Renovation due diligence
Cosmetic reno; getting in and change the look and feel
Advance reno: change structure
Add value for as little money as we can
Buy100k + 30k reno, revalue @160k, and borrow against the new value to get new capital for the next project
End sale value: the biggest mistake is overestimate the end sales value
The selling agent of the property you are buying should have an idea what the end price is, then go and look as many house as you can to confirm the end price.
Go to another angent, pretend to buy the end property in the area, then you get truer picture, as agents talk differently to seller and buyers. If it’s a small town, get yoru friend to do it.
Dean doesn’t factor in any decline and growth in projecting end price. However he is conservative in budgeting the end price.
It’s difficult to find reno proj with profit in it. Need to be very careful.
Because there is a trend of people doing reno, people are starting to pay premium for unrenovated houses. Therefore you need to be able to negotiate better deals to ensure there is a profit in the end. Though now there are people who are willing to drop the selling price a bit.
Some reno proj are better than others. A perfect reno project is somthing not too old in a decent area.
Something quite old with structure prob that needs new stumps or have invisible prob such as wiring is no good.
Look for where you can add a room w/o extension.
Emotional area of property cause greatest value appreciation. Kitchen and bathroom are major areas where you can spend money. The danger in reno is ppl spending too much inside and little outside. You need to get ppl inside first. Dean only buys units if they are a block so he can change the outside.
Get building inspection to find things that you can’t see.
Restumping, rewiring, reproofing does not add value. Be diligent ,detailed and thorough in the costing . Make decisions about what you need to change before you buy.
Q:How to separate the ones will truly add value from those just “nice to haves’?
A: It comes down t research. Before you buy, decide who is your market and target that what is needed. Keep in mind what’s selling fast. Look for the style of the house in the area that’s selling fast and look for something that’s similar. Ask REA what price range sells best.
Q:What are the ways of cutting down unnecessary reno cost?
A: If you know the target market well and look at other properties then you know what’s needed. Determine what you need to do to fit that target market. For every dollar you spend, you need to get a greater value back. You don’t have to replace the whole kitchen and bathroom.
Some reno work requires permit. Cosmetic reno does not need permit. Structural change such as stump, roof, and walls generally need permit. Painting, change tiles and carpet does not need permit. Rules and regulations are different in every area. Best to check with local building surveyor.
Unexpected holding costs are the biggest blow to reno prj. Early access is an advantage. Minimise the down time in the project. As soon as one tradesman finish, get the next one in . Plan the time for the trades people.
Some times it is hard to get to finance reno prj. Renos are cash intensive. If you can get a permit for a structural, then you can get a loan from the bank. As soon as you finish reno, trying to get the value.
It’s important to know how it hinges together. It’s good to do it first time yourself to understand how every job hang together.
For people who plan to do multiple projects at once you need a system to manage it.
Q: How to estimate material cost?
A: Go to bunnings;
Q: How to estimate labor cost?
A: For most trades like tile carpet, painting tile you should be able to get accurate quote. Plumbing labor is hard to estimate. It comes down to the complexity of the prj. Get a plumber through the property and let him know what needs to be done. He should be able to give you an idea how much it costs. Then add 10 to 20% for unexpected things. You can use your home as a test case to get an idea what everything costs.
Dean budgets Cosmetic reno on 10% initially. Later he based it on the profit that can be achieved.
Q: How do you separate emotion from the numbers in reno.
A: Make sure to meet the requirement of the target market.
Factor in a handy-man’s time for bits and pieces. Get a quote from a handy man re hourly rate
Current market:
Mixed messages out there. We are at a point of change. Uncertainty needs to be factored in when you buy.
Do your due diligence and be prepared to walk away if the numbers don’t stack up. Know your market, know your target market.
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