our-portfolio

Mount Druitt renovation: part 1

By Phillip Tarrant
Mount Druitt investment property

So far, our investment property portfolio has had many successes. 

By sticking to our investment principles, we’ve been able to guard ourselves against any major problems. This time, while we’ve been sure to buy well, we’re upping the stakes.

Smart Property Investment’s managing editor, PhillipTarrant, who will project manage the renovation, and Right Property Group’s Steve Waters, who will act as an adviser, met up to discuss the project and to form a plan to achieve this weekend renovation.

“The $15,000 is for everything, including GST,” Mr Tarrant explains. “It’s going to be tough, but I think we can achieve this.”

Mr Waters is also optimistic, believing that “In a perfect world … I’m confident we can do it”. He admits, however, that it is never a perfect world and the trick to pulling this off will be in the preparation. While we may be undertaking the physical renovation in one weekend, several weeks of planning will be happening in the meantime.

“Everything will have to just go as a machine; each step will have to be one after the other with no hiccups to get this right,” he warns.

The Luxford Road property in the investor favourite suburb of Mount Druitt is some 30years old. It’s due for a physical facelift, but it also needs sprucing up in terms of how it’s performing within our portfolio.

If you’re doing a renovation and you can leverage off friends or family to do all that non-skilled work, you’re saving yourself $50 an hour

Purchase price

“We paid $179,000 just over 12 months ago, and it was a good buy as it was an aggregated bulk purchase. In the current market, without the renovation, that same property would cost a lot more,” Mr Tarrant explains.

Mount Druitt investment property

 At the time, a valuation was undertaken on a comparable property, which came back at $220,000. 

This result was “arguable”, explains Mr Waters. “You have to look at a worst-case scenario”. That scenario currently puts the value a little shy of $220,000, despite the property being better placed than the one valued.

“In terms of how it stands today, it has [attractive features]: the balcony, courtyard, the lockup garage, the internal laundry and the low strata,” he says. “That’s what you want.”

When looking at comparable sales in today’s market, there is very little available under $210,000.

While this equity is attractive within the portfolio, it’s clear that it can be performing a lot better.

Current figures

Part of any renovation is planning where you’re going to end up – how the property will look and function and how your numbers stack up. With the current rent of $270 per week managing to provide a good yield, there’s still room to make the cash flow more attractive.

Projected outcome (post-renovation)

The projected figures are based on the other comparable renovated properties on the market, as well as advice sought from other members of our investment team.

However, we won’t be attempting to raise the rent to $320 per week straight up. In order to get a tenant in straight away, we’ll put the rent at $310, explains Mr Tarrant. 

Every renovation has a “surprise” and it’s worth being ready to accept whatever is thrown at you

The rent will then be increased over the next six to 12 months at agreed increments.

The value itself ($240,000), while not expected to be a huge increase, will provide the icing on the cake – a buffer if anything does go wrong and more needs to be spent.

If other properties become vacant at the same time in the future, the renovation will ensure ours will also be the first to be tenanted.

“Proportionately, we should still be ge ing the same yield, which is another cash flow positive property in our portfolio,” Mr Tarrant says.

Potential hardships 

Every renovation has a “surprise” and it’s worth being ready to accept whatever is thrown at you. What’s clear is that this is likely to present itself while the team is onsite, rather than in this preliminary planning stage.

While this does make it difficult to ensure that the timeframe will be maintained – and it’s usually suggested to renovators that they double their expected timeframe as a buffer – we’re determined to complete on time and on budget.

One technique to prepare for all eventualities is to compile a list of worst-case scenarios. This is what we will be bearing in mind:

Labour diffculties – Mixed personalities, traffic through the corridors and inexperienced helpers can often be a recipe for disaster.
Planned solution – Call all the participants before they’re due to arrive to ensure they’re on track. Similarly, giving directions to tradespeople regarding when they are required to have a job finished, and having these details recorded somewhere can help keep everyone in line. Also, don’t forget to provide some well-deserved refreshments.

