Hi All,
I am yet to make my first property investment purchase and want to use the tried-and-tested strategy of finding places that need mainly cosmetic work, doing simple renos (up to $10k worth) and getting a re-valuation to pull out the equity to fund further property purchases.
Out of curiosity and laziness I rang a property buyer and explained this to him, and his reply was that since the GFC valuers are far too cautious and will not raise the value by very much to make this strategy worthwhile anymore. He said if you renovate a house and spent $30k on renos the bank would only tell you it's worth $35k more than what you purchased the property for.
For those with experience in this strategy, what do you think? I realise he had an ulterior motive in getting me to use his services, but is there any truth in it?
It can be done, but you would need to consider your budget and plan accordingly. I think $10k sounds like a pretty small outlay for a reno and you might not be able to improve it much with that kind of budget.
Cheers,
LukeHi U36,
Yes there is some truth in this. You always have to take into consideration the fact that the bank/financier will take the most conservative valuation of the newly renovated property.
However, there can be a considerable difference in value if you add the right things to the property for the target market. One example is converting a 1 bedroom unit to a two bedroom. Much more value than new paint. A valuer will tick the boxes of the property features for assessing value, rather than the finish of the features, so an extra bedroom gets more brownie points than a new kitchen, a garage is more valuable than beautiful landscaping and so on.
Your property buyer is right in saying banks are cautious but not necessarily for the reason he states and it sounds like he hasn't done any renovations himself. In a slow market they are very cautious, but in saying that if you look along the lines I've mentioned above, you'll probably find the increase in value acceptable to banks via their valuer and you will achieve your goal.
Learn more about renovating and what your options are.
Ian
http://theblockblog.com
The Block That Makes Money Renovating
Thanks both for your answers. It makes sense to focus on only the things that the valuer will tick off as an improvement rather than just purely cosmetic reasons. Would be good to have that list of checkboxes!
Values have been taking a hammering of late so all you’d achieve would be maintaining the value of the property.
Do not get confused between what is 'adding value' like an extra room/an outdoor living area as compared to repairs and maintance (new paint/carpets etc).
If you spend $10K on new paint and carpets, you may get an increased valuation of between $10-15K and make it easier to sell (reducing your holding costs and allowing you to move quickly onto the new profit making deal. However, if you spend $15K by doing the paint and carpets AND dividing a LARGE room into an extra bedroom/office, you could add $30-45K to the deal.
Living space is what adds value.
Hi U36ma,
Depending on the extent of the renovation that you are doing, you might want to investigate via a valuer whether it is worth doing a "current valuation" and at the same time get an "on completion valuation" done. To do this you need to list the scope of works that you are going to do to the property because you will provide this to the valuer. My friend in the renovation game six years ago used to do this type of valuation on the properties that he was renovating. However, he was doing larger type renovation work to the properties. The terminology of use might not be correct but the process is.
Hope this helps.
Regards,
Jason Moore
Property Trader | Boston West Pty Ltd
http://bostonwest.com.au
Email Me | Phone MePrivate money lending opportunities available paying upto 12%, secured by bricks and mortar!
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