Hi everyone. Hoping you can shed some guiding light on our problem, although it’s a nice problem! Recently we bought a home and subdivided it. The block should clear us 100 to 110K after costs of subdivision, agent etc. The house on the original block is still worth the 230K we paid, and the tenant is on a 12 mth lease at 250pw.
We plan to relocate to Redcliffe Qld by the end of the year, renting out our PPOR farm with two houses. Would like for hubby and I to just buy-reno-sell or buy-reno-rent. We have 4 kids and don’t want to go insane crammed in a 2 bed something while trying to reno.
What would you do with 100K? Put it off the PPOR loan (240K owing, worth around 1M – much more with development approval) – or – put it off the IP (238K owing) – or – use it as 5 deposits for 5 renos??? OR what??? We would prefer for my hubby not to have to get a job, just to reno full-time, and perhaps 5 reno-sell’s would get us on our feet so that finance for future purchases wouldn’t be a problem?
Please give us your thoughts on this, any ideas are welcomed.
Redhaven.
Is the Reno-thing that you desperately want to do? WHy not invest the $100K into 2 or 3 IPs that pay for themselves without the reno?
Do you work or want to work? Why does Hubby wnat to stop working? What are your plans, other than what you have written above?Cheers
C@34
Thanks Calvin for the reply. Hubby and I are both rather burnt out from overwork and financial stress over many years. We would like to re-discover each other and spend quality time with our family. Hubby has quite a decent paying job here in Toowoomba but cannot transfer. He would probably get another job fairly quickly but then we’re back on the working treadmill, kids growing up and not enough time or energy to put into fun stuff. Our desire would be to clear 80K a year from reno/sell’s…so we can organise our life with family as a higher priority to work. Hope this makes sense?? The farm will eventually be approved for development, which will set us up very nicely, but until then (could be 5 yrs away) we need to use this 100K in the wisest possible way, like a catapult, to get us up to the next level.
Redhaven (Kerrie)
Hi Redhaven,
I’m not trying to rain on your parade, or to say that it is absolutely not possible to achieve what you desire. However, you desire to earn $80k per year through buy/reno/sell at the same time as spending more time with the kids. Here’s my problem – most tradesmen in your area would have to work overtime to achieve that kind of pay in a stable market, so how do you figure you & your husband will be able to add more value and work faster than somebody with years of experience?In a booming market, people are prepared to pay a high premium for freshly renovated properties, but not so post-boom. Buyers will look for value – if they can buy a similar property elsewhere and get tradesmen to renovate it, they will (as it will be cheaper than your property and renovated to their taste – not yours. Not to mention that they always underestimate the costs involved).
So I guess you need to have a strategy
– do you plan to do 20 x $8k renovations?
– do you plan to do 4 x $40k renovations?Using your own labour, you might get for $8k a new bathroom, new kitchen bench & doors, painting, floor coverings, minor cosmetics & basic gardening. If this adds a $12k premium to the price, are you prepared to repeat this 20 times a year?
You see what I’m getting at?Cheers, F.[cowboy2]
From a taxation view point, it would be better to put any cash you get off your PPOR and then redraw it for investments, rather than just paying it straight into the investments. You want to reduce non deductible debt asap.
But if the PPOR is not going to be your PPOR (or are you intending on mvoing back?) you should then put it off the new one’s loan.
Terryw
Discover Home Loans
Mortgage Broker
North Sydney
[email protected]Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
Foundation and Terry, thanks for the input. Foundation, I understand what you are saying. I was thinking more along the lines of 4 to 6 a year and doing them during school hours. However I know you and many others are of the opinion that prices will soon be dropping, and as such perhaps it’s wiser to sit tight and wait!?
Terry, we would be leaving the farm with our PPOR and an IP on it, and renting both out. We would not be planning to move back into our PPOR, instead would be buying or building another one at Redcliffe. Here’s a question for you. When we eventually develop the farm property the value will have risen considerably. If we’ve had it as our PPOR for 5 years and then rent both the houses out for the next 5 years (not the whole 100 acres) what does this do to us tax-wise when we start cutting it up into blocks? Would we be better to leave the PPOR empty in the meantime (or relocate it?)
And back to our original question, another thought, would we be better off to rent for 12 months in the expectation of the market dropping considerably, rather than buying in this year?
Aaaaaaaaagh so many questions!
Redhaven
Redhaven,
If the PPOR is actually worth $1M or more, another option might be to sell it and take proift of approx.$522K ($1,000,000-$240K-$238K = $522K). You could get a nice new PPOR in Redcliffe that you own outright and redraw on it + whatever cash you have left toward IPs.
The farm will eventually be approved for development, which will set us up very nicely, but until then (could be 5 yrs away)Do you have any guarantee of this timeframe? I only ask because I have friends who have received plenty of blue sky projections on what their acreage is worth (from $1.5M – probably realistic) up to $5M if development approved.
Only problem is that they have been waiting on approval for over 5 years now. I asked my mum about the area they are in & she said that they have been spruiking about development approval in that area for the last 30 years – and it still hasn’t happened.
