Secrets to building a $12-million portfolio: Lloyd Edge
Investor Lloyd Edge has successfully built an 18-strong property portfolio with assets spread across three states, now v...
Renovating a rental property is not always done with the intention of being able to increase weekly returns. Often, it can simply be a case of making a home safe, compliant, and more attractive for tenant longevity.
In this episode, Smart Property Investment’s Phil Tarrant is joined by Right Property Group director Steve Waters for another monthly portfolio update, this time focusing on the $20,000 renovation currently underway on a property in Kingston, Queensland.
While purchased back in July with only a few maintenance issues, recent tenants had left the property in such a state that tradesmen were not even willing to enter the property.
Tune in to find out how the renovation of this three-bedroom, two-bathroom property is being approached, and the thought process behind transforming the home.
The pair will also answer some common renovation questions regarding painting the interior of a property, tell you exactly why your property isn’t attracting renters, and discuss the impact that the recent South Australian election will have on investors.
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: Facebook, Twitter 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!
SUBURBS MENTIONED IN THIS EPISODE:
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A tenant, also known as a renter or occupant, is a person or entity that leases space for residential or commercial use.
A tenant, also known as a renter or occupant, is a person or entity that leases space for residential or commercial use.
Phil Tarrant: G'day everyone, welcome to the Smart Property Investment Show. We have our monthly, regular property update where I share everything about my Smart Property Investments Portfolio, which we've been doing for many, many years, and I hope you've been enjoying it. If you're new to the Smart Property Investment Show, we do this every single month, as I said, where we break down, unpack, and analyse our portfolio of investments, and if you click on the 'Portfolio' tab on smartpropertyinvestment.com.au you can read all about it.
Every month we get together, we have a chat, I bring in, depending on the theme of the particular podcast, a number of people as part of our A-Team, which will an accountant, buyer's agent, mortgage broker, and other associated people, to have a discussion.
Today, I've bought in regular guest onto the Smart Property Investment Show, Steve Waters, from the Right Property Group, my buyer's agent. Steve, how are you going?
Steve Waters: Well, mate, how are you?
Phil Tarrant: Good.
So, today, we're going to have a chat about a renovation we currently have under way on one of our properties in Kingston, up in Queensland. That's part of the Logan Shire, isn't it?
Steve Waters: Yeah, it is. Yep.
Phil Tarrant: It is. Yep. So, part of Logan Shire in Queensland, which is southwest.
Steve Waters: Southeast.
Phil Tarrant: Southeast?
Steve Waters: Southeast west.
Phil Tarrant: Southeast.
Steve Waters: In that vicinity.
Phil Tarrant: Yeah, around there somewhere. We've written a lot about it, so go and check it out.
This particular property, you would have heard us talk about it when we secured it. We purchased it back in June/July of last year, and I did a podcast with Steve on the 27th of July 2017, go and tune in, where we spoke about the rationale for this particular purchase.
This is an interesting property. We knew what we were getting into when we bought it, and at that point in time the conclusion was let's just leave it because it had a sitting tenant, even though we knew it needed quite a lot of work - essential repairs and maintenance - to lift it up to compliance, which we undertook at that point in time, but we said we'd leave it until the tenants move out. Subsequent to that, the tenants have left, so we've used this period of time, the last number of weeks to actually do a reno, so we're going to go through that today.
Before we get there, I just wanted to put Steve on the spot. We're recording this on the Monday after the South Australian election, and we have a new government being established in South Australia, a new Liberal government, after, I think, 15 years of Labour. Steve, what does that mean for us property investors, general punters, does it make any difference whatsoever?
Steve Waters: I think theoretically it might, but life goes on. Whether you like South Australia or not, or Adelaide in particular, of which we do, and we've been buying down there for probably 18 months to two years and getting some pretty good results, this type of turmoil, for want of a better word, will always stop a few people in their tracks. I think because it's been such a long run of Labour down there and it's changed, that should bring a certain degree of consumer confidence, clearly, around the area, and I hope there's some bright future days ahead for South Australia, and in particular Adelaide. I think it will.
Phil Tarrant: Before we get onto the property, I'm just thinking about this. Before we came on air, we were having a quick chat around some - which is completely tangent, but it's all relevant and related - some major Defence contracts, which have been announced and are going to be announced this year.
So, for our listeners that aren't familiar with this, I can chat about this because I also run a podcast around defence. The Australian government is spending $195 billion, that's with a 'B-'
Steve Waters: 'B' for 'billion.'
