Episode 8 of The First Home Buyers Show - Renovation Strategy

Vending machine. For every $1 you put in, you got $2 out. Well, today I'm going to share with you my secret strategy that is going to allow you to do just that. But before we get going, let's go to the credits.

Show where first home buyers go to watch their wealth grow. And here's your host, Jane Slack Smith.

So, hello and welcome to the First Time Buyer Show. Now I get to talk today about one of my favorite topics of all time. And this is a secret strategy, but let's take a bird's eye view and just look at why we are actually talking about property and home ownership altogether as well. Now, now I'm going to talk to you a little bit about why we as Australians love property. Well, we love property. And here we have the most recent data from CoreLogic. Did you know that residential real estate makes up $6.7 trillion in value? Now compare that to the stock exchange, which is only $2 trillion, or Australian superannuation, which is only $2.9 trillion. So we're talking double the amount of superannuation is what Australians hold in residential real estate. Now check out this little stat down here. 51.5% of us have our household wealth held in housing. Now that is extraordinary. And I think you know what you'll see with this is that, you know, we know that it is hard to buy property. We know that the government has looked at the situation and especially for first home buyers and they said enough already. It's not like the days of when mum and dad were buying properties. Affordability is an issue. Even with the recent property reductions in the prices, we know that affordability is still quite an issue for people. So why is property so special and why do we love it? We love it because it allows Australians to create wealth and hold their wealth. Now, you may have heard me talk about my famous financial freedom framework. Now, we've talked about this numerous times over previous episodes. There is five steps. But what I'm going to reveal for you today is the secret sixth step. So, as you know, with the properties that we're talking about, there is the ability to be able to buy your first home. You use all the government grants and incentives that they will give you, including the first home loan deposit scheme for those that are looking to get in with less than 5%, be able to be strategic about how you buy that property, how to be strategic on how you actually negotiate the property. And guess what else? You can be strategic on how you supersize it. And we're going to talk about one method of supersizing, one of my favorite methods, and that is renovation. So when we're looking at the financial freedom framework, what we're really looking at is an entire process that allows you to get into a property, use it as a first home and a stepping stone for your wealth. Now, you might want to move out after six to 12 months, which is when, if you have a grant, the state requirements make you live in the property for that period of time. Or you might want to stay in there for a few years and use it as a stepping stone to your next home or to another investment property. Whatever your strategy is the super size, it allows you to actually create wealth for yourself. Now, I've done this myself and I've developed the Trident strategy. Now, the Trident strategy we've talked about a few times, but this is three ways of making money with any property. A, B and C having a plan. A, B and C means if you screw a couple of them up, you've still got a plan to make money with your property that is going to allow you to create the wealth that you're after. So the Trident Strategy, buy in a high growth area. Now, we've had a long conversation about this in episode seven about how to be strategic about where to buy. We have talked about how to buy below the market value in episode three because we talked with Scott Agate from hello House and we did an entire discussion around negotiation with with real estate agents and buying property under market. Now we get to talk about Prom3 and this is my absolute favorite. And this is renovation. This is how you can actually add value to your property. But as I suggested, it's just like having a vending machine because we want you to know how to do this strategically. And I have a very, very special guest that I can't wait to introduce you to. He's a friend of mine and we've been working together for over seven years and in developing tools and strategies and courses for those who like to renovate. Now, with the Trident Strategy, we talk about buying at a discount so you make money when you buy. We talk about being in a high growth area so that the property that you're buying in the suburb that you're buying is where people want to live. So there's a demand that outstrips the supply and your property goes up in value. We've had that conversation, but now we get to talk about how to make at least three, two dollars for every one dollar that you spend. This is like having your own personal vending machine. So I want to take you through every one of those steps so that you can work out exactly how you can do that. So let's have a chat, and I'm going to bring on one of my favorite people, and that is John Hubbard. John. John, I'm going to welcome you to the show and I can't wait to have this conversation with you.

Me too, Jane. Thanks for having me. This is, of course, my favorite subject, so I could talk about renovation all day long.

Now, just so you know, John and I have been working together for over seven years. We met in a renovation weekend course that I was running. Gosh. What year was that, John?

2010, I'm going to say. Wow. So this is over nine years with Medine Simmons.

Absolutely.

It's called Step by Step Property Success, I think. Does that sound right?

That's exactly right. Yeah.

Very good.

