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Can-Am
21-06-2008, 10:49 AM
Hi All,

I have just purchased a property in a good area in Christchurch. It was a tender, from a deceased estate sale. We have paid $280k, with valuation at $370k, g.v. $396k. The property is a small 1930's 2 bedroom cottage in need of renovation (it is completely original) and there is plenty of tidying up needed on the outside.

What I am wondering is: how much do I spend on renovation to get top rental dollar? Our plan is to eventually build a house for ourselves on the site in about 5 years.

Thanks

fungus pudding
21-06-2008, 11:15 AM
If you are going to demolish it in 5 years, obviously you should spend as little as possible,even if it means a slightly lower rental. Anything you spend so soon after purchase is capital (generally) and therefore not tax deductible. So do the minimum to make it liveable; paint, cheap curtains, second hand carpet, that sort of thing. Anything beyond that is marginal spending, and not worth considering unless you were likely to get a gain of more than 100% of your spend within 5years. So avoid anything that needs a tradesman if poss. Without seeing it, I'd say give it a quick cheap tidy up - enough to last a couple of years roughly, and run it as a desperado's dump for the last couple of years.

Financially dependant
21-06-2008, 11:16 AM
Hi Can-Am, welcome aboard!

Renter's like to be warm so might be worth checking out local grants for insulation & heat pump etc (Environment Cant. & EECA) otherwise neutral paint & paper!

You got a good price for your house, what area did you buy in?

Cheers FD

Can-Am
21-06-2008, 11:21 AM
Hi Can-Am, welcome aboard!

You got a good price for your house, what area did you buy in?

Cheers FD

Thanks for the welcome.

The house is in Sumner. I forgot to mention the other option is to renovate and sell, then try and do the same again.

redzone
21-06-2008, 11:50 AM
BE VERY CAREFUL....not a good time to be doing that unless of course you have bought something very special for very little....get the best agent you can find and ask for advice on what prices you could expect to get after completion...but also be aware that by the time you may have finished the reno the market could be a lot worse than when you started.....good luck

fungus pudding
21-06-2008, 12:43 PM
Thanks for the welcome.

The house is in Sumner. I forgot to mention the other option is to renovate and sell, then try and do the same again.



Then why bother renovating? Just see if you can sell it for the valn. figure you have without spending anything. It's suprising how many heroes come out of the woodwork who think they can do wonders for peanuts. See if you can find one. It's quite difficult to add value just by renovating. All sorts of experts will tell you different, but most have made profit because the market rises while the renovations are being done. Spending a dollar to add a dollar doesn't count.

lakedaemonian
21-06-2008, 01:09 PM
Thanks for the welcome.

The house is in Sumner. I forgot to mention the other option is to renovate and sell, then try and do the same again.

Without knowing details....excellent choice of suburb.

We have bought not far from you on the beach, and are likely to sell our existing home in the same area.

What we are doing is bringing in some agents(those that are actually still selling homes) to get their opinions on what minor changes we can make to improve the home's presentation.

Then I'm using a handyman service owned by a person I trust wholeheartedly(long-standing customer of mine) to come up with a few "best bang for the buck" minor improvements, then sell at whatever the market will bear.

Basically, we are just going after any "low hanging fruit" available to create the broadest appeal......no big renovations.....

K.I.S.S. for us.

Can-Am
21-06-2008, 01:27 PM
Then why bother renovating? Just see if you can sell it for the valn. figure you have without spending anything. It's suprising how many heroes come out of the woodwork who think they can do wonders for peanuts. See if you can find one. It's quite difficult to add value just by renovating. All sorts of experts will tell you different, but most have made profit because the market rises while the renovations are being done. Spending a dollar to add a dollar doesn't count.

This house has been in a state of disrepair for some time. My father-in-law owns a building company and he will do the work for us (with me supplying labour as required), with most of the work being cosmetic (nasty looking dry rot, flakey paint, back yard that is completely overgrown, fence falling down etc). My wife didn't want to buy because she couldn't see past these 'problems', if I remove these 'problems' then surely it will appeal to a wider range of buyers (without over-capitilising)?

I guess the main question was the 5 year rental plan anyway... easy to get off subject :o

Can-Am
21-06-2008, 01:32 PM
Without knowing details....excellent choice of suburb.

We have bought not far from you on the beach, and are likely to sell our existing home in the same area.

What we are doing is bringing in some agents(those that are actually still selling homes) to get their opinions on what minor changes we can make to improve the home's presentation.

Then I'm using a handyman service owned by a person I trust wholeheartedly(long-standing customer of mine) to come up with a few "best bang for the buck" minor improvements, then sell at whatever the market will bear.

Basically, we are just going after any "low hanging fruit" available to create the broadest appeal......no big renovations.....

K.I.S.S. for us.