Phil Tarrant: ... 'B' for 'billion,' over the next decade on increasing the capabilities of the Australian Defence Force, so Army, Navy, and Air Force.
Air Force wise, we're getting the new JSF F35 Strike Fighters. Within the Navy sphere, we're getting new submarine, and new frigates, and new off shore patrol vessels, and just last week there was a big announcement that the new combat reconnaissance vehicles, as part of Land 400 Phase Two, is going to be built in Queensland, in Ipswich. Winning company there, Rheinmetall, has slated that they are going to build a military centre; it was Military Vehicle Centre of Excellence, up in that Ipswich area, and they're going to build 225, or 220+, new combat reconnaissance vehicles. They're sort of like a tank, but they're not track, they've got wheels on it.
What does that mean for property investors? Is this good?
Steve Waters: I think it's another part of goodness. I mean, it's not the only reason to buy into an area, but if we talk about Ipswich in particular, that's going to mean about 600 jobs, or an additional 600 jobs, to the area, which is nothing but good in an already strong area. The submarine contract, which was probably 12 months old, 18 months old now, isn't it?
Phil Tarrant: Yeah, they haven't started building, but that's going to be a ... They're building-
Steve Waters: That's over many years.
Phil Tarrant: ... a number of subs over many, many years. Same with the new frigates that are going to come online.
Steve Waters: Which is good for South Australia, and in particular Adelaide, considering that they've had plant closures around the car industry, and in and around Elizabeth, which is hopefully going to mean that some of these workers are without a job be reskilled, or retooled, into some of these other areas, which will still provide for the economy. All of these major contract wins for different areas is nothing but good.
Phil Tarrant: So, when you talk about fundamentals, and whether you listen to this podcast, or any other property podcast, or TV shows, or whatever, someone on stage talking about property, everyone always talks about fundamentals. What are the fundamentals that put positive pressure on price growth in property?
Steve Waters: Sorry, I'd say it again.
Phil Tarrant: Positive pressures on price growth in property, Steve.
One of the fundamentals is ... Well, there's certain fundamentals. One is accessibility to infrastructure, so highways, freeways, schools, shops, hospitals, all this sort of stuff; infrastructure. One of the other main fundamentals is wage growth, as in are people's wages going up? And then another one is jobs growth.
So, what we're talking about here is that, I mean, irrespective of if it's defence, or any other sector, and you saw this in the mining industry, what are the things that's going to have a positive impact on people's ability to borrow money, pay down debt, give greater accessibility or greater infrastructure to areas? And jobs growth is one of them.
So, what we're talking about here in Ipswich is that ... How many jobs are they going to make?
Steve Waters: About 600. Yeah.
Phil Tarrant: 600. That's a lot of jobs, right?
Steve Waters: It is, and it's the very beginning stages of a lift in the economy monetarily wise, so jobs growth equals surplus income, which means spending, which makes that whole local economy start to tick in terms of its money cycle.
But on the other side of the coin though, now as speaking federally perhaps, as jobs growth rises then wage growth also increases, and then people spend, and then inflation goes up, and then we see interest rates start to follow. It's a very-
Phil Tarrant: Cause and effect.
Steve Waters: ... clear cycle that just goes round, and round, and round. I think the important part is to be ahead of the curve and understand what drives the cash rate, interest rates, because as an investor, that's what affects our hip pocket, and everything else is a derivative of that, including consumer confidence, supply and demand, and the like.
Phil Tarrant: So, as a property investor rather than just sitting on your couch at night time double screening, so you've got the TV on, and you're also looking at your phone and at realestate.com, or domain.com, looking at property, it's just not looking at a house thinking, "Oh, that's a nice house, or that's under market value." You need to know what's actually happening in the areas where you're looking, or considering, to invest.
Steve Waters: Yeah, 100%, and that's part of it. I mean, you can go out and buy the nice house in an already fundamentally correct area and you'll do all right. It's riding that wave of growth perhaps. But if you really want to be 'a sophisticated,' or 'an intelligent investor,' you've actually got to be a little bit ahead of that. Not that you're trying to predict something, but you're certainly going to where the fundamentals are gonna be, such as infrastructure projects, population increases, and then starting to establish properties around there. Diversification.
Phil Tarrant: Diversification.
