the 'perceived value' much greater upon revaluation. Buying at a good price also is important. Its not that simple to be successful in this especially for a newbie so make sure you do your research and get the numbers right.

Eg

New place worth 650k

Old place bought 415k.
+
buying costs, holding costs, reno costs.

Then revaluation. (the price gap needs to be large enough so when you factor in all those costs, then valuation, you are able to extract a good amount of equity for a nominal cost.)

 

My very first IP back in the day.

It was a run down two bedroom unit in Qbn.

Purchased for $180k - spent a month renovating it (it was the period between exchange and settlement) - was valued at $230k after renos.

Took out the equity and used it as a deposit on the next.

Cheers

Jamie

 

Okay so what are the successful factors in doing something like this? What should I be looking out for?

And if I do find something, how will I know it will be revalued at what I am aiming for?

 

"Market Comparisons"
Also, Cherie Barber does some good work in this sector.

 

To save costs doing add much as you can save's big $$. that's where the cream is. Plus sourcing your own materials, eBay gumtree etc to find the bargains.

Using trades for a lot of the work and supply of materials will increase Val but won't put $$ in your pocket after re val.

Look for run down properties that need new bathrooms and kitchens. Compare run down vs recently renovated to see the price difference, then you just need to source and install for less than that price. Or a property that can add an extra bedroom with a simple wall is best bang for buckeroo

Renovating can increase rent return plus you'll have new rooms for set and forget IP's. So there's not just equity to look at

 

Cherie does have some great tips, get the freebies from her website and keep an eye out on the tele.I wouldn't pay for one of her courses.

But with "paint everything " mantra it is a band aid fix, so it may look fresh and new but you need to know what your starting with, you could end up with "mutton dressed as lamb "

 

We used this sttategy for auite fe fe uses in the Mt Druitt area. We bought and did full renos in 5 weeks. At the end of 5 weeks all were CF neutral to positive. We typically made $3 in equity for every dollar we spent. We did a lot of the work ourselves and it was a pretty gruelling 5 weeks but it worked for us.
Knowing your before and after vsluations us important, as is the cost of the Reno. I've seen lots of houses that have obviously been renoed in order to flip and some of them gave no profit in them (I looked up what they bought it for snd what they are selling it for),
It us a good way to build equity quickly, if you do your homework.

 

no thanks to those reality tv shows that makes renoing so easy and a few weekend jobs,

if youve made zero profit off a reno, then you were extremely unlucky or didnt do your homework

 

Also if the market is flat and you use tradies it's likely you'll increase the val but profit will be chewed up by the expenses

 

Thanks guys.

Haha oh the days when I would watch those shows and think 'oh wow what an easy way to make money'.

Didn't realize how hard it is to make money flipping houses. You have to factor in so much for it to be successful. Most of the time theirs so many other costs like holding costs, stamp duty, buying and selling costs that it just doesn't make it worthwhile.

It's worth it though to gain equity, which we all know is very useful.

 

Ummmmmmm....thats what profit vs loss is !!!!!!

 

If it waa so easy everyone would be doing it.

And yes stamp duty when buying . Selling costs when selling. Tax . Holding costs before you even lift a hammer!!!

Its not easy

 

It is, well done

If you don't save on the expenses doing things yourself or smart buying, your potential profit is lost.
Did anyone else not understand that??

 

Would it be worth getting a valuer out to a likely buy and asking them the before and after valuation if x,y and z was done to it?

Also, I wouldn't totally discount hiring others to do the work because if you have to take a few weeks off work then you'll be losing money anyway. They'll do a better job in a whole lot less time so you can get tenants in sooner. All depends how proficient you are with a paintbrush etc. I can't even colour within the lines so I'll probably hire others and hang around to help (and learn) in my free time.

 

Your better off doing your own research or find a good real estate and they can pull out all the recent sales and let you compare with and without x,y,z

 

I have done both - DIY and hiring others to paint. Personally, taking a week or 2 off work to save few thousands affect my business and I think the trades do the job a lot better than me. I lack patience.

 

Most people don't have the insight to see the potential. That's why some places (outside a boom time) go so cheap. You need to know your area and also the cost of the Reno. That's where people come unstuck. Or not predicting a downturn in the market. I wouldn't discount using tradies either. We did a lot ourselves as we enjoyed it. As you mentioned you need to factor in your list wages. You may take a week off work to do something a trade can do in 2 days. We worked full time while renovating and worked nights and weekends on the Reno. It was hard work but very satisfying. We used a few tradies. The next ones we will use tradies more (we are getting too old). Haha!

 

I think @Travelbug pointed out something important here: know your market. What's your market? How much spend is necessary and not over-capitalised?

 

if you do a reno for the purpose of equity gain and using a few tradies is going to make the deal negative or break even, its a horrible deal to start with, and you might as well go to the casino