How we'll make renovating long distance work


The ink has now dried on the contract, settlement has taken place and we have the keys to our new two-bedroom town house in Woodridge, Queensland. It’s time to get down to work.

As I write this, our renovation crew is in action with a week and a half of hard graft ahead of them to prepare the property for tenanting.

With a purchase price of $145,000, we’re confident we’ve purchased under market value, which is always one of our key property investment objectives.

Considering the last like-for-like property sold in this complex for $187,000 in March 2012, we’ve clearly purchased well. But what are our plans from here?

In its current state we’d fetch around $240 a week in rent. While we’d need to spend a few dollars doing essential repairs (circa $1,000) to get it up to rental standard, we feel we won’t reach the property’s full potential without spending a few extra dollars.

With a smart, cost-effective renovation we should achieve a rent of between $270 and $280 – pretty good for the area.

While I feel intimately familiar with this investment property, the truth is I’ve never actually seen it

Over and above the opportunity to boost the rental return on the property, a cost-effective renovation will also help elevate its capital value significantly. This ‘manufactured equity’, plus the upsides of purchasing the property under market value, should deliver a nice return on our investment.

We can keep this increased equity within the property, effectively decreasing the loan-to-value ratio (LVR), or we can realise it through refinancing, bringing the LVR back up to 90 per cent. This is a level we’re comfortable with given current market dynamics in this area of Brisbane, as well as the longer-term potential.

I’m not an advocate of continually milking a property for its equity. However, I am comfortable with refinancing a property once to extract the cash initially invested and recycle it to finance another property in the future – and we’ll follow this approach with this property.

So, down to the renovation. You’re probably rightly wondering how we are going to undertake a renovation on a property over 1,000 kilometres from where I’m currently sitting. The answer is, we’re going to do it remotely, and in the coming months, I’ll share with you how we’ve done it.

Remote renovating

While I feel intimately familiar with this investment property, the truth is I’ve never actually seen it.

My experience with this property amounts to a video my buyer’s agent produced for me and uploaded to YouTube, a detailed report and discussion with the pest and building inspector, ongoing dialogue with my buyer’s agent, accountant and mortgage broker, as well as a bunch of detailed photos taken of various aspects of the property.

If I was to dispel one of the biggest misnomers I hear when it comes to property, it would be around the need to physically view it before you buy it.
With the right resources, technology, due process, understanding of your goals and confidence in your research, you can purchase without having physically set foot in a property. This holds true for local as well as interstate property.

Investors the nation over are happy to invest in this fashion, and I advocate it – as long as you’ve done it the right way.

For us, I have utmost confidence in our buyer’s agent to give me the ground truth. The state of the property, potential for upsides, short-, medium- and long-term prospects, as well as intelligence around rental dynamics are what I base my decisions on.

So I was happy to purchase this particular property in Woodridge, knowing that I’d followed this process to the letter. And when it comes to renovating remotely, it’s all down to good practice, common sense, sound communication, and confidence in the capabilities of your trades and other support people.

For this particular renovation I do hope at some point to visit the property. However, it’s not essential that I do. We’ve chosen to effectively ‘outsource’ the renovation to one particular contractor, AGJ Home & Property Maintenance, who has given me a fixed-price contract to undertake the work required.

Over and above the opportunity to boost the rental return on the property, a cost-effective renovation will also help elevate its capital value

In terms of scoping out the breadth of the renovation, I worked quite closely with our buyer’s agent to determine what were essential elements that had to be included, and what were not essential but would help significantly increase both rent and capital value.

At the time of negotiation on this property, the installation of new carpets for the bedrooms was included, so that is not required as part of the reno. However, other floor coverings need to be replaced because they significantly date the property.

A new kitchen is also essential. While it would be useable after some quick repairs, the current kitchen is falling apart and would need to be replaced soon, so it makes sense to install a new kitchen, oven and stove top now.

This holds true in the bathroom as well. While functional, it’s dated and if we’re going to improve the remainder of the house it’s worth spending the money now to renovate this room too.

Remember, two key areas tenants and bank valuers place heightened value on are the kitchen and bathroom, so keep this in mind when you’re exploring the possibilities of your next renovation.

As well as all this work, we’ll give the property a full internal paint, new curtains and light fittings. In essence, we’ll have a fully renovated property.

Keep it focused

Notwithstanding the prospects for this property through renovating, it’s important not to get carried away when undertaking any works on an investment property.

All too often renovations blow out – both in time and money. While the end result may be impressive, you need to remember the goal of a renovation from an investment perspective is to increase the rent the property receives, boost its capital value, or hopefully achieve both.

Every dollar spent must be for a purpose and you need to continually question the reason for undertaking certain works when renovating. For this particular property we’ve secured a good quote from the contractor we’ve chosen to use – which we sourced via our buyer’s agent.

Steve Waters from Right Property Group, who located and negotiated this property for us, has used this builder before and recommends the quality of his workmanship and his ability to get the job done on time.

As a result of the volume of work he receives from his wider network of property investors, he has been able to keep his prices lean, giving us a solid ¬fixed-price contract to get the work done. He also uses materials that are in line with our budget and with similar properties in the area.

We also have an agent lined up to market and let the property, who can check on the work for me as we progress to ensure it’s up to our goals and standards, and in line with what is expected in the area. This certainly gives me the confidence to undertake the work remotely.

All up we’re looking at about $11,000 to get the renovation done – I’ve outlined the scope of it below. Essentially, it’s a full internal renovation, but we’ll need to spend a few dollars on any electrical work, repairs and alterations that come up as part of the renovation.

On this note, you should always factor in an additional budget to your renovations as a buffer for unforeseen work that may need to take place. You may need some extra plumbing or electrical works that you just can’t see when you’re scoping out the work that needs to be done.

By the time you read the next instalment of Investment in Action, this renovation will be complete – if everything goes to plan – and hopefully tenants will be in.

Don’t forget to contact me with any questions or comments you have on this project at [email protected]. I look forward to hearing from you.

Scope of renovation works

Kitchen
Remove and replace the kitchen with a kit kitchen, including overhead cupboards, sink and sink plumbing. Install splashback tiles, under bench oven and hot plates

Bathroom
Strip the bathroom tiles, shower screen and other bathroom fittings. Retile the whole bathroom, install a new vanity and shower glass, then grout and seal

Other internal works
Remove louvre doors to linen press in the hallway and replace with standard doors. Replace curtains throughout the unit and replace light fittings where required

Flooring
Remove flooring from the kitchen, bathroom, toilet, dining room and hall and replace with the same floor tiles throughout

Painting
Full internal paint of the unit, including all doors and frames, the ceiling (including exposed ceiling) and the walls

External works
Repair garage gates, remove weeds and tidy overgrown garden beds. Tidy the yard and remove rubbish

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promoted stories
promoted stories

Top Suburbs

Highest annual price growth - click a suburb below to view full profile data:
1.
FAIRLIGHT 46.02%
2.
CASUARINA 44.36%
3.
THE ENTRANCE NORTH 41.09%
4.
ULTIMO 40.67%
5.
LAVENDER BAY 40.2%