Yes Jason, we know it’s going to happen. We actually bought it from a developer who went bust. It’s right beside the township. The surrounding development is all 1 acre down to quarter acre lots, and our property is unique and has wow-factor in that the views are breathtaking and are unable to be built out, and every block would have an incredible view. If we sold for 1 million now it would hardly be worth it, it’s not that much money in the big scheme of things (although years ago it was the magic number) but if we wait 5 years we stand to make around 14 million from the place on todays prices…to me that’s worth hanging out for. So selling it isn’t an option. We can get around 460pw rent from renting the two farmhouses out, which amply covers the loan repayments of 340pw…much less once we put that 100K against it, if that’s what we do?
Redhaven.
“I alone know the plans I have for you, plans to bring you prosperity and not disaster, plans to bring about the future you hope for.” ~ GOD ~ (Jeremiah 29:11)
Redhaven
Unfortunately with farms, I beleive that they are not totally CGT free, even if your main residence. You main residence and the surrounding 5 acres is all you can claim the exemption for. There are various concessions etc for farms which are very confusing, so I suggest you talk to a CGT specialist accountant about this. It may cost you a bit, but could save you thousands.
Terryw
Discover Home Loans
Mortgage Broker
North Sydney
[email protected]Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
WOW…you’ve gone from $1M to $5M to $14M in 2-3 posts….at that rate, I would hand on to it too![biggrin]
Yes Jason, we know it’s going to happen. We actually bought it from a developer who went bust. It’s right beside the township. The surrounding development is all 1 acre down to quarter acre lots, and our property is unique and has wow-factor in that the views are breathtaking and are unable to be built out, and every block would have an incredible view.Does this mean the property is currently approved for the development you suggest? Or are you just hopeful because of the abovementioned attributes?
Cheers,
Jason.Redhaven,
You also seem to require $ 80 K p.a…just like Lady24 ?? What is it about 80 K p.a….must be the new 2005 lifestyle cost level ??
Have a chat to Lady 24…or see earlier thread from last week…perhaps there is an easier way to acquire a clear $ 80 K p.a. than flogging yourself to death with dusty and dirty reno’s ??
But then if you have your heart set on it and can see a clear way forward – good luck with your endeavours…
Cheers,
Dazzling
“Go hard or go home”
It was approved a number of years back then it fell through (before we bought it) because a neighbour complained. However, now that neighbour is also willing to sell his block beside us for development…however the council is saying “not yet”. I am not sure where you got the 5M bit but you can see why we’d be reluctant to sell at the moment, for the going rate, when it isn’t costing us to hold it. We just have to sit tight and wait. Even if it takes 10 years, it’s accruing in value all the time so we will be able to use the equity in it. Don’t get me wrong, I am a microwave girl and would love to do it all now, but maybe I am learning a lesson in patience here? Not my favourite subject…
Redhaven.
“I alone know the plans I have for you, plans to bring you prosperity and not disaster, plans to bring about the future you hope for.” ~ GOD ~ (Jeremiah 29:11)
And thanks Dazzling, yes I did read that post, so did hubby. We are considering the commercial side of things but so far we’re getting very good results with our rentals…will probably stick with what we know til we get up and running a bit more. Thanks.
Redhaven.
“I alone know the plans I have for you, plans to bring you prosperity and not disaster, plans to bring about the future you hope for.” ~ GOD ~ (Jeremiah 29:11)
ooops…i think the $5M came from one my earlier posts…[blush2]…sorry…
I hope you do get approval you need. I only ask about this because one of my companies is involved in projects with the venture capital community and I have learned to become very wary of blue sky valuations based on verbal reports…when it comes to businesss, I live by the motto “if it isn’t in black & white – it doesn’t exist”.
Best of luck. [biggrin]
Hi Guys,
However, you desire to earn $80k per year through buy/reno/sell at the same time as spending more time with the kids. Here’s my problem – most tradesmen in your area would have to work overtime to achieve that kind of pay in a stable market, so how do you figure you & your husband will be able to add more value and work faster than somebody with years of experience?Hi foundation. I’m not sure what you a getting at with that comment. Redhaven is taking about adding value and making capital gain, not working for wages as a tradesman. It is very very different.
.
Most tradesmen I know would smash that 80k figure anyway. Sure you have the 6 till 2 then down to the pub sub contractors that work for large project builders as subbies. However, anyone working as a sole trader would certain achieve a higher wage than that. That’s just the builders not to mention the plumbers and electricians who are earning on average more than GP’s (last sundays paper).
.
Redhaven, I think it may be viable for you to earn sufficent income to replace one wage through the reno/sell idea. What you will really need to consider is the entry and exit cost including capital gains taxes etc.
.
You will be aware that you make your money when you buy. This will never be more important than when you are trying to turn a property over quickly. You will need to negotiate a low fair purchase price and possibly get access to the property before settlement for repairs. (avoid spending alot of capital on the property in this period in case things dont work out.)
.
