All Topics / Help Needed! / New or old unit?????

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  • Profile photo of KurtukKurtuk
    Participant
    @kurtuk
    Join Date: 2013
    Post Count: 19

    Hi All,

    I am looking into an IP within 10km of Brisbane CBD. I am looking at 2 bed units and have a question on new vs. old. 

    If I get an older unit, is it worth spending money on some renos because even if it looks like a palace inside, the horrible 70s facebrick exterior will absorb some of the value of the renos?

    is it worth rather buying a newish unit and not spending money doing it up?

    so basically from peoples past experience is it better to:

    1. Buy an old unit and renovate way beyond the spec of the exterior?

    2. Buy an old unit and just do a bit of renos to make it a bit nicer but not gut the whole thing?

    3. Buy a newish unit and not do much?

    I would be looking for at least a 10 year investment. 

    Thanks!

    Profile photo of wilko1wilko1
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    @wilko1
    Join Date: 2010
    Post Count: 510

    I reckon I'll be steve here and comment.

    if your buying a brand new unit, your buying a solution. By buying a older, Unrenovated unit you are buying a problem and by renovating it your are Turning a problem into a solution and the excess is equity or cash upon resale . 

    And honestly gutting the whole thing or just tidying up is completely based on the property and location.

    if you bought a ugly unit on top storey in Bondi. Then you would prob gut it and start again. Units can be profitable in renovations. But from my experience if your only buying a single unit and not a block of units ( which means its a internal renovation only) then you should buy the ugliest, smelliest, unit internally you can find. 

    Profile photo of Richard TaylorRichard Taylor
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    @qlds007
    Join Date: 2003
    Post Count: 12,018

    I have to say you will be paying a premium in Brisbane at the moment for something new and 10 km's out so i would look at an older unit in the right suburb and renovate.

    Not sure whether you saw my last years API article on Brisbane Unit Renovation but more than happy to email it to you.

    Admittedly It was on the whole block but might be of benefit.

    Whilst buying a single unit you cannot do much about the exterior appearance you do tend to find the older Brisbane units are larger and you can get into a better location. 

    We have put a number of forum clients in the last 6 months into some excellent older units and with a couple of lenders we use they will also give you an amount to cover the potential renovation cost upfront.

    Cheers

    Yours in Finance

    Richard Taylor I Ph: 07 3720 1888 I [email protected] 

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    Richard Taylor | Mortgage Broker helping investors build their wealth thru property
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    Profile photo of Jamie MooreJamie Moore
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    @jamie-m
    Join Date: 2010
    Post Count: 5,069

    I prefer old all the way. Especially old properties that can be cosmetically renovated for a quick equity gain. That's how I got started with investing and is a strategy I continue to employ.

    I agree with the other guys about paying a premium for new – the same concept applies to almost all goods.

    Cheers

    Jamie

    Jamie Moore | Pass Go Home Loans Pty Ltd
    http://www.passgo.com.au
    Email Me | Phone Me

    Mortgage Broker assisting clients Australia wide Email: [email protected]

    Profile photo of KurtukKurtuk
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    @kurtuk
    Join Date: 2013
    Post Count: 19

    Thanks for the great comments all.

    It looks like the general consensus in definitely for old.

    Richard – it would be greatly appreciated if you could email the API article ([email protected])

    A question I now have for all of you is this (which has stemmed from Steve's book I am reading):

    Assuming I buy an older unit, would you suggest

    1) renovating before tenants move in as this way I could charge more rent and benefit from Depreciation on the reno's earlier. This however means that if I keep the place for ten years or so and then sell, the reno's will already be outdated when I sell and therefore won't be able to sell for as much.

    2) Don't renovate and therefore don't get as much rent. I renovate however just before selling in ten years time and therefore sell a modern place that is fitted out cosmetically in the style of ten years time.

    Thanks again all!

    Kurt

    Profile photo of wilko1wilko1
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    @wilko1
    Join Date: 2010
    Post Count: 510

    I'd take that advice with a grain of salt on the surface it sounds pretty. But in actuality sometimes it is not practical. If the unit you buy is completly trashed. Stained floors, no kitchen, smashed tiles in the bathroom, broken windows, bad smells etc. I don't think it's reasonable to consider that a person would live in such conditions.

    plus a lot of early investors benefit from completly the renovation before the tenant moves in for several reasons some which you stated

    – a higher rent 

    – change in depreciation schedule 

    – and most importantly, I think is the creation of equity/value of the property. Which combined with the increase in rent you could find you could draw out the etc equity and the extra rent you are receiving covers the cost of that. Assuming at least a cashflow neutral position. 

    enabling you to use the same amount of money to go out and do it all again.  You cannot do that if you buy a Unrenovated bomb and sit on it for 10 years. (Money pit) 

    Profile photo of KurtukKurtuk
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    @kurtuk
    Join Date: 2013
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    Thanks you all!