So, message is if you're a smart property investor, you need to know what's going on in the local government economies, the state-based economies, how that sort of fits within a federal perspective, and understand that where you look to invest in property, you want to make sure it's going to go up in value, and why does a property go up in value? Because it's inherently connected with these fundamentals, which support price growth.
Steve Waters: 100%, yep.
Phil Tarrant: Yep. Anyway, we talk about it all the time, so that was a quick sort of side part, but to the point of a new government down in South Australia, I'd be having a very close look at what that new government intends to do in terms of, you know, can they potentially change legislation or direction around property development, the rules and regulations around how they see their property industry growing? Yes, they can do. So, just watch this space and we'll make sure we cover it extensively on smartpropertyinvestment.com.au so you know what's going on.
Anyway, it's a portfolio update, Steve.
Steve Waters: It is, mate. It is.
Phil Tarrant: Last portfolio update I did was with our mortgage broker, where we were looking at revising some of our interest rates, so that's a work currently in place right now, and there's a number of forms on my desk waiting to get signed switching to a couple of fixed rate products just to balance out our interest rates, and I think we're sort of shaving, I don't know, 20 or 30 basis points off some of our mortgage.
Steve Waters: So, about 400 bucks a week.
Phil Tarrant: Yeah. It's pretty good.
Steve Waters: And it's still on your desk?
Phil Tarrant: It's still on my desk.
Steve Waters: Right.
Phil Tarrant: Yeah. Stacked up. I've got to prioritise, right?
Steve Waters: Yeah, all right.
Phil Tarrant: So, somewhere where it is hurting me a little bit at the moment is I'm carrying this property in Kingston with no rent coming in on it, and I think I ... It might have been to your team, or someone, I gave them a bit of a stick the other day, saying, you know, "I can't carry this property any longer without tenants in there. Where are we going with the renovation?" Obviously I've leaned on you to try and help me out to get the best possible result on undertaking this renovation.
I've engaged a local guy up in Brissie to support me on this, but obviously I turn to you and say, "Steve, mate, what do I really need to do here? Why do I need to do it?" I.e. I need to make sure this is 100% compliant, this property, which is essential, critical, from an OH and S perspective, but what can I do? So, there's need, what do I need to do? And what can I do to make it a better proposition for someone to rent, whether that is a stickier or better tenant, or someone I can eke a few more dollars out of a week than what I was getting beforehand?
So, that's where we are right now. It's been vacant for about three weeks, I think, maybe a bit longer. Maybe a month.
Steve Waters: Probably a little bit longer, but there's a couple of reasons for that. If we address the first point about what you need to do, and especially from a safety perspective, and this property was at that stage, and clearly you never want to be a slumlord. That's just never going to get you anywhere, and it's not morally correct.
Phil Tarrant: No.
Steve Waters: This property had some issues when we first purchased it, and the pest and building report revealed that there was probably a dozen or so maintenance items that were going to need to be done, of which one of them was a high moisture in the bathroom upstairs. This is a two-story place with an auxiliary area down below-
Phil Tarrant: Is that also the auxiliary area of the caravan in the backyard?
Steve Waters: No, no. The caravan was separate and that's dry. That's Airbnb, caravan-style.
Phil Tarrant: Yeah.
Steve Waters: We knew that there was potentially a leaking bathroom upstairs, however, we had tenants in there and we didn't want to upset the tenants. We didn't want to disrupt the tenants either whilst there was cash flow coming in, but we did know that sooner or later we were going to have to address that, and whatever else was revealed as a result of the leaking bathroom.
So, we went back and we renegotiated based on the pest and building report, and I think we knocked another 10,000 off the price.
Phil Tarrant: We ended up paying about 280.
Steve Waters: Yeah, which goes a long way towards repairs and maintenance.
The tenants then vacated, they gave notice and they vacated. They didn't leave it in a particularly nice state. Lawns were overgrown, a bad pest problem in terms of cockroaches, fleas, just general grubbiness internally, of which we then had a problem, so the bond was kept. We then had a problem getting tradesman to go in there.
Phil Tarrant: Did we keep the whole bond on this?
Steve Waters: Yeah, yeah.
Phil Tarrant: I was trying to remember. Yeah, we did, didn't we?
Steve Waters: Yeah, 100%.
So, tradesman would walk in there and they'd just walk straight out and say, "Look, bomb the place first, like kill the insects-"
Phil Tarrant: Just leave, yeah.