Drying time – The weather during the renovation weekend will impact the drying time for the paint.
Planned solution – Factoring in extra time for this part of the process and using fast-drying paint where possible.

Waterproofing issues – When damage was found in another of our properties in Berkeley Vale, expensive waterproofing was required. Anxious to avoid this on the current property, and to avoid an associated cost blow-out, Mr Tarrant lists this as a concern.
Planned solution – Unfortunately, this will be one issue that can only be gauged when the renovation begins. Checking the bathroom sooner rather than later will be critical. 

Mount Druitt bathroom renovation
The bathroom is a 'big ticket item' and could cost upwards of $3,500 to improve

Thinking about these in advance will assist with fine tuning the run sheet of what needs to be done and will allow Mr Tarrant to factor in time buff ers for any potential problems.

“We’ve got three days, and I don’t want it sittng there without tenants for any longer than that,” he says. The timing of the project is non-negotiable – “it is possible to do this, you just need a plan.”

The next steps

While renovating can be exhausting, the most extensive work should go into the planning before the day. Before we can embark on the renovation itself, it’s critical that everything is laid out ready to go. For this reason, our pre-work doesn’t stop here.

“We don’t want to get there at 6am and spend two hours talking about it,” says Mr Waters.

All the materials, appliances and required tools need to bet set up ready to go. This will help minimise lost time with tradespeople leaving the site in search of additional equipment.

Making crucial renovation decisions

For every item in a renovation, the choice is based on three factors:

1. Budget
2. Time
3. Strategy

Here is an example of how we negotiate each decision:

PHILLIP TARRANT: In terms of Mount Druitt, we have a hard-wearing unit that is going to last. Do people like carpet in the bedrooms and floating floorboards through the rest?

STEVE WATERS: If we were to cater for the future demographic, it may be a smart option to tile throughout. Tiles are better wearing and they don’t hold the smell of general tenancy. However, it’s far more expensive to do this and it can leave the property a little bit cold.

[Other than floating floorboards] we can put vinyl in the kitchen – it’s better wearing. Some people don’t like floating floorboards in the kitchen because of water damage issues, but we’ve never had that problem. It gives a better feel – we’ll get quotes for both.

I’d rather see carpet in the bedroom, hallway and lounge room because we’re going to be smack in the middle of winter and it might give a warmer atmosphere for the tenants.

PHILLIP TARRANT: Tiling will also take more time than wehave. When the quotes come back, decisions will then be put back under scrutiny.

Big ticket items 

The painting
Expected cost: $1,000 to $1,500
Much of the painting will come under our ‘sweat equity’. Therefore, the cost will largely be equipment (airless spray guns,rollers, brushes, trays etc) and the paint itself. By using one main type of paint, with one other subtle colour for feature walls, as well as gloss paint forthe doors and trim, the costs can be kept down. By using the skills of the Smart Property Investment team, the cost has been reduced from $2,800.

The bathroom
Expected cost: up to $3,500 This includes tap work, tiling, labour, skip bin and a slim-line vanity. Costs will be kept down by tiling three quarters up the wall, rather than to the ceiling.

The kitchen
Expected cost: up to $5,000 While this is a general estimation, this includes the labour, skip bin, flooring, splash back tiles, tap work, the electrician and appliances. Budget but durable options will be sought.

Scope of the reno

Leveraging off the ‘sweat equity’ of the Smart Property Investment team and our network of other friends and family, it’s going to need a tight ship to keep everyone in order over the three days.

Mount Druitt before renovation project
The Smart Property Investment team will be repainting the apartment

“If you’re doing a renovation and you can leverage off friends or family to do all that non-skilled work, you’re saving yourself $50 an hour,” Mr Waters explains.

He warns, however, that if you don’t keep an eye on your friends, you can overlook the time constraints. While it’s necessary to keep the atmosphere friendly, it’s worth reminding everyone they are there to do a job.

