Advice needed for 1st ever Reno!

[arriety]

Just want to run this past experts before I make an offer. I've seen a good solid brick (down) and timber (upstairs) house from the early 80s on very large block, most of which is unusable (1/3 slope). They are asking $325+ It has nice views but is in bushfire prone area with lots of trees near house. No garage/carport and garden needs a good tidy up. 4 bedrooms, 2 baths (not ensuite). It is currently rented for $280 a week but tenants have left it a complete mess - so really hopeless for open inspections and am not surprised they havent' had any offers as yet.

I'm planning on going in with a friend 50/50, putting down small deposit and borrowing enough to do renovations (we don't think we'll have any problems borrowing the money). It needs complete makeover in kitchen but the cupboards are solid wood so might be able to keep the structure. It has no heating or cooling, no carpets on concrete floors and bathrooms need updating. The layout is not great and the rooms are a bit on small size. Other 80 houses in area in original but reasonable condition go for about $400.

I'm thinking of offering $290K and negotiating from there.
then there's $16K for taxes etc
Reno $30-50K - kitchen, bathroom, carpets, curtains, aircon, fire sprinklers, water tank, garage or carport (prefer garage).
$6K morgage interest while renovating

We were thinking of spending 3 months on reno and then renting for rest of year and then selling.

Now I'll be up for Land tax probably and capital gains - what I'm wondering is...will I make enough profit if I go in with a friend? Or should we be considering older and more run down to renovate?

 

[lizzie]

are there any reno'd places nearby that you can compare with?

my first step would be to find out how much it would sell for after the reno. ask r/est agents (not the one you're buying from) for their opinion - in today's market that's not going to change much over the next 12 months - and work back from there to see how much profit you "think" you will make as accurately as possible. there are always variations in cost (some up some down) once the reno is underway, but all you can do is run honest sums and see if the property will make you enough profit to justify the risk.

 

[Twitch]

I'd only spend that kind of money if converting the property to a higher use, or completely altering the entire facade and character of a house. Your list doesn't appear to match either of those.

Otherwise I like the look of a Peter Spann approach (never done it myself though), a cosmetic makeover only. However in this market I doubt there is money to be made doing this unless you buy really really well.

 

[arriety]

are there any reno'd places nearby that you can compare with?

I did have a look at a house in similar situation although the driveway into the garage is very very steep and I think that in itself would put people off. I know the couple selling this other house (their PPOR) and they have renovated the one bathroom and kitchen - apart from drawback of drive, only one bathroom and age of house, it is a comfortable home in a nice area. I justed looked on RE.com.au - They originally had it on market for 450K but I noticed they've dropped it to 398K this week! The couple have already bought another property and will be anxious about selling by now.

 

[lizzie]

do you know of any that have recently sold (r/est can help with this) as the difference between what people "want" and the market is prepared to pay can be tens of thousands appart (as your friends are finding).

so using their figures: assume they are negotiated down to 370k (or lower).

your purchase price $300k
costs $16
reno $40 (carport/driveway alone will be around $10k)
holding cost $6
eventaul selling cost at 3% of $370k, approx $11k

total expense $373k ... or, in other words, a loss

to make a reasonable profit of, say $15k each, you'd have to be able to buy at less than $270k or cut your reno costs substantially.

i agree with mdk92 that a quick cosmetic slap up won't cut it in this market. really you have to be looking as something in a very desirable location or changing the use - ie - knockdown and rebuild, dual occupany, subdivision.

don't give up - what you are learning by going thru this process of evaluating is invaluable to the stage where you can spot something and immediately know if it's a deal or not.

 

[Jacque]

Work backwards from similarly renovated properties in the location, as Lizzie has pointed out. There's always money to be made, regardless of the state of the market, as LONG AS THE BUYING PRICE IS RIGHT

Cater to what the market wants (not what you think it wants), plan your reno well so that it is over as quickly as possible (to minimise your holding costs) and ensure you get access prior to settlement for at least the purpose of renovation quotes.

Good luck and let us know how you get on!

 

[arriety]

Oh you guys are so right! Thank goodness I posted here first before getting too carried away. - Sigh - My girlfriend and I are going to look at the property again on Sunday but then we'll check out other similar ones in good condition in the area and see what price they are looking for. I'll also go through the homepriceguide for some real figures. It's hard though because there is a mix of expensive houses literally around the corner ($million+ homes) and houses that were built in 70/80s and a not upgraded at all!

thank you all for your comments - curbed my excitement a bit but has made me see the property through different eyes.