Steve Waters: ... "and then we'll come back in." That was done, but finding a tradesman that could actually work within a given timeframe, because all tradesmen up in Brisbane at the moment are so busy. If we go back three years ago, you could get a dozen there to quote, and they'd be ready to start the next day. Now, you can't even get them to quote, literally, which is a sign of the market as well. For a while the market is really buoyant and the tradesmen become very busy. When it's slow, they're all-
Phil Tarrant: Looking for jobs.
Steve Waters: ... clamouring for work, so, you know, we've got to live with that. So, we had an initial quote, and the initial quote to do the necessary stuff, with a little bit of cosmetic stuff as well, was around about 10-12,000 off memory, but as the renovation went on we changed the scope a little bit because it got to the stage where if we didn't do stuff now ... We could bandaid a problem now and keep it within that budget, but we don't know how long it would be before we had to go back and resurrect the continuing problem. That might have been 12 months, it might have been 12 years. It's at that stage when you're renovating a property, you have to make the decision do you just want to bandaid it, or do you really want to not come back to this property for years to come.
So, you made the decisions, let's do what we need to so that we can set and forget this property. As a result of that, we did the - well, and still doing - the bathrooms being done, full internal paint, external paint, the yards were a jungle, so somewhere in that jungle was actually quite a well-loved garden at one stage, so that's all being revealed. There's the bathroom problems, as I mentioned, so that had ruined the bottom ceiling, so that all had to be replaced, so on and so forth. Glass to be replaced, and got rid of.
All up, we're going to be spending around about that $20,000.
Phil Tarrant: Yeah, which is a big chunk of cash to find. This property land size is quite big, it's just shy of 800 square metres. It's a three bedroom, one bathroom property, so upstairs, and downstairs ... And go and tune in. On the 27th of July we spoke about this, 2017. Downstairs is, essential it's a filled in Queenslander, so you know, every investor is familiar with this if you're investing up in Brissie; these properties where upstairs it's a reasonable sort of property, but then what people often do is fill in the bottom area. It's not of legal height downstairs, so you can't-
Steve Waters: It's not a livable area, no.
Phil Tarrant: It's not a livable area.
Steve Waters: It's more of an auxiliary storage room. I think it's got to be 2.4, or whatever it is, for legal ceiling height.
Phil Tarrant: Height wise.
Steve Waters: Yeah.
Phil Tarrant: It's just shy of that, so it's a storage area, but I think previously someone's used it as like a home office, or something or other, and they're not using-
Steve Waters: Yeah, and they've decked it out accordingly. The downstairs was another kitchenette, so very similar to the Killarney Vale-
Phil Tarrant: Berkeley Vale.
Steve Waters: Berkeley Vale home many years ago that we did. There was a kitchenette downstairs, and another bathroom, and so what the tradesman has suggested, and we agreed, was to actually remove the kitchenette. This is one of those very rare instances where less is more, taking away, especially a kitchenette, but the bathroom downstairs is probably better than what was upstairs. It's actually in pretty good nick.
These are a high-demand type of property from a tenants point of view, because it almost gives them double the floor space to hang. From a resale point of view, they will always do better being a high set house with an auxiliary room underneath, and even from a valuation point of view, because there's the comparables to support the fact that they will get that little bit more, as opposed to, say, a low set standard three bedroom, small, weatherboard house.
Phil Tarrant: This property's a bit of a headache. I'm not going to say it's a rabbit warren, but there's a lot of, sort of, ancillary bits associated with it, isn't there? There was-
Steve Waters: There was a shed on a shed on a caravan on a barbecue area, yeah. So, that's all gone.
Phil Tarrant: That's all gone, and there's a side bit which had additional, sort of, fridges and barbecues, and at a point in time it would have been a loved family home, and I think it's been sold to an investor and, I'm not going to say it's gone into disrepair, but it wasn't very well presented, hence the reason we got it for a good price, right?
Steve Waters: Yeah.
Phil Tarrant: So, we spent 280 on this, Steve.
Steve Waters: Yep.
Phil Tarrant: That's coming up to nearly a year ago now. That market's moved a little bit over that period of time?
Steve Waters: The market's moved in terms of growth, but the rents have softened.
Phil Tarrant: Yeah.
Steve Waters: We've talked about this before, but as a market grows, and especially while it grows quite rapidly, and I'm certainly not saying that this area has grown to the degree that, say, perhaps Sydney has because that's just unusually high, Sydney, but as the value grows investors are coming in, or home occupiers are coming in, what we find alongside of the growth is that owner occupiers are taking advantage of the rising price by selling, yeah? Usually in these areas an investor is buying. What it does is that it adds a little bit more accommodation to the market for potential tenants, so what you get is this level of zero growth in terms of rents, or even just a slight softening as your prices rise.