When it comes to calculating how many hours need to be dedicated to painting, Mr Waters and Mr Tarrant are unsure about the material of the ceiling, which will be crucial in determining the number of paint layers required and the subsequent time allocation. In fact, it has been so long since either went to the property that they remain undecided on whether the bathroom floor tiles are salvageable. 

These are pieces of information that will need to be recorded within the next few weeks to achieve quotes before getting down to the finer details. It’s clear that the pair have embarked on an ambitious project.

Between now and our next installment, we’ll be looking to obtain solid quotes both for labour and materials, as well as creating a Gantt Chart to help keep the renovation on track for the three days.

At this initial meeting, however, it was crucial to comprehend the extent of the project and to get a general understanding of what needs to be achieved within the timeframe.

“In terms of a renovation, it’s a full kitchen and bathroom. In the other rooms there are a few cracks and some peeling paint, so there’s a bit of preparation there, but it’s quite straightforward – new carpets, new lights, new power points, new switches,” says Mr Tarrant.

So what can be fitted in to each 6am to 6pm work day?

Day 1: Friday

  • The electrician will come in to disconnect the hot water power system
  • Gutting the property – removing the kitchen, bathroom etc
  • Dropping the lights down and bringing the power points off the walls
  • Floating floorboards to be laid down in the kitchen area
  • Masking-up of windows to be undertaken simultaneously, and drop cloth put down in the bathroom
  • Airless spray gun to be used to paint the ceiling and, if time permits, walls and skirting as a ‘base’ prep coat

Day 2: Saturday

  • Kitchen to be installed – all appliances required on site for cut-outs and sizing
  • Tiling of the kitchen splashback
  • Tiling in the bathroom
  • Painting of the rims, doors and other finishes

Day 3: Sunday

  • Final changes in kitchen and bathroom – installation of slim-line vanity
  • Appliances to be put back in
  • Carpet to be put down
  • Final clean up
  • Electrician to replace power board and turn power back on

 In next month’s column, we’ll bring you a list of expected costings and a detailed run-down of how the weekend is going to track. We’ll also take a detailed look at some of the decisions made in the lead-up to the renovation.

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  string(72) "Mortgages in a tighter lending economy and why Brisbane is a good option"
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Tune in to the latest episode of Property Showcase, the podcast with the inside track on the products and businesses that will help turbocharge your portfolio, maximise returns and make your overall investment experience seamless and stress-free!

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To hear more about these services, make sure to tune in to this episode of Property Showcase!

 Make sure you never miss an episode by subscribing to us now on iTunes!

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Son Pham is the accredited Head of Mortgages at Rethink Financing\/Rethink Investing. He has over 6 years\u2019 experience writing loans, over 12 years in the wealth management industry working for the likes of CBA, AMP and private practice and he is also a licenced financial planner (AFSL 326450). He has multiple investment properties that are cash flow positive which help pay his mortgage on his home and fund his lifestyle.<\/p>\r\n

Son is able to write all types of residential and commercial property loans.<\/p>\r\n

In this episode of Property Showcase, head of mortgages at Rethink investing Son Pham joins host Tim Neary to unpack how an investor should approach getting a mortgage in place with banks tightening down on serviceability.<\/p>\r\n

Hear from\u00a0Son\u00a0about:\u00a0<\/p>\r\n

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    In this episode of Property Showcase, director of investment services for Open Corp Michael Beresford,\u00a0joins\u00a0editor of Real Estate, Tim Neary to share why he disagrees that the cooling market means that the best times are behind us.<\/p>\r\n

    In this episode, hear from\u00a0Michael\u00a0about:\u00a0<\/p>\r\n

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Mortgages in a tighter lending economy and why Brisbane is a good option
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  string(5) "18293"
  ["title"]=>
  string(82) "Stories of success: The migrants that became Australia’s renowned Property Twins"
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  string(318) "

Sana and Mona Ali moved to Australia from Pakistan at the age of 15. Years later, the once-struggling migrants successfully turned their $40,000 savings into a $5 million-portfolio, earning the moniker “The Property Twins” — all before the age of 30. How did these millennials make their way to the top?

