Renovator Newbie NFI - Needing Advice

Hi All,

I've got a current opportunity to buy a house in a booming area that I love. It's an average sized 3br house made of cedar.

The house is going for around 850k and the houses either side of it i rekon would be 1.2 mill and 1.4 mill. The location is pretty good too. The average price of the area is 1.2 million.

I spoke to the agent and asked him how much it would cost to bring it up to a good standard. He said 200k and the place would be worth maybe 1.2mill after that.

Problem is I can def afford 850k, but I don't have a spare 200k to sink into it. I'm guessing his estimated budget is based on redoing everything to a modern standard, new kitchen, bathrooms, landscaped gardens etc.

If I buy the place, I'll owe the bank 80% and I'll have about 50-60k left over in cash with the ability to save an extra 20k a year after all my living expenses and interest payments.

In terms of my experience renovating, I've watched my parents do it, and have had some really basic experience sanding stuff and painting walls etc, but thats about it. I'm a newbie.

What I want to ask is... If I buy this joint, am i setting myself up for failure, or could this be a project that ends up being rewarding for me in a financial and personal sense? I'll list through the things that I think it needs below:

• The house has a balcony that wraps around the back of it. Whilst the trusses that the decking sits on seem to be ok, the decking itself is old and worn, and the railing and stairs leading down from the decking are a bit old and rotten and need replacing. I guess there are some unknowns here.
• The inside of the house smells quite bad. It smells like animals and cigarettes and cooking and the smell is quite powerful (you couldn't live in it with this smell.) . I'm guessing there's cat/dog urine that has seeped into the particleboard flooring and this may need to be replaced as well as a complete clean (maybe professionally) of the internal walls/ceiling to get rid of 30-40 years of stench that has seeped into the walls.
• Floor coverings need to be replaced. I'm thinking hallway and bedrooms would be carpet and living area would be fake timber floating floors.
• 2 bathrooms and a kitchen need a refresh. I wouldn't replace them entirely, but they look pretty dated and need some kind of update in some way.
• Internal walls, ceiling needs repainting.
• Exterior of the house needs painting.
• Facia boards at each end of the pitched roof need replacing.
• Garden is overgrown and needs tidying up.

I wanted to know what peoples thoughts are on being a renovation newbie and taking on something like this with my kind of budget/financial position. This place doesn't seem like an easy step into becoming a renovator, but I really love the area it is in and I'm pretty sure there will never be an opportunity to buy a house in this place for this price ever again.

I'm a reasonably smart guy, and I can figure things out on own pretty well.

Am I being naive that I can do this? Does it sound like I'm biting off more than I can chew? Thoughts and opinions on this would be greatly appreciated. Don't hold back!


Thanks in advance.

 

Bite off more than you can chew, then chew like hell

If a PPOR, buy and look at the long term

If just buying to turn a profit forget it, you don't seem to have the capital

Plan C (D or E), ask parents for their help, be it physically helping or contributing financially (agreed in writting, with a time limit for the sale, repayment of investment with a % of profit for each party)

 

Is it possible to live in it and renovate slowly?

But on never being able to find a house like this for this price ever again... even if that were true, you just need to make more money somewhere else, right?

 

Is it habitable?

Option 1: Live in it yourself and slowly renovate it.
Option 2: Lease it out for a few years, rent elsewhere for cheaper, and come back to it when you've saved more money.

I did option 2 for 7 years. The only issue being, it's been so long, I sorta wanna move on from it already.

 

I guess the first question to ask is with the properties on both sides are they the same size--land area-- as the property as the one that your looking at..

If they are all the same footprint then why is there so much difference in price between--850k--1-2 mil--1-4 mil ?..
The only part that would concern me would be the particleboard flooring ,the rest on the list would not be a big problem ..Plus i don't think you are setting yourself up for failure as my idea of failure is when you hit rock bottom is how far you bounce back..good luck..

 

As per @wylie comments.
We bought well beyond our means for a PPOR in a great area that need renovation, we couldn't ever have afforded the area otherwise.

Each time it rained or was too humid the cat pee smell was enough to make you sick, mid way thru our first Spring it got too much, we ripped out the carpet and underlay and lived with the old particle board flooring !

