Many building suppliers are increasing costs due to the rise in GST, which came into effect at the beginning of this month. But with a subdued building market seeing the availability of builders and other contractors, the time is still good to be renovating.
We have been quoted increases by suppliers from 2.50% to as much as 12% in some instances and that will certainly add cost to any size renovation project. There is a firm belief this is their only opportunity to apply a price increase in this economy.
Our company has seen a real surge in investor’s enquiries, in particular since the Budget was announced and tax implications made clear. Seasoned investors want to ensure they maximise rents with well-presented properties that stand out from the crowd and that attract good quality tenants, especially if a tenant should move on, so there is little to no downtime.
They also understand very clearly that the property market may take many years before it rebounds to the lofty heights of 2007. Homeowners who can’t or won’t sell in this market have bunkered down and are borrowing an affordable amount to renovate and add that extra room or create that extra space that their lifestyles require.
So this month I thought I would talk about three of our recent and very different renovation projects, what the landlords or owners wanted to achieve and how it’s working out for them.
Project 1 Renovating to Rent
This is a five bedroom large house, on a full site, purchased for $410,000 by a young couple as their second investment property in New Windsor, Auckland.
This property was very run down by its previous owners and needed a full refurbishment inside, except a new kitchen.
Their anticipated rent was $600 to $650 per week and they had a strict renovation budget of $20,000.00 to get it renovated and ready for tenants.
So, within three weeks we had fully replaced the upstairs bathroom, stripped wallpaper where necessary, skimmed walls, painted throughout and put new flooring down as well.
The existing kitchen was repainted and new handles put on cupboards and drawers. The downstairs laundry and bathroom were in good condition so were just painted and cleaned.
New curtains were hung and the place was certainly very rentable.
The landlords had an offer in the third week of renovating from someone who’d seen their sign on the street for $700 per week short term and this offer was too good to turn down.
I understand from the owners that they haven’t had the property revalued yet but indications are that it will now be worth in the high $400,000’s – so great equity and great second property for these young entrepreneurs.
What was really great is that they took on certain work such as the front garden, deck and parking area -all street appeal issues that many people miss. They saved some money doing this and got the place tenanted quickly.
Project 2 Renovating to Trade
This three bedroom house in an average street in Papakura, Auckland was a trading deal with Astra Property. Their client was based in the South Island and only came to view the property at the beginning and we supplied completion photos at the end.
We have successfully done about six of these recently and this one was pretty standard. The property was purchased at $260,000 with a registered valuation of $300,000 as is.
The property had been lived in by the home owner and was in below average condition, needing new wallpaper throughout. On this occasion due to the poor condition of the walls, it was considerably cheaper to paper over existing walls than strip, skim and paint.
A new bathroom with new vanity and shower over bath were added. Previously the bathroom just had a shower cubicle which does not appeal to families.
New floor coverings in the kitchen units were solid, so were repainted and new handles put on to freshen it up. We added new plastic light shades throughout and within two weeks the property was finished and on the market.
The client’s renovation investment was $15,000 which was achieved, for him with total hands-off approach.
In the end the client tells me he cleared $25,000 profit after everything is wrapped up as the property goes unconditional at the time of writing. The investors are happy and currently looking for another opportunity to increase cash flow in this market.
What’s great about this story is the investors had figures and a budget which were stuck rigidly, making the project a success and they have learnt a few lessons for their next trading project, even at long distance.
Project 3 Renovating to Sell
This large and spacious two bedroom apartment on Albert Street in Auckland had been rented out for some time and was very tired.
The owners had made the decision to list the property for sale for personal circumstances and with guidance on price from their specialist apartment estate agent, City Sails, we worked with them to drag this property into the 21st century to achieve the highest optimum sale price.
Now when you’re renovating to sell, there are some major differences in renovating to rent and many novice traders and home owners get caught out. First and foremost, sellers need to be aware who their target buyers are. In this case it was young professionals or retirees looking for a city pad.
The property had some great features which needed to be enhanced, including huge windows to the front in both the lounge and main bedroom, beautiful black and white quality tiles, a functional good quality kitchen that only had tired appliances.
The entire apartment was repainted throughout in light, neutral colours and the ceilings were made fresh and white as well.
The new carpet was good quality wool which would appeal to the target buyer.
The shower was removed , the base was refurbished and a new cubicle installed. The original quality vanity remained, as it complimented the finish. Of note, in old apartments, often access to the plumbing is from the apartment ceiling below.
New luxury slim-line blinds were fitted to give privacy when required, but maximum light and views at other times.
New appliances were installed in the kitchen in stainless steel and of proportionate quality.
The clients had a renovation budget of $20,000, which was realistic and achievable from the outset.
The project took two weeks from the date the tenant vacated and was staged by us ready for the agent to take to market. The apartment goes to auction as we go to press so time will tell.
However, it was very clear this apartment would never sell had no renovation work been done on it unless at a fire sale price.
The owners were also from Wellington so a hands-on approach was unrealistic for them.
Sticking to the rules
There are three sets of rules we always work to with our clients. If you’re renovating an investment property, then make sure your investment adds equity, increases rent and rentability every time.
If you’re renovating to sell, then make sure your investment in the project enhances the sell price and the saleability of your property.
If you’re renovating for yourself in your own home, make sure you have a budget, stick to it and allow for the personal factor as you are the ones living there when it’s done.
Good luck with your next project whatever it may be and happy investing.
If walls are in poor condition, it is cheaper to paper over existing walls rather than stripping them back.
Mark Trafford Director “Maintain To Profit”