This renovation is not more about well let's add a million dollars to it in terms of its value and let's also pump its rent up by 30%. That's not the case with this particular property and this area. It is now making it a very rentable and wanted property, as opposed to something that is in very plain original condition and having to reduce the rent accordingly.
Phil Tarrant: So, it's about giving it a point of difference compared to other properties on the market.
Steve Waters: It's a big point of difference, which is once again the high sets. They give that, especially when they've got something downstairs; an auxiliary room. It's also on a larger block. It's 780-odd square metres, nice side access, and this property was purchased for the portfolio to give a little bit of added income via a granny flat, if and when needed in the future.
Phil Tarrant: So, what Steve's chatting about there is say, and I'll use an analogy or an example, if you've got 100 properties in a suburb and historically they've been owner occupiers in those suburbs, therefore there's not many rental properties, so there's a demand for rental properties, and therefore there's positive pressure on that, and then you go into a cycle where people start looking to realise the value of their increased family home, or move somewhere else. If 90 properties were owner occupied and it becomes 70 properties out of the 100 are owner occupied, that means you've got more rental stock on the market, therefore there's not as much pressure for those rental properties, therefore we need to find a way to make sure that our property is rented over the other properties is rented, therefore we'll make this property as attractive as possible, and therefore $20,000 spent on essential repairs and maintenance make it up to code, but then all the other stuff that makes it attractive so people move in, and we keep them, which is what we want.
Steve Waters: Yeah, it's about the longevity of the tenant. You can have a gross high rent, but if your tenants keep changing over it just erodes that netability.
Phil Tarrant: Yeah, and this particular product up in Kingston, so three bedroom and a bathroom upstairs, another bathroom downstairs, and some other living space. It should be quite attractive.
Steve Waters: Oh, very, especially to the larger families, and on that demographic it will rent very easily. As long as we're within market, and this is another important point, the only reason a property won't be rented is for two reasons: A) you're above market rent; you're being greedy, or it's just below par in terms of its condition. You need to be on market and with a good product.
Phil Tarrant: Once we've done this work, that should be pretty much it for quite some time.
Steve Waters: Well, with a bit of luck.
Phil Tarrant: I hope so.
Steve Waters: Yeah.
Phil Tarrant: Yeah.
Steve Waters: There's a lot of other properties in the portfolio that could do with some work as well.
Phil Tarrant: Yeah. You know, got to find 20 grand to pay for this, so it's got to be money well spent. It goes back to any renovation, renovating for the sake of renovating, as in ... If you're renovating and you're not going to get any upside on rent, if you're renovating and you're not getting any upside on capital value, or you're renovating and you're not going to get either of them altogether, you shouldn't be doing it, right? A lot of people love to renovate for renovating's sake, and renovating's a headache.
Steve Waters: Look, it's painful. Personally, I love doing it, but I haven't-
Phil Tarrant: Yeah, it's good fun.
Steve Waters: ... I don't have the ... And so do you, but I haven't physically had the time to do it for probably 10 years, so we have to pay people to do it and that comes at a cost as well because everyone's got to make money.
Phil Tarrant: Yeah, everyone's got to make money. Every dollar we're spending on this then, Steve, is for a purpose.
Steve Waters: Yeah, 100%. There's no use spending any of the dollars if it's not going to have a product.
Phil Tarrant: Yeah, that's my thing.
Steve Waters: Or a result.
Phil Tarrant: Yeah. That's good, so I look at it, and I've got the quote here in front of us for the property in Kingston, Logan Shire. Full internal painting for both upstairs and downstairs. That's over five grand. It's about right?
Steve Waters: Yep.
Phil Tarrant: Yeah. So, I just want to go through some benchmark numbers because I get a lot of questions, Steve, saying, "How much should it cost to paint a house?"
Steve Waters: Look, this is a four hour subject, literally.
Phil Tarrant: Yeah.
Steve Waters: I could probably speak about it for eight. When people are quoting painting, or when people ask how much is painting, going to cost, there's so many variables to it: the surface condition, are things straight? What's the materials? How many coats? How many colours? There's just so many variables to it, but this quote is good. The one tip I would give to people who are looking to get painting quoted, is just be very, very deliberate in what you're asking for.