It's a process, and it's just a step by step. And as long as you know the steps. And John was at that course. He has been renovating for years on years. Had started in trades, and I'll let you get him to give you a little bit of a background on it. But we sat down and we thought, hey, we could do something together. And we started the ultimate guide to Renovation. But so I know that John is going to share with us so many tips and some real great analysis and deep thought on how you can use renovation to create wealth. So, John, tell us a bit about yourself. You know, what are your credentials to do? Talk to us about renovation today?

Yeah, certainly. I mean, the thing that I really liked when I saw what you were doing is you were using renovation as part of a property investment strategy, which really, I guess pricked my interest up as it could be, you know, used as a whole other level. Before that, I'd just been renovating my own houses. I'd renovated an investment property. So the first property that we bought was when I was 25, was an investment property. Before that, I'd renovated a property with a partner at the time. And yeah, and we just had a really good experience with it. We added value quickly. We were able to buy a house that was cheaper and was below the market because had capacity to add value through that renovation and then put in the sweat equity, which is such a good thing when you're starting out. You haven't got bundles of cash. What you do have available is your kind of two hands. So we put in the sweat equity. We did everything we could, and even the stuff we couldn't do, we still did that and got advice and muddled through and did the renovation pretty cheaply. And we added about $60,000 to that first renov and we're on our way, you know, and then I was hooked and, and I've just been doing it since. And then I guess in 2010, which was the year I had met you, not long before I did that workshop with you, I'd finished up work. I was working as a in video production for many years and decided that, you know, the last renovation project that I had done had been so successful, it had, you know, being my year's wages in one hit. So I thought, oh, why would I work when I can just go and do what I really love doing over here and that is, you know, renovating and renovating properties. So I went and did that for a while and that led on to property development. And then of course at the same time started working with you and helping you with some video and some online courses.

Oh, you're being too humble. Helping me, joined at the hips for like seven years, creating what we believe is the ultimate guide to renovation course for Australians. And, you know, I'm happy to say that we've had thousands of people through that course and just love getting the successful feedback on it. But, you know, if you are watching at the moment, tell me this. If you're thinking of buying your first property, have you considered renovation as part of what you would do? So please, you know, give us, give us a bit of love here, let us know that you're listening and that renovation is something that you would consider because I think that this is probably one of the secret strategies. And I have, you know, obviously, as I said, I've got the five step freedom, financial freedom framework, but this six step is something that really can supercharge your property value for you. And if you choose to create that property as an investment property in the future, it can really push up the rent as well. Now, as John said, his very first property renovation that he did, he made $60,000 out of that. And a few years before, I did my first property purchase, but I had a very similar experience. You know, I bought a property for $425,000. Now that was it. That was. I used the $45,000 in total that I had saved. 25,000 of that went to the Victorian government as stamp duty. So I had a small 5% deposit. But I had big plans and the big plans were, was around creating that wealth. And I had done all the research that we're going to Have a chat to John about to make sure I was in the right suburb and I had the right property. And we did a renovation. Now, that renovation for me cost $50,000. And at the end of nine months, that $425,000 property went to the value of $700,000. So we had made an extraordinary amount of money and as John said, more than I was making it work with that one first property, which allowed me to pull the money out and go buy the next property. So my first home was the stepping stone that allowed me to create a property portfolio and the wealth and the freedom to do what I want. And that is what I would like for you. And that is why I want to introduce you to this concept of renovation. Now, John, one of the things that we often get told and is often asked is in our first house buyer Facebook group is, should I buy new or old? Tell me this. This is the very start of the conversation about renovation new or old. What's your opinion?

Yeah, it's. I mean, particularly, you're a first home buyer. It's the question that comes up, isn't it? And I guess on the pros side, when you're getting into a new home, surely it's free of problems. It's got all the bells and whistles. And if you go through some of those, you know, display units, and particularly in the outer suburbs of any major city, they look beautiful, they're up to date, the styling's there, nice lights, nice, you know, decor, and they're staged nicely with furniture. So it's very tempting to want to go into a new home. I guess on the con side, the problem is they don't have any capacity to add value because the value has already been added by the developer when he's taken that bit of land and he's bumped a new home on it and marketed it well and all of that kind of thing. So you are depriving yourself of that ability to add value, which sometimes is hard for people to date, because really this is an exercise in delayed gratification, isn't it? Because you're, I guess, foregoing some of those bells and whistles that you would have straight away if you bought a new home and all the maintenance free and dust free and all of the rest of it for a longer term goal of adding value over time and using it as a stepping stone to climb the property ladder.