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The Ali sisters lived in low socioeconomic conditions for years since arriving in Australia in 2000, but instead of accepting their fate, they used their circumstance as motivation to work hard and achieve financial security.

According to Sana: “Moving countries was a huge personal challenge. We were living in a low socioeconomic area of Sydney and we just saw people around us living really good lives. It really pushed us and made us wonder, ‘What if we could buy more than one house?’”

They initially wanted just a strong financial foundation for themselves and their family and the sense of security brought about by owning a home. In less than a decade, they got all of it and more.

Aside from being able to build a 10-property portfolio, the Ali sisters were also successful in establishing a mortgage business that aims to help investors make the best decisions for their own wealth-creation journeys.

“We just want to feel that Australia is really home and to have our roots here,” Mona highlighted.

How it all started

What they lacked in funds, the Ali sisters made up for continuous education, training and mentorship.

In 2009, they have both spent years in the Information Technology and Project Management fields before progressing through finance roles. The high-net worth individuals that they constantly work made them realise that there’s more they can aspire for than corporate jobs.

They started doing research and eventually bought their first property in Parramatta through their combined savings of $40,000 and the aid of the First Home Owners Grant. Seven months later, they bought their second property in Blacktown.

Mona shared: “I personally wasn’t a good saver, because I loved shopping and shoes. Nothing wrong with that, but looking back, it's like a ‘need it versus want it’ question. Obviously, I did buy a lot of shoes but we didn’t go travelling and all of that. So, we did have some savings.”

The Ali sisters opted for cheap properties in the lower end of the market to jumpstart their investment journey for low-entry prices.

“The cash flow meant when we did rent the properties out, they could look after themselves,” Mona highlighted.

Sana and Mona advise investors to avoid being afraid of starting small. Being realistic instead of aiming for a dream home on their first shot at investing helped them enter the market sooner than later.

After all, property investment is a long-term commitment and, essentially, a kind of “delayed gratification”.

The twin’s property portfolio grew to consist of eight more properties spread across Western Sydney and Brisbane, including units, villas and townhouses.

Strategies

Not long after they started investing in properties, the Ali sisters sold their first two properties in Sydney to take advantage of the property boom that happened in the city. Prior to selling, they did cosmetic renovations on these properties to add value and eventually extracted equity from them.

The first property returned around $330,000 while the second property returned around $190,000.

Mona and Sana used the extracted equity to make their third and fourth property purchase, which are strata properties located in Blacktown. Less than 10 years later, the same properties have increased in value by 90 to 100 per cent.

As the market went more stagnant, Mona and Sana continued increasing their savings to improve the buffer for their portfolio. They saved 20 to 30 per cent of their salary, sacrificed travels, minimised eating out and drove a Kia Rio for years to save as much as they could.

For years, they carefully weighed their needs and wants to determine the things they could live without as they are building their portfolio.

Where to buy

The Ali sisters deliberately chose to buy most of their properties in the Western Sydney region, between Parramatta and Penrith.

According to them, having properties in such good locations, as in close to transport and other valuable infrastructure and establishments, helped them maintain good cash flow and minimise the impact of property investment on their finances and lifestyle.

While they have implemented different strategies throughout their investment journey, good location is one of their non-negotiables.

Sana explained: “We wanted to make sure the properties were well-located. That’s formed the foundation of our property strategy, where we make sure that properties are close to the train station, or a big shopping centre, because that’s what’s going to drive the demand down the track.”

Who to work with

Unlike many investors, the Ali sisters didn’t recognise the value added by property professionals to their portfolio in the beginning. In fact, it took them four purchases to seek the guidance of experts. Needless to say, it turned out to be among their more costly decisions.

According to Sana: “You don’t know what you don’t know, and we didn’t know any better. In hindsight, it would have been good to work with a broker for our initial couple of purchases.” 