Phil Tarrant: Yeah.
Steve Waters: Ceilings are different colour from the walls, the walls are a different colour from all your trims, such as your skirts and architraves, and what have you.
Phil Tarrant: It's more expensive.
Steve Waters: Yeah, don't get a renovators paint job, where they just paint everything one colour because it looks like rubbish. It'll look good for about five minutes, but it will also look a little bit clinical as well.
Phil Tarrant: So, not all painters are created equal.
Steve Waters: No.
Phil Tarrant: If you think the quote is too cheap, it probably is. It means you're probably going to get a crap job. Some painters will just paint over where it is, they'll do no surface preparation, and then you're going to be back in the same situation. You see a lot of people try and patch a roof and they don't do it very well, and you're back there in a years time because it's flaky again. Painting, the secret to painting in terms of getting a good job is preparation.
Steve Waters: Preparation.
Phil Tarrant: The actual painting part of it is largely ... You know, anyone can paint a wall, right, but it's how you prepare it is important.
I'll run through some of the other stuff we're getting done here. You know, replacing broke window glass in upstairs bedrooms. You've got to get that right, you know, that's-
Steve Waters: That's a safety issue as well.
Phil Tarrant: That's a safety issue.
Steve Waters: Yeah.
Phil Tarrant: You know, there's obviously work we're doing on the bathroom, you know, full yard cleaning for front and backyard including rubbish disposal. That's nearly a thousand bucks.
Steve Waters: It was The Amazon. It was horrific.
Phil Tarrant: Yeah. You know, and then you've got removing the old kitchen from downstairs and not replacing it, so you know, to cut that out you've got to cut back all the hot and cold water pipes, you know, removing the wall board, make good the damage, replace missing tiles on the floors. This is just real nitty gritty, handyman-type work, right?
Steve Waters: It is.
Phil Tarrant: You can do it yourself if you wanted to, but the hassle.
Steve Waters: It's also the stuff that adds up really, really quickly.
Phil Tarrant: Yeah.
Steve Waters: It's the unskilled labour, such as ripping things out and patching bits and pieces, and I call it 'unskilled labour' because you don't have to be a sparky or a plumber to do it, or a builder.
Phil Tarrant: Yep, yep. You don't need to be licenced to do it.
Steve Waters: You don't have to be licenced. That's a good way to put it.
Phil Tarrant: Yeah, yeah.
Steve Waters: It's the stuff that adds up very, very quickly, and traditionally, especially around this time in the cycle, a handyman will be somewhere between $45-$65 an hour, so it adds up.
Phil Tarrant: It does, you know, like patch hole in manhole-type obstruction downstairs, remove outside structure and repair outside cladding, fit temper batons and plaster patch hole in wall set in sand. That's just, you know-
Steve Waters: General.
Phil Tarrant: ... just a job.
Steve Waters: Yeah.
Phil Tarrant: If you do that it would take you a whole weekend, a normal sort of bloke, right, if I was going to do it.
Steve Waters: Yeah.
Phil Tarrant: I'd have to go back to Bunnings 10 times because I forgot something. It's just a nightmare. You know, supply and fit vent to ceiling in downstairs bedroom; that's pretty straightforward stuff, right. Removal of multiple trees in timber frame fencing and panels: 700 bucks. You know?
Steve Waters: Yeah, and that doesn't actually explain the full story. So, a lot of the fencing there around the house, we're not talking around the boundary, I'm talking about around the house. When the bushes were being cut back, they were actually glass, so it was like imagine the pool fencing that you have, which is glass, imagine that but really think stuff, not the safety glass. That had to be removed because someone had just walked straight into that and cut themselves in half.
Phil Tarrant: Yeah. Sand and varnish floors for upstairs, punch all holes, fill all holes in floor, sand and varnish all floor area, two coats floor. So, we're sanding the whole top floorboards and getting that done again, which is good.
Steve Waters: Yeah.
Phil Tarrant: That's a good finish, right? That's good bang for your buck cosmetically.
Steve Waters: It's good bang for your buck, for sure, and it gives you longevity in the floor surface as well. A really good example of what the market's doing up there in terms of trades is three years ago, as I said, to get your floors sanded and polished up there, and nails punched, and puttied, and all that, it would have been about $1700. Today you could probably add 30-40% on that.
Phil Tarrant: Well, it's costing us two, two for that, so 2200.