And I think a lot of people also get a little bit overwhelmed with the fact that they might have to take some of the funds for the Renovation out of their deposit. Hence it's going to push them further out if they do that. But that's not the case, is it?

No, certainly not. And you don't. I mean, as you've proven, you don't have to do the renovation straight away either. It's really just. And that's where a lot of people get confused too, is it's a renovation strategy. Doesn't mean you have to do it straight away. It's really what it is. It's giving you the ability to buy below the market because it's a property that doesn't meet everyone's expectations. Because we know that the majority of the market, in most cases, and we'll come to a bit of a caveat for that, doesn't want to buy a property that they're going to have to roll up their sleeves and do a hell of a lot of work on, particularly if they have to do some of that work before they move in. But it does, I guess, it opens up the opportunity to add value in the future if you want to do it. And you've done this 10 years down the track, is that right, Jane? I think. Or seven years, was it?

Absolutely. I bought a property in Darlington, I think, in 2002, that I renovated in 2009. So seven years.

There you go. Yeah. And I've done a bit of both. I've done a short renovation, got it good enough to move in or good enough for tenants, and then I've looped back around and done a second renovation. I've done that twice in my own case. I did two front rooms and then moved into those and then demolished the back and did a big extension. And it was purely just the economics of what we could afford, and we're doing a lot of the work ourselves. But at the other end of that, with both the not paying for a second set of accommodation and not paying for all of the trades and the convenience that comes with doing that, we were able to really bank that money and then have a huge amount of equity in our home. So when it came to getting the second property, we could use that money to then borrow again.

Yeah. And I guess the thing is, if you're thinking about renovating, it might feel like it's a long way down the path. You're still just thinking about buying your first property, that it's important, though, that you actually do understand that if you do want to have a property with the capacity to renovate, it actually dictates where you're actually going to buy. So John, question to you, are all suburbs created equal when it comes to renovating potential?

Well, the real estate agents will tell you yes, because they'll tell you that just by virtue of a property being unrenovated that it's got capacity to add value. But the truth is, no, not all suburbs are created equal and there's some suburbs that are far better than other suburbs when it comes to renovating. And I did an interesting exercise a few years back, Jane. We were looking around a Melbourne suburb called Essendon and I was just doing my due diligence on this suburb. We were looking to invest there and I was recording the price per square metre of every house that came onto the market. And I was. And I was recording the price per square meter via unrenovated, dated and then renovated just, just to see what the. If there was that gap between the price per square meter and in from the unrenovated.

Just to explain that unrenovated is, you know, really old. Pink and blue kind of bathtub.

Yeah, I would call it that the average mum and dad wouldn't walk straight into and live in because it's got enough cracks and dust and so on around the place to go, no, we're have to do some work before we. So it'll put off a section of the market dated. I recall something I used to say that was done up to the 80s, but since I'm getting older, Jane, I'd say into the 90s now. And so something that is. It's certainly not a modern renovation, but it's still pretty livable. You know, you could put a paint job on it and put up with a few of those dated features for a number of years and then renovated would be something that's, that's up to date and modern regardless of whether it's in your. Your style or taste or whatever. But just something. Maybe it's been renovated in the last, you know, you know, 10, 10 years, let's say. So that's, that's the way I record it. But what I found was an interesting thing. When I was doing it for Essendon at the time and there was a lot of. There was about three renovation shows running at the time. So Australia was run at renovation mad and the unrenovated properties were just running out the door, you know, huge crowds at auction and I was looking at them and thinking these, these properties aren't cheap. So when I looked at the price per square metre for the unrenovated versus the dated and the renovated, I found that the dated and the unrenovated in this case were exactly the same price. They were selling for the same price, even though the dated properties had a hell of a lot less work to do. In some cases had really good bones, you know, really just paint, maybe even paint a kitchen surface or something like that. I know you'll get into a few of those tips later, Jane, but there was really not a lot of work to do on the dated properties. Whereas the unrenovated properties, they needed restumping. In some cases, they needed rewiring, re roofing, all sorts of things that could run into easily, you know, 20 to $30,000 before you actually started adding value to the property.