    Great advice!

    Profile photo of BennyBenny
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    @benny
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    Hi Kurt,

    Quote:
    1) renovating before tenants move in as this way I could charge more rent and benefit from Depreciation on the reno's earlier 

    The numbers will tell you. e.g. if you can spend $2000 or so, and it lifts the rent by just $10 a week, then you are receiving a 25% pa return on your money.  It also (may) lift the value of the unit for finance, allowing you to buy another IP a bit sooner… 

    Also, think laterally  – once tenants are in place, ask what would they like to see in the unit.   e.g. would they accept paying an extra $10 a week to have air conditioning?  This could generate more income even as they enjoy living there.   That might create another 25% return or better.    As Steve says (and WIlko reminded us in another thread today) "Buy a problem and create a solution and you will be paid for it".  Not verbatim, but you get the idea…..

    And, as you said, the Depreciation benefits add a little something too.   Then, when you come to sell, another quick reno may be in order, or maybe a full reno – that choice will depend on "What is happening in the area in 10 years time".    Cross that bridge later I say……

    Benny

    Profile photo of gags327gags327
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    @gags327
    Join Date: 2008
    Post Count: 64

    Hi Richard 

    i would love to read your article too. 

    [email protected]

    thanks Richard. 

    Profile photo of ScottM89ScottM89
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    @scottm89
    Join Date: 2010
    Post Count: 9

    I bought an older 2 bedder within 10kms from the CBD in October 2012, and spent a little bit doing basic cosmetics (it needed it) before i moved in (it was originally my PPOR). Fortunately for me, the complex is relatively well looked after, so the exterior isn't going to alter the value of the property too much.

    Scott

    Richard, I'd also love to read the article if you could please send me a copy to [email protected].

    Profile photo of Richard TaylorRichard Taylor
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    @qlds007
    Join Date: 2003
    Post Count: 12,018

    Hi Kurtuk

    Article emailed.

    Cheers

    Yours in Finance

    Richard Taylor | Mortgage Broker helping investors build their wealth thru property
    http://www.mortgagecapitalaustralia.com.au
    Email Me | Phone Me

    0-40 Properties in a decade with a unencumbered portfolio value in excess of $40M. Ask me for a copy of my API Interview.

    Profile photo of Richard TaylorRichard Taylor
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    @qlds007
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    No problems guys email sent.

    Richard Taylor | Mortgage Broker helping investors build their wealth thru property
    http://www.mortgagecapitalaustralia.com.au
    Email Me | Phone Me

    0-40 Properties in a decade with a unencumbered portfolio value in excess of $40M. Ask me for a copy of my API Interview.

    Profile photo of Shiny_Suit_ManShiny_Suit_Man
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    @shiny_suit_man
    Join Date: 2012
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    If it were me and i bought old, i would do the reno's first however it would depend on the state of the unit.  If it more or less just needed cosmetic i would make it "comfortable", tidy it up, cosmetic sort of stuff.  Then as your looking at a 10 year investment i would look at upgrading closer to the end of the 10 year period. Perhaps even factor in the depreciation schedule so you can receive the max benefits at tax time, as well as have the max appeal for "modern reno's" when the day to sell comes around, one would assume 2-3 years shouldn't make too much difference in the condition of the reno's depending on your tenants.

    Profile photo of Mark CoburnMark Coburn
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    @mark-coburn
    Join Date: 2006
    Post Count: 181

    Hi Kurtuk,

    I agree that north of the Brisbane CBD is the area, but not too far if you are looking at units.

    OLD vs. NEW?

    This is a decision each investor needs to consider based on their own tolerance for risk and how they see the upside.

    Overview:

    Owning investment property is a business, and at the end of the day it needs to make a profit for its owner. Like running a business, the owner needs to balance managing risk vs. creating wealth. The risks with NEW are manageable and mostly known vs. those of OLD which have many unknowns, and can’t be fully known prior to taking ownership.

    Pros:

    Old Property

    • Possible to add value by renovating.

    • Lower purchase price for OLD compared to NEW of the same size, location, etc.

    New Property

    • Rent demand for NEW property is far greater. NEW is more likely to have less vacancy.

    • NEW is more sort-after by tenants. On a square metre by square metre comparison, NEW rents for more.