Remove old caravan and lean-tos, remove all rubbish. 1800 bucks, that's a lot. And then this is the most expensive component here, Steve, and it's a note from the tradesman, "Upon further inspection of the upstairs bathroom, I found that the tiles were all loose due to tile being laid over the old Masonite, and the water has leaked behind the tiles, and leaking into the downstairs. Recommendation to remove tiles, remove old Masonite, resheet with villaboard, waterproof, or wet area in the floor area, re-tile over bath and over vanity, grout and silicone." About four and a half grand.
Steve Waters: This is the stuff that you don't know until you start pulling it apart. Without getting sort of technical, but to tile over Masonite is never a good idea. There's no waterproofing behind it, it won't stick to it very well, and as a result when you have a bath or a shower, everything gets behind the tiles, runs down into your wall cavity and then into below area ceiling. That's exactly what's happened.
This is where the discussion was around do we actually spend this type of money and do it right, so we don't come back to it for many, many moons, or do we just rip the Masonite off and just put that same sort of stuff back on, and maybe give ourselves 12 months to two years, or three years. But we weren't guaranteed.
Phil Tarrant: This is preventative maintenance, right?
Steve Waters: It's preventative maintenance, but at the top end because we're not talking about a couple of hundred dollars, so it's a lot of coin.
Phil Tarrant: Yeah. Okay. So, you were at this property. You went and checked it out for me-
Steve Waters: About three weeks ago.
Phil Tarrant: Yeah, yeah. Can you see, like obviously when you went up there it was prior to it being fumigated.
Steve Waters: It was zesty.
Phil Tarrant: Yeah, it was pretty bad, right? Being experienced doing this sort of stuff and operating on our behalf as our buyer's agent, helping us out with this type of thing, you can see the end result pretty clearly, right? You know what it's going to look like when it's all done?
Steve Waters: Yeah, because we're not rebuilding here, it's all cosmetic. There's nothing really structural in there whatsoever. It's the standard stuff that we've done to our own properties, you've done to your properties for the last 10 years.
Phil Tarrant: Yeah. So, once all done, we'll get a photographer in to take some nice shots, get it listed, and rented again.
Steve Waters: Yep.
Phil Tarrant: Prior to this work it was rented at 350. Are we probably going to get any advance on that? You reckon it's still going to be 350?
Steve Waters: No, I think it will be somewhere around that because remember, the market has come back and they were a large family. They were potentially paying for the privilege to be there as well, being such a large family. We should be around those dollars, maybe a bit less.
Phil Tarrant: A bit less. Okay. So, you know, doing a renovation doesn't mean you can always increase the rent. As we spoke about, this is about making sure we actually gets someone in there. For every week that this isn't rented, 350 bucks-
Steve Waters: It's costing. Yeah.
Phil Tarrant: ... it's costing money, right? 10 bucks different over the course of a year is, what's that? 520-
Steve Waters: $500, yep.
Phil Tarrant: Yeah, yeah. So, it's one and a half weeks rent, really.
Steve Waters: Compared to the alternative.
Phil Tarrant: Yeah, so get someone in there as quickly as possible.
What about a reevaluation once this is done. Would you recommend it?
Steve Waters: Probably not yet. I'd wait for a couple of reasons. A) we don't need to, but what we will do is, just like we did with Berkeley Vale and perhaps North Saint Mary's and Cambridge Park, all the way back then, by getting the good photos of the finished product and plus all the pretty ordinary photos to begin with in the different stages of work, we'll create that document for a valuer when and if the time comes.
Phil Tarrant: This is important, so before and after photos.
Steve Waters: When you're doing a massive renovation it is.
Phil Tarrant: When you're doing a renovation, yeah. Even if you're not doing a renovation, and we're not doing this renovation for the purpose of trying to extract some equity, it's still worth documenting it, so at a point in time you can say to a valuer, "Yes, we bought this property during this period. This is what it looked like, this is what it looks like right now. It's reasonable justification for the price increase." This is about manufacturing equity as well as the market going up.
Steve Waters: Yeah, this is growth and manufacturing, bit of a combination, but just going back to the valuation. I think we've done a podcast or a, it might have been a video many years ago now about how to get the best, or give yourself the best chance on getting a decent valuation and what the steps you should follow to do it.
Phil Tarrant: Good, okay. So, we'll share all these photos online when we have them. We've got all the before photos, and have a look. It just looks like a pretty standard Queensland investment property, and we'll share what the photos subsequent to all this work going down. I've seen some interim shots, it looks really good and I'm quite excited about what this property will be at the end result.