The most important thing about this idea is to be realistic about your costs and sale price. Try finding finished properties (to the standard you are going to renovate to) and compare them to yours. Make some offers on these to establish how much fat there is in the selling price.
.
Keep your material cost dowm. Source building auctions and high quality second hand material. Negotiate everything and build solid relationships with your suppliers. Stick to a time line and budget and do one project at a time. Most of all have fun. Get the whole family involved.
.
Good LuckDon Nicolussi | Mortgage Broker - Home Loan Warehouse
http://homeloanwarehouse.com.au
Email Me | Phone Me"I think of finance as a technology, a way of getting things done." Robert Shiller
Hi foundation. I’m not sure what you a getting at with that comment. Redhaven is taking about adding value and making capital gain, not working for wages as a tradesman. It is very very different.[blink] Well what is your definition of:
a) adding value
b) making capital gain
as relates to this proposal and how is it ‘very very different’ to doing the work of a tradesperson?
The way I see it, there are only 2 options, they either do the work of tradies themselves, or they pay tradies – either way, my point should be clear.Redhaver & husband are planning to make $80,000 per year by renovating 4-6 houses. They will need to clear $13k to $20k per house, after expenses. The problem I’m pointing out is that buyers will only pay a small (if any) premium for a renovated house over the unrenovated house.
For example, which will buyers choose –
a) a $200k unrenovated house requiring $40,000 to renew
or
b) a $260k house already renovated?If the answer is b), Redhaven is onto a winner. My point is that buyers have become far more cautious and savvy recently. Also, thanks to renovation tv shows, many have an unrealistic expectation of the costs involved and will therefore only see $30k worth of expense in option a). This may in fact be true if they are prepared to put in some effort themselves and live with the results rather than pay for tradesmen to do the work.
Most tradesmen I know would smash that 80k figure anyway.Sure, over the last few years – but with building approvals plummeting, how long will this last?
Cheers, F.[cowboy2]
Hi,
My point is that buyers have become far more cautious and savvy recently. Also, thanks to renovation tv shows, many have an unrealistic expectation of the costs involved and will therefore only see $30k worth of expense in option a). This may in fact be true if they are prepared to put in some effort themselves and live with the results rather than pay for tradesmen to do the work..
Very much agree with this.
.
The other point I was making was that the builder just gets the wages regardless of what impact his efforts have on the capital value of the property.
.
Ie there is no profit sharing unless there is some sort of JV agreement.
.
Your point about wages in the building sector being cyclical is a good one.
.
I base my support for the reno idea on personal experiences, however, these jobs can become money pits if you don’t know what you are doing.
.
Broadly speaking at the lower end of the market you will need to do most of the work yourself. Redhaven seems happy to do this and seems to have some confidence in his ability to do it.
.
Good Luck.
.Don Nicolussi | Mortgage Broker - Home Loan Warehouse
http://homeloanwarehouse.com.au
Email Me | Phone Me"I think of finance as a technology, a way of getting things done." Robert Shiller
About tradesman, yes, if you look at good, reliable tradesman, they will easily make 80k a year. That is with many of them not working on new dwellings etc. I guess the only thing slowing them down now will be lower consumer spending and sentiment.
I also bid you good luck with the renovations!
I am now renovating full time also. But the onlt things I get tradeys(always mates rates) in for is gasfitting and cabinet making. And I now have an excellent relationship with many suppliers. I am also an electrician by trade.
There are alot of people giving it a go, but it is a fine line between getting yours to what is required the WOW factor. If it is on the other side of that, as foundation said, your gains will not be too high.
If you can find a way to hold on to them for 12 months also, that would be good.
Alot depends on your situation which we are only assuming(never good).
Hope this helps in some way though.
Wish you all the best. Do it well and you will reap the rewards!
J.
Thankyou everyone for your input. I would dearly love to have a shot at it, but I am not sure about the risk-level at the moment. That’s why I wanted to pick all your brains! Foundation, hubby and I would be buying under-market properties – at least, that’s the plan…we’ve just finished reading “The One Minute Millionaire” – wow, talk about inspiring. Certainly helped us to see there’s plenty of opportunities out there!
Thanks again everyone. Will let you know how we go…
Redhaven.
“I alone know the plans I have for you, plans to bring you prosperity and not disaster, plans to bring about the future you hope for.” ~ GOD ~ (Jeremiah 29:11)
If you are really planning to make the move to Redcliffe (once termed Deadcliffe), then occupy yourselves with that.
Everything is a stepbystep and you need to take one thing at a time. Is it possible for one of you to have, even a part time job starting in Redcliffe or Brisvegas? Doesn’t have to be the same stressfilled work you are at now.
What about the move and children changing school? Another step is enrollment.
Accomodation wise, renting until you can have a real good look around the area and do adequate research is a given.
So now with the children in their new school, some money coming in with wages of some sort, and adequate house to live in, how is your goal now? Do you still want to reno full time? How’s the market look? How are the rental levels? Your goal may be looking just that much closer. Do it all in steps and you should be ok and less stressed.
If you want to get out of a hole, first stop digging.
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