    • Depreciation credits for NEW far outweighs the price premium NEW has over OLD.

    • Repairs and maintenance expenses are low and predicable for the first 10 years.

    • NEW property attracts better tenant due to the higher rent than the OLD property.

    • Lower stamp duty on NEW House & Land investments.

    Cons:

    Old Property

    • OLD has many potential unknown maintenance issues. Extensive due diligence, building reports are required prior to purchase.

    • With apartments special levies can be sprung on owners without any notice. Major repairs may have potentially been overlooked and not yet recorded at body corporate meetings. Once a special levy is called, owners have no option, but to pay the levy as directed.

    • No depreciation credits for property built prior to 18 July 1985.

    • OLD properties rent for less, and tend to have a higher vacancy rate than NEW.

    New Property

    • 3% – 5% more expensive than an OLD comparable.

    • With apartments there can be many similar properties on the market for rent at the same time at completion.

    FOLLOW this link to view a comparison depreciation table between OLD & NEW.

    We create a 20 year cash flow for each IP for our clients, they can then see the "what if" options they have going forward.

    “You’ve got to think about big things while you’re doing small things, so that all the small things go in the right direction.”

    ― Alvin Toffler

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    Profile photo of KurtukKurtuk
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    @kurtuk
    Join Date: 2013
    Post Count: 19

    Hi all,

    thanks for the great advice. 

    As I am looking at taking more if an active investment strategy, I think an older unit might be the answer and renovate only when i need to so that I can delay the renos as close to to when I sell the place as possible.

    cheers

    kurt

    Profile photo of wilko1wilko1
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    @wilko1
    Join Date: 2010
    Post Count: 510

    The more active strategy would be to either buy renovate straight away and revalue. Or buy renovate and sell , release your profi, pay your tax and leverage into a bigger deal or 2 seperate deals of the same size. But each to their own. In the end it's your decision and only by action can you figure out if that was the correct action or if you get a reaction you don't like that option was not for you. But if you do nothing you will get nothing 

    Profile photo of KurtukKurtuk
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    @kurtuk
    Join Date: 2013
    Post Count: 19

    Good idea Wilko. I suppose the reason to revalue would provide the opportunity to tap into the freshly generated equity to buy more property and also provide justification to charge more to tenants?

    Bit of a "how long is a piece of string question" here but for the investors out there that renovate and then revalue, what return are people generally seeing? Eg if you buy for $300k, spend $30k doing it up, are you finding the place now worth 340, 350, 360 or even higher????

    Profile photo of wilko1wilko1
    Participant
    @wilko1
    Join Date: 2010
    Post Count: 510

    Yep that would be a tough question to answer and you won't get a answer besides examples.

    but you should at the very least look for $1 for 1$ return that means spending one dollar is adding 2 dollars of value.

    if you did nothing to a house but paint a new colour scheme on the outside and paint internally. This prob adds around 10:1 

    i actually used to buy my renovations based on if I could get out my 20 % deposit stamp duty and renovation costs.

    for example I would buy a property for 160k stamps is prob 10k I would spend 30k renovation (this is a house with no kitchen no bathroom etc) and I would revalue at close to 250k –  take a loan out for 80 percent of the new value which is around 200k (get all my cash back out) Rent has increased from $0 to $280-300 a week ( as it was unrentable previously) and now with new depreciation schedule. My mortgage, insurance, sewage, rates costs are being covered.

    Profile photo of Johny AppleseedJohny Appleseed
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    @johny-appleseed
    Join Date: 2014
    Post Count: 7
    Mark Coburn wrote:

    This is a decision each investor needs to consider based on their own tolerance for risk and how they see the upside.

    Overview:

    Owning investment property is a business, and at the end of the day it needs to make a profit for its owner. Like running a business, the owner needs to balance managing risk vs. creating wealth. The risks with NEW are manageable and mostly known vs. those of OLD which have many unknowns, and can’t be fully known prior to taking ownership.

    Mark, 

    Why do you think there is more risk in buying old and doing them up?

    Johny

    Profile photo of Jamie MooreJamie Moore
    Participant
    @jamie-m
    Join Date: 2010
    Post Count: 5,069

    The thing I dislike about new properties is that the vast majority of the time there's middle men making large profits – and it's the buyer that's paying for it…..and if it's an off the plan property, that comes with a whole other set of risks to consider, especially if the development isn't due for completion for quite some time.

    Cheers

    Jamie

    Jamie Moore | Pass Go Home Loans Pty Ltd
    http://www.passgo.com.au
    Email Me | Phone Me

    Mortgage Broker assisting clients Australia wide Email: [email protected]

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