Nice one, yes we love Sumner and want to buy there to live at some stage (I grew up there, and still go surfing there 3-4 times per week), we were going to build up on Richmond Hill but decided that creating some wealth first would be better than biting off a huge mortgage... all is going to plan at this stage:)

Can-Am
22-06-2008, 09:17 AM
----nice to meet you----
hard mkt to profit from-- and don,t forget your TAX if u mkt a profit-- the IRD LIKE THESE sites--:D

Hi Malcolm, thanks for the welcome. It is refreshing to have a forum with a good range of knowledge and experience for someone like myself who doesn't have a lot of time under the belt.

Yes, the market is tough at the moment, but there must be opportunities out there (hopefully this is one of them!).

We're happy to meet all of our tax requirements after the legal deductions have been made if we were to flick the property. We would only look at this if our situation changes, as our intent is to operate the property as a rental.

minimoke
23-06-2008, 08:26 AM
[quote=Can-Am;207881]
What I am wondering is: how much do I spend on renovation to get top rental dollar? Our plan is to eventually build a house for ourselves on the site in about 5 years.
/quote]
You could do some basic math. Try a yield formula to start with. Income divided by Purchase price.
Say a grotty 2 bedroom gets you $150 a week or $7,800 a year. Yield is $7,800/$280,000 = 2.8% - this is not great! Say you spend nothing but tidy up the yard to make it more appealing and get $180 a week your yield goes to 3.3% - still not good. If you spend $50,000 and get $200 a week your yield is 3.1% - still not a good figure. Yield is much worse if you look at net income. Unfortunately your wife was right – damn, aren’t they always!.This place is not a rental proposition.

Which leaves a resale proposition. You need to check out what 2 bedroom property like yours are selling (not being marketed at) for. Say a tidy 2 bedroom goes for $350,000 spend $20,000 on tidying, sell it yourself privately (due to a change in personal circumstances) by spring time and you may be looking OK.

Can-Am
23-06-2008, 08:07 PM
Thanks Minimoke, yes yeild is pretty average for the area (high values and reasonably low rents), from memory it was around 3.5%. We do want to live in this area though, so this is really land banking while maximising income with minimal capital expenditure. In present condition the property will get between $200-250 (depending on winter or summer - it is a beachside suburb) and renovated to a tidy standard (lick of paint etc) we hope to get $300 -$330, so I will work out the yeild on this. Thanks again.

minimoke
24-06-2008, 09:22 AM
we hope to get $300 -$330, so I will work out the yeild on this.

Great Can-Am. Hopefully your rental yields are realistic. A 1930’s cottage spells small, uninsulated and built the wrong way round to me.



For $300, in Sumner I could get “Beautifully located, sunny secluded 2 bedroom house in the heart of Sumner village. Private rear garden with home grown apples and a sunny front off-road area. Perfect condition to move in immediately as fully furnished and with a new modern kitchen. Plenty of storage space throughout house and garage. The house is quiet and relaxing however it is only 1 minute walk to all amenities, pub, Post Office and beach! Perfectly located! Suitable for up to 3 tenants.” Watch out for falling rents - Good luck!

Can-Am
06-07-2008, 06:44 PM
Great Can-Am. Hopefully your rental yields are realistic. A 1930’s cottage spells small, uninsulated and built the wrong way round to me.



For $300, in Sumner I could get “Beautifully located, sunny secluded 2 bedroom house in the heart of Sumner village. Private rear garden with home grown apples and a sunny front off-road area. Perfect condition to move in immediately as fully furnished and with a new modern kitchen. Plenty of storage space throughout house and garage. The house is quiet and relaxing however it is only 1 minute walk to all amenities, pub, Post Office and beach! Perfectly located! Suitable for up to 3 tenants.” Watch out for falling rents - Good luck!

Interesting assumptions there Minimoke. Please let me clarify our "little gem":D

We have a 1930's cottage that is insulated and is NE facing, it also has a decent kitchen/living and bedrooms plus 524 m2 section and a garage. Is opposite the primary school, not shaded by the Sumner cliffs, and is a short walk to the village shops/cafes/movie theatre/public transport etc.
We are spending about 28k and this will paint inside and out, repair weatherboards as required, fit new coloursteel roof, replace a couple of windows, remove old clawfoot bath and install new shower & vanity, new vinyl flooring to toilet, laundry, bathroom and kitchen, remove chimney. Costs reduced with me assisting with labour and removing all rubbish myself (rather than using a skip(s).

As the saying goes - most people miss opportunity because it is dressed in overalls and looks like work!:)

We have now had a rental assessment at $300 - $350.

Not assuming there is no risk, but rental income and capital gain are looking good in the current market.

tim23
06-07-2008, 07:06 PM
Thats only about 5% gross yield on your total purchase, seems minimal in this market?

Can-Am
07-07-2008, 10:13 PM
Thats only about 5% gross yield on your total purchase, seems minimal in this market?

Hi Tim23, what would be a realistically good yield in this market, assuming purchasing now, while values are shakey but still high? I understand 5% is not great, but seems better than some I have been looking at - including overpriced blocks of flats that I would have only valued on yield?