Renovating Structure

Discussion in 'Renovation & Home Improvement' started by Goosehead, 10th Jun, 2019.

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  1. Goosehead

    Goosehead Member

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    Hi Guys,

    I am looking at renovating a property in Brisbane, raise and add a bedroom.

    Are there any tricks of the trade to set up finances? I plan to borrow all costs, and have factored in 2 months loss of rent into the costs. Is that an issue?

    However to get the project started I may need to pay for parts of it prior to applying for a loan, plan's, costings etc. This will come out of my own money so to speak. Is there a way to get borrowed money rather than using offset from PPOR?

    Also are there any traps I need to be aware of? For example if it is just a short renovate job, I believe the property needs to be set up differently (registered for GST etc.)? As I have owned it for 10 years I don't believe this is required.

    Thanks in advance.
     
  2. Lindsay_W

    Lindsay_W Well-Known Member

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    In order to fund this the lender will need an 'as if complete' valuation, the rental figure from that valuation will be used for servicing so loss of rent doesn't come into it from their point of view. In reality it does affect your cash flow though, so it's good that you've account for it. If you mean you want to include the loss of rent into the total funding costs, not gonna happen.

    When you say raise and add a bedroom, do you mean you're lifting the existing structure or are you building on top of?
     
  3. Terry_w

    Terry_w Mortgage broker licenced 4 tax/legal advice Business Member

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    borrow against other property?

    GST act defines 'new' to include substantially renovated.
     
  4. Jess Peletier

    Jess Peletier Mortgage Broker - Australia Wide

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    Hey there!

    If equity is sufficient, it can be done just as a cash out, which is a much simpler process. Loss of rent should not be an issue - if we get a rental appraisal from a PM showing the expected rent post reno, and evidence of rent pre reno, they'd usually use the pre-reno figure without too many problems.
     
  5. Goosehead

    Goosehead Member

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    Hi Lindsay, I mean to lift the current structure to make downstairs legal and add a main bedroom. I figured I couldn't borrow the money to cover the rent loss, just didn't want to believe it ;-p
     
  6. Goosehead

    Goosehead Member

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    Should have the equity to borrow against the property, have a preapproval, but that is the easy part. need to work on the business case for the full approval. Pre and Post rent vals, property vals, planned costs etc.

    As far as tax goes, I am curious if I am carrying on an enterprise as far as GST goes? Also if there is a CG related to the reno, will this be treated as ordinary income, the tax treatment can be different?
     
  7. Terry_w

    Terry_w Mortgage broker licenced 4 tax/legal advice Business Member

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    Not enough info for the tax side but unlikely to be an enterprise if is this a one off and likely capital account too.
     
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  8. Lindsay_W

    Lindsay_W Well-Known Member

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    Ok well I've had some close friends go through lifting a house recently, initially it sounded like a good idea, so cheap they thought!
    Then they basically spent triple their budget due to issues they had when lifting (kitchen fell out is one thing, there were many more) It's worth spending the time getting the initial inspections etc done by a reputable person, don't just go for the cheapest quote. I know there are people on this forum that have successfully lifted houses before, maybe try searching the forums a bit for some tips.

    Pre rent vals don't factor in as it's the post rent value the lender will use for servicing calculations to fund the project. Also don't bother with a pre-approval just speak to a broker who can tell you your borrowing capacity (with post rent value included) and get an as if complete construction valuation completed prior to submitting any application for finance.
     
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  9. Goosehead

    Goosehead Member

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    Thanks for the replies guys. There should be plenty of equity to borrow money to renovate, although it has been some time since I have applied for a loan in the new era of APRA lending. As always though with a first time renovation I have considerations in regards to the actual cost of the renovation, and the actual gain, but not trying can be a fail as well.

    Terry I have concerns as according to the ATO it reads that it depend on the time of sale after improvement that decides if it is a enterprise.
     
  10. Terry_w

    Terry_w Mortgage broker licenced 4 tax/legal advice Business Member

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    That is not really the case, but could be one factor that is considered.
     
  11. wylie

    wylie Moderator Staff Member

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    We've just raised two houses in Brisbane. I thought we would have no tenants for three months but planned for four months.

    There were problems and we were six months without tenants.

    Problems started from day one with trying to disconnect gas and power. What a nightmare. You will not have tenants back in within two months. I'd bet money on that.
     
  12. Rolf Latham

    Rolf Latham Inciteful (sic) Staff Member Business Plus Member

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    This is one reason why lenders sometimes have a less optimistic view of a project than the person doing the project.

    The longest I have seen for someone to finally achieve subdvi was 5 years, and that was mainly due to a fight with the council and neighbour over a drainage issue that was a max 90 day solution.

    ta
    rolf
     
  13. Goosehead

    Goosehead Member

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    Hi Wylie, how did you go about planning the renovation? Are there any good project management tools to assist in the planning and financing for the project?