You know, just to crystallise the conversation we've had over the last half an hour is that the reason why we're doing this renovation is not to try and get more rent, it's about making sure we can have a property, which is going to be a more attractive to other investment properties in the market and therefore we have a siting tenant, and a sticky tenant, that's going to be there for the long term. That way we can realise the benefits of time, and time hopefully being price growth.
So, yes, we've manufactured some equity here, and we're spending $20,000. What that's going to translate into an increased equity, I can't give you that number, but at a point in time when we review this property and potentially seek to draw down some equity, we'll do so and I'll report on that.
Steve, anything else to finish up with?
Steve Waters: Just probably the last point is that the renovation was also necessary from a maintenance point of view.
Phil Tarrant: Absolutely.
Steve Waters: Not just from a safety, but also preventative. What we didn't spend now would have probably been four times that in a very immediate future.
Phil Tarrant: Some of that stuff is just making sure that your balustrades around decks are of the right height, and-
Steve Waters: And that costs a fortune, and there's not capital upside, there's no cash flow upside. It's a moral responsibility. You don't even have to do it legally in this scenario because it's a complying building from yesteryear, but from a moral point of view-
Phil Tarrant: Well, you think about it. A property like this will probably have a lot of young children there, right?
Steve Waters: Yeah.
Phil Tarrant: If they're climbing up balustrades or climbing over it ... I know, I've got young kids, last thing I want them to do is jumping over something, right.
Steve Waters: 100%, and it's a very expensive part of the renovation. We're talking, for a couple of railings, you know, $2500, and that all adds up.
Phil Tarrant: But you've got to do the right thing.
Steve Waters: You have to do the right thing.
Phil Tarrant: Got to do the right thing, and that's important as a property investor. If you're privileged enough to be able to invest in property, you need to understand that you are actually creating a home for someone else, so make sure that you are doing the right thing, you feel as though you are doing the right thing. If you're unsure about what the right thing is, there's plenty of people out there to tell you what the right thing is. You know, you can get licenced builders in and they should be able to do an assessment of your property to make sure that balustrades, for example, are the right height. Even if it's just rather than having horizontal slats or vertical slats on your balustrades, it's an important thing, right?
Steve Waters: It's huge.
Phil Tarrant: You don't want it to be a ladder where people can climb up.
Steve Waters: No.
Phil Tarrant: We need to be very, very careful.
All right, good Steve, so we'll check in with you in another month once this is all done and dusted and hopefully rented, and we'll report back and let everyone know where we're tracking with that, and look, there's other stuff in our portfolio that you're working with us on. We need to go down the next path of potential acquisition. At the moment we're still bedding down the purchase of the five side-by-side units that we bought, that you helped us out with, and we've reported on that as well, so you know, it's about finessing the portfolio, and as I've said beforehand, we're just trying to improve our cashflow situation right now.
So, improving your cashflow situation, we've actually had to spend a bit of money here just to bed down or secure our cashflow situation by having a sitting tenant, so one of the best ways to make sure you improve your cashflow is make sure you've always got someone in your property.
Steve Waters: Yep, easiest way.
Phil Tarrant: Easiest way. Nice one, thanks, mate.
Remember, go to the 'Our Portfolio' section on smartpropertyinvestment.com.au. I do a blog on that, and there's a whole bunch of articles. You can also listen to all these podcasts so you can see what we're doing and hopefully you can use it as a way to either work out what not to do or what to do and if you want to try and emulate our strategy that's why we put it there, but there's many different strategies in property investment. Our strategy works for us. My recommendation would be to stress test if you're looking to get into property and work out what's right for you, and that's going to be driven by the strategy you take, and your strategy is going to be based on what do you want to do with this thing at the end of the day. That's where we go.
And remember, by way of disclaimer, this is just a general chat, so before you make any decisions at all in terms of property investment, or investments in general, make sure you speak to a licenced professional that can support you and help you out with that sort of thing.
That's it for us, we'll be back again next time. Remember to check out smartpropertyinvestment.com.au. If you like getting your info from social media search 'Smart Property HQ.' The guys are always posting plenty of stuff on that. If you want to come on the show, and we're always looking for guests, so whether you're thinking about investing in property or you've got 100 properties, we'd like to share everyone's story. You can contact the team [email protected]
We'll back again next time. Until then, bye, bye.