Through online forums, they found out about the benefits of working with a mortgage broker and has since worked with a few throughout their investment journey. They taught them not only what they needed to know about mortgage broking, but also what they want to be done differently.

Eventually, Mona and Sana grew to love the “numbers side of property” and went on to establish their own mortgage business, The Property Twins. The business aims to empower investors by offering different services, including building portfolio roadmaps and finding better loans.

According to them, their personal experiences as investors consistently help them provide the best customer service and most effective advice even amidst changing broking spaces.

Mona said: “We really look at building road maps for our clients upfront. On paper, we really put the options down — lender A, B, C, D, in that order — so you continue maximising what's really possible for you."

“Whilst you have no control over the lending policies or where your interest rates go, if you’re making that strategic choice, you’re keeping a lot of doors open for later investment," she added.

Helping investors

As investors-turned-mortgage brokers, Mona and Sana seek to improve the knowledge of Australian investors and ultimately help them achieve their financial goals. Their experiences as investors who, quite literally, started from the bottom allow them to provide realistic and well-rounded advice to different types of investors.

Instead of acting as mere intermediaries who bring borrowers and lenders together, they take on a holistic approach and help budding investors establish a good foundation for their investment journey.

The most important advice they give to their clients is to always implement long-term strategies, but also be flexible enough to alter plans accordingly along the way.

Sana explained: “You need to look at the big picture rather than just one product or one rate focus, because it's a long-term strategy for you.” 

“We are taking our clients on a journey. It’s not about one transaction at a time, it’s about the big picture and really educating them through the process, through the decisions that they are going to be making — just talking through the pros and cons, the rates and how it's impacting them and what their plans are in the next six to 12 months," Mona highlighted.

Finding the right mentors is critical to success in property investment, according to them. Finding the ones who will be willing to understand your goals, capabilities and limitations as an investor and give you tailored advice will certainly help you fast track your wealth-creation journey.

In fact, Mona and Sana themselves have made it a point to stay in contact with their mentors even after they have successfully crossed the $5 million-line.

As mortgage brokers, the Ali sisters go above and beyond their responsibilities to serve as lessons and inspirations to budding investors.

Mona said: “It’s been really rewarding to see the changes that people have had or the smart decisions our clients have made over the last couple of months. Whilst we’re not property coaches or mentors, that naturally comes to us.

“We pretty much hold their hand and say, ‘Look, this is what we would buy, this is what would make a good property and this is what you should be looking for, and where you should be looking.’ When you’re working with someone who’s been there, where you want to go, you cut down 10 years’ worth of effort,” she concluded.

 

The information has been sourced from propertytwins.com.au, realestate.com.au, Daily Mail and the Smart Property Investment website.

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Stories of success: The migrants that became Australia’s renowned Property Twins
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Will Magee has had ambitions to enter into the Australian property market for quite some time, but it has been more than just finances holding him back.  Having been granted permanent residency just two weeks ago, Will is wasting no time and is now in the process of signing papers and finding his first investment property.

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In this episode of the Smart Property Investment Show, Will joins host Phil Tarrant to share why he is purchasing his first property in partnership with his brother, discuss the complications that can arise from such a strategy, and unpack the ongoing plan for building a joint property portfolio with his brother.

Will will also share how they approached saving for their first property, why he is taking out the mortgage in his name exclusively, and share their savings plan for the year ahead.

If you like this episode, show your support by rating us or leaving a review on iTunes (The Smart Property Investment Show) and by following Smart Property Investment on social media: FacebookTwitter and LinkedIn.

If you have any questions about what you heard today, any topics of interest you have in mind, or if you’d like to lend your voice to the show, email [email protected] for more insights!

RELATED AREAS OF INTEREST:

From property in Australia to a ski lodge in Japan
Mortgage Trusts, an alternative first step for property investors
Should a real estate title be in one person’s name only?

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A property investment plan years in the making

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