We saved and painted walls, varnished archives (removing wardrobe doors and changing surrounds), eventually got carpet and underlay and finally installed mirror robe doors 18 months later.......

Kitchen and living got a reno after a few more years, but the bathrooms (laundry and old slate tiles downstairs) remain outstanding after 9 years of ownership

Property cost $800k in 2011
Property today, about $1.5 (and we have had a great place to live the entire time ).

Life isn't perfect and neither is our house
But we are comfortable and happy
The equity created via growth in recent years has enabled us to redraw and split loans for 2 investment properties to date (limited by serviceability now)

 

In addition to looking at the land area, I'd look at the house size, type (are the comps some sort of desirable period home etc.) and level of finish. Wouldn't rely on the agent's cost estimate for the reno.

As for taking on a reno with limited experience, we bought our first place in completely derelict condition and fixed it up to a great standard with no experience to start with. YouTube, forums etc. are immensely helpful. Most stuff isn't too difficult, just make sure you stay safe. Get someone experienced to have a look so you know what you're getting into.

 

I also just bought a place I can't afford to renovate. Think about it this way: what does the interest cost for you to hold until you can save enough to renovate, keeping in mind we're at record lows? Alternatively, how much will the market go up during that time? If the former is lower than the latter, then just leave it empty. You could rent it out of course but then you'd lose your tax benefits.

 

Yes, if you do lease it out, live in it for 6 months first to establish main residency. You can then lease it out for up to 6 years with no CGT liability. Treating a dwelling as your main residence after you move out

In my case, leasing it out and renting elsewhere was significantly cheaper. Unfortunately, I made the mistake of not living in it briefly first.

 

Wow! thanks for the awesome responses!!

Thanks @Stoffo Plan C/D/E isn't available. In fact my mother came and looked at the place and it smelt so bad that she said she'd disown me as a son if i bought it

But I'm buying as a PPOR, however I would like to be able to get it to being in a rentable state after a year. When all this COVID stuff ends and I can travel I plan to go off and roam for a year or two. My work is all online so I'm not stuck in one place. Plus the location of the house is good for summer airbnb rentals and I'd like to cash in on that as soon as I can.

@Stoffo what do you mean that I don't have the capital to turn a profit? You mean if I had 200k I could quickly renovate and flip it? Anyway, not my intention. I plan to keep the house for 5-10 or more years.

@Trainee I could live in and renovate slowly, however the smell makes in uninhabitable, so that would need to be sorted first. And as mentioned above I'd like to get it to rentable state ASAP.

Yeah good point about make more money somewhere else. Do you mean with investment property? I guess I could focus more on my business than renovation and make more money there instead. But that would mean waiting another 5-10 years before coming back and buying in this spot.

@wylie you guess right it's a 1980s house. It's of timber construction (cedar). It's got kind of a ranchy feel to it in a way. I'd say definitely the Urine has soaked into the particleboard and it would need ripping up. It's a shame there's no timber floor boards in it, but then again they'd be ruined probably by the urine.

@willair the properties either side are similar sized blocks. The difference is one is an old 80s house which has been fully renovated already, and the other is quite new and very nicely done, and much larger. Basically land value is 800k, and in this area most people who would buy a house like this one would knock it down and spend 700k+ building a new house.
The flooring is one of my main concerns too.

@jsmith88 The houses in the street are varied, but one by one the older ones are getting knocked down or having major renovations to the point of appearing like new. There's a few old 80s brick houses in the street which are a bit ugly, but that will change quickly in this area.

When you say don't rely on the agent's cost estimate. Do you think he would be under quoting the cost or over quoting it?

-----------------------------

Does anyone have any rough ideas of what to expect in terms of cost for such a renovation? I know it' probably a tough question without seeing the place.
Noting the following:

• I'm not going to replace the bathrooms and kitchen. Just a slight refresh, maybe paint tiles, replace shower cabinet etc. Cupboard doors etc... not full renovation.
• I will probably need to replace the particleboard floor throughout (although prob not in tiled areas such as bathroom laundry and kitchen.
• Large balcony outside needs some structural repairs, new stairs, new railing, replacement of rotten bits.
• The smell! this is unbearable. I spoke to a forensic cleaning service and they said it could be 10k. That sounds like a lot to clean the walls and ceiling to remove a smell.
• Whole house needs internal painting.
• Carpet 3 bedrooms and hallway, floating floors in living area.

