Structural Alterations, are they ever cost effective?

[dynamite]

As most are aware I am looking at doing a major structural extension to a property.

It is my belief that there is a $100k profit to be made in doing so. (based on rough due diligence)

However most sites and people I speak to reckon they are not profitable.

I presume this is on a normal property basis. In my case the potential property has views and potential for extensive views. plus is ideal to render and deck.

Are these generalisations mentioned, just that, generalisations?

 

[bagg]

I think they are generalisations!

For instance: I looked at an IP on the WE that required about 100K of restumping, reroofing rewiring & replumbing. (Georgian cottage ~ 1890). Most of this would not have improved the rent on the place and would not be appreciated by most new buyers either, until they feel though the floor etc of course.

However; decks, knocking out walls adding rooms are relatively cheap and easy and do tend to increase the value of the property.

If you want to post some specifics I'm sure people will comment.

Cheers,

bagg

 

[Michael Croft]

Hi dynamite,

"rough due diligence", must add that to my list of oxymorons, along with military inteligence, American democracy and the like.

The short answer is 'yes', and the more complete answer adds 'and it depends'. Depends on definitions and what you plan to do and where and when etc. Often a 'major structural extension' (please define) may involve as much work as a bulldozer and clean slate (which may be more profitable).

I always run several cost benefit scenarios on potential aquisitions and this keeps me on track. Option #1 do nothing, #2 buy and rent out as is, #3 buy and sell as is, #4 do cosmetic reno (cheap) and rent out, #5 buy do cosmetic reno and sell, #6 buy do major reno and rent, #7 buy do major reno and sell, #8 buy bulldoze and develope to max permitted buy council and sell, #9 as for #8 then rent, #10 a combination of #8 and #9 if a multi unit site.

When you have done the above numbers ($$) one scenario will stick out like the proverbial and this is the one to follow up with more due diligence (eg will I actually be permitted to build the ten units on this block or will the the native three toed hairy swamp sucker that used to migrate across the block stop my DA?).

regards, MC

 

[dynamite]

Cheers MC

I am suprised you were not aware of "rough due dilligence", its also called "I have no idea accept its the only option, and on the surface looks a possibility" ;-)

I like your scenarios, but I need a beginners version, perhaps in my case its jump on the roof with a cold one and check the view out.

So you always start your due dilligence after choosing a scenario?

In all honesty Im getting the feeling major extensions are dependant on possibilities+benefits of possibilities+market conditions (you dont spend $300k renovating in an area with a max house price of $200k etc).

Thanks.

 

[Michael Croft]

Hi dynamite,

That was the beginners version

Roughing out the numbers on various scenarios forms part of my preliminary investigations and the more complex are done with a pocket calculator and pen on the back of an envelope or napkin (literally). The gross numbers and possibilities are refined with due diligence.

So yes, due diligence starts once I have selected "the most likely to......" if it has met my criteria. And before you ask, my selection criteria vary enormously depending on where we are in the cycle, what market I am looking at and so on; however all involve making a healthy profit after all expenses.

regards, MC

 

[Sash M]

Hi Michael,

Can you expand on how your selection criteria has changed in this current market cycle?

Am i right in guessing that your selection criteria has been tightend considerably so as to weed out all but with the best risk/reward ratio?

One more question if I may. With experiencing several market cycles, in your opinion, what strategies do you drop and which do you implement in this present time?


Thanks
Sash