I thought I would share our latest renovation project with you. I have to say “latest” quickly because we have another property settling in a couple of weeks.
My husband Chris and I will jointly manage this project. Seems like we have very different ways of going about the same business – so better let him do it his way and I do it my way.
Just shows that two people who live in the same house don’t even renovate the same way – so when someone tells you they can teach you how, they can only really provide the basics – which provide a platform for you to develop your own renovating style.
This renovation is not one we would have started out with, it is a big project. The property had not been touched in many years, had salt damp, practically no power, had chunks falling off it (render), the roof was leaking, no kitchen, no bathroom and the toilet was in the back corner as an outhouse. Not only that, even though there is rear lane access, it is completely overgrown.
The property was found online on www.realestate.com.au and was being marketed at $260,000. This was a great price for the area – Bowden (5009) in SA. It’s only about 2km from the city amongst a massive redevelopment area known as Bowden Village. Not that I was actively looking there – but the price was caught my eye and the area was good.
I was happy to either sell the property after the renovation for cash flow – or keep it for capital growth. There would be great gains in both areas. I contracted the property for $241K, knowing the resale on the property to be around $400K. I have budgeted $80K for settling costs – including Stamp Duty and the complete renovation works. The profit is set to be at least $60K after all incidental costs – including selling and loan repayments.
The property was purchased while in probate – which meant the settlement date was flexible. I am sure we could have got early entry – but due to other work commitments we chose not to. We often get early entry on properties, but if there is ever any doubt about the property deal then spending money prior to purchase is not a good idea.
So we sat and waited – giving us plenty of time to prepare. I think preparation is very important in keeping a project moving along smoothly. Leave everything to the last minute and you end up with chaos!
Of course, when purchasing a new property one of the first things we do is apply for finance. This time we put in the application to one of the Big 4. We have used Lo-Doc loans for a very long time – and we were aware that the banks had recently decided that they were only offering Lo-Doc loans to trusts or individuals, not companies. So, we put the application in under a trust.
Well, blow me down but the policy had just been changed again to no longer lend to trusts either! Fortunately I had put the property purchase in my own name “Debbie Williams and or Nominee/s” which enabled me to nominate the purchaser – who now ended up being me. So, we resubmitted the loan application in my name.
All was going well until the valuer came out to the property. I met him on site and went through our vision and explained how we renovated many properties before and were well qualified to do this one. He explained that now not only were the banks assessing the property itself but the ability and knowledge of the purchaser to complete the renovation work. Imagine my surprise when our loan was rejected! Maybe they thought we didn’t have enough experience. I’m laughing as I say this because it has been our primary source of income since 2001!
This left us due to settle the property without an approved loan… This can be a stressful situation, but in reality it is a time for creativity and ingenuity to kick in. As I say, if you want nice and safe, go and get a job!
I decided to go with a private lender who lends 1st mortgage funds. Private lenders typically only lend 70% – but this is the percentage of the valuation, not the purchase price. There have been times in the past when 70% of the valuation has provided me with more than 80% of the purchase price – but not this time.
The great thing about private lenders is they can make things happen very quickly. We had the property settled 1 week later. I am paying a higher interest rate of 9.5% per annum – but with no loan break fees. Private lenders typically want you to pay them back – so this makes having an exit strategy is very important. In this case we are only using the funds for 6 months – which is plenty of time to renovate, sell and settle a property.
Next time I will tell you what happened when we got into the disaster zone!
The information provided in the Talking Property podcast is general in nature and should not be relied upon as a substitute for professional advice. Always consult with a professional advisor before making any investment decisions.