Can anyone recommend an approach to figuring out the numbers?

Also, I'm wondering how much of the cost of renovating is the labour cost and how much is materials? Can you really save a great deal by doing the work yourself?

 

I’d get an in depth building report done on it or take a builder through to get an idea on if there are other issues you can’t see that would kill the deal, what they think the issues are and how much it would cost to fix. You need some independant verification of the issues and cost to make this decision then work out what needs a professional and what can be DIY with help of your parents experience and good old YouTube.


The Zinser range of products can help with the walls and stains and stench potentially eg Rust-Oleum 3.78L B.I.N Primer Sealer Stain Killer

If you borrowed at an LVR of 85 or 88 how much cash would you have for renovation. Using some LMI up to around 88 generally gets you quite good return for the cost of the LMI. After 88 it’s not as good value.

 

My LVR is 80. I can't really go above that given my current circumstances.

One of the challenges of taking a builder through is that there are two other parties currently booked to do the same thing in a weeks time. If I wait and do this when they do it, then I might have some competition. But if I put in an offer now without having another viewing then I might beat them to it.

 

Are you sure you can't go above 80? Have you talked about this with a broker?

BTW I think the project could be awesome if you can DIY a lot and put in some sweat equity, I would just hate you to find huge issues. I don't know about your state purchasing rules though - do you have a cooling off period where you can get someone through?

 

When I’ve looked at projects like this I always work on a worst case scenario.

If you buy it and only have $50k for Reno but get started and realise it’s going to cost $150k what do you do?

Can you do a heap of work, nights/weekends for a year to get your cost down as low as possible?

Can you live at your parents and live super cheap to save extra cash to pay people and accept that it may take 2 years to complete the Reno?

Is there somewhere you can get the extra cash if you absolutely have to? Parents etc then sell after it’s completed get your money back or just cop a small loss?

I find that if the worst case still seems ok (I won’t lose my shirt) then it’s probably an acceptable risk for me, but everyone is different.

I’d also double check that it is a urine smell and not from cooking drugs, once drug residue seeps into everything I think your cost will blow out massively!


If they’re risks your ready to take I’d tell the agent I’m ready to make an offer but would like to make it at the house, use that as an excuse to take a mate or a builder pretending to be a mate for a quick look through, and be ready to adapt the offer depending what your builder says. This will keep you ahead of the crowd but also give you some small piece of mind.

I’d also be aware of who is selling the house, is it the bank? If so, and you can offer just enough to keep them happy and offer no conditions on the sale then you’re in a great position.


If you’re not prepared for the worst case scenario then I’d probably walk away.

 

This is the first house we ever renoed. Affectionately known as The Nicotine House.

5 weeks reno.

$3 uplift for every $ we spent CF+ from day 1.

It's a learning experience!

Go for it!!

 

Yes!
I didn't even want to look at it but Nathan Birch (who was our buyers agent) talked me into. It went to auction. Only 1 other person turned up because of the photos.
The thing that wasn't mentioned was the 8m X 5m near new brick extension on the back. Pays to buy from a stupid agent.
I bought a garden sprayer and filled it with warm water and sugar soap. Sprayed the ceilings and went outside. 15 minutes later tar was dripping from the ceiling. X3 and 3 coats of Zinzer.
We did a burnt out house later and that was less painful than this.

 

As the others have said, you will probably get away with far less than $200k by doing a lot of the reno work yourself. By living in the house while you work on it, you can reduce the need to pay many of the tradies and do the project managing yourself. A couple of years ago Hubby and I ripped through a friends' property while they were interstate. Quotes came in around $65k for half the jobs we did, and our actual "costs" came in at $23k. We did much of it ourselves and paid willing helpers cash to help with cleaning and garden (massive massive job) and putting together the Ikea kitchen with us. We still arranged some tradies to do the jobs we couldn't do ourselves and that $23k above includes their prices. By doing much of the reno yourself, it may well come in under $100k which you can work through over the next five years.

 

Note this is not correct - see Terry’s tax tips.
There is no set period for main residency as it depends on the facts, I suspect might be thinking of FHB or OO stamp duty rates in your relevant state.