And I think that's the thing. When we're talking here about strategic renovation, we're not talking about let's throw some money in and make this property look good. We're talking about we want you to be able to make at least $2 for every $1 that you spend in your renovation. So it helps you to create the wealth that you're after and have that home as a foundation for you. And I think it's really interesting, the point that you make, John, there, about the shows really generated so much interest. We were looking in Balmain and Paddington at the time, and the exact same thing. I remember being in this street and there was this beautifully newly renovated property in Balmain with maybe two or three people going in and out. And across the road was this absolute dump, and there's like 60 people lined up. And it was the first time I'd ever seen a lineup to go into an open for an inspection. Yeah. So, you know, we were kind. I'm not a big lineup person. So I was like, well, let's go check out the other one across the road. Didn't even know it was there first. And we went ahead and look, beautiful renovation. They'd spent maybe 60 to $80,000 on it. Cross the road. We went and had finally lined up, went in and had a look. This place was a dump. But everyone had been watching the show and they wanted to make money from the renovation and put their own mark on it. Yeah, it was insane because when the property sold the property, the property sold for about the same price. There was at least $70,000, I think, of extra work that was done to bring it up to the renovated space estate. Plus the time loss of rent or, you know, lots of being able to have access to property whilst you're paying interest on a. On your loan. So these cost just for the mark of putting your Your own little taste and having a go at renovation. Yes, Insane. Which I guess brings us, you know, as you suggested, the. There's some suburbs that have the capacity. So looking at the prices on comparable sales and people can go to realestate.com they can go to domain.com, have a look at the past sales of specific properties. So three bedroom houses, for instance, because we've already talked in episode seven about having the typical type of property minimize your risk. So do the search on the past sales and actually. Or track them and actually have a look for your suburbs. What selling for the renovated and what's selling for the unrenovated and what's selling for the dated. Now, the way that you can work out per square meter is on every one of those pages they're going to say 3 Lachlan street in Waterloo and they're going to say, you know, solve for $1.5 million on 600 square meters. So all you do is you take the $1.5 million and divide it by the 600 square meters and that will tell you for the block size what the typical type of price you could expect to pay. It also gives you a little bit of information of what that price point is in the suburb. If we're trying to make $2 for every $1 spent, that means that you're actually trying to find evidence also that if you do spend, let's say 10% of the value of the property, that can actually get 20% back. So you need to have that capacity or the difference between the unrenovated and renovated in this suburb for you to make sure that you can make some money.

Yeah, it's all a numbers game. And your tip there is a really good one and it's available to anyone if you just jump on domain.com or realestate.com and have a look at those houses in the suburb you're interested in. Have a look at the unrenovated ones and then immediately search for the renovated ones and just see if there's a gap there. And there's not always a gap there. There's also some tools and reports that you can buy too, that are paid reports and so on. But that's the first pass that I would do just to see if you know, if there's even a shot at a property there that it's got that gap. So that pricing disparity between the unrenovated and it really just comes down to the. The numbers. And there's two really critical numbers or three critical numbers that you need to know one is what the resale price is going to be. So realistically, if you sell that property once you've renovated and might not mean that you're selling the property, but if we're going to use it as a stepping stone to climb the property ladder, at some point we're going to need to get a valuer back in at value and give you the new value for that renovated value. And the way the valuer will look at that property once you've renovated it is through the eyes of a buyer. So we need to think of it through the eyes of the buyer. What will the buyer pay for that property once it's fully renovated? And when you're looking at the other properties around on Domain or even walking the streets and having a look at the previous sales, it's really important not to cook the books there. Jane. And one of the things that we've seen many times over the years with thousands of students coming through the ultimate guide to Renovation and, and I think this is a bias that's inherent in all of us, is we just think our own property is worth more than it actually is or we're better than everyone else's. And yeah, so people get caught out because they think, oh, I'll easily be able to renovate it up to that level and get this much money. And in reality, the market's not quite with them at that level. So what we say is, rather than, and if you call that the nines and the tens. So if you think of a price range on a street that went from 1 to 10, and you said, right, at the 10 is the highest price in the street and number one is the lowest price in the street. So at the number 10, what we would call the outliers, the 9 and the 10s are the outliers. And there could be anything that goes on to create an outlier. So you might have, for instance, two buyers that come that are both from interstate used to Sydney prices, for instance, and on the day they're just determined to get it because their kid starts in school on Monday kind of thing. So you don't know what the circumstances are that go behind those record sales. They're outliers for a kind of reason. But if you come back down the list and have a look at the sevens and the eights on that scale of 1 to 10, lowest price to highest price, then you're into safer territory. So if you say, if I could buy at a three and a four, and not literally, but on a Scale of lowest price to highest price. If I could buy at a three and a four and sell at a seven or eight or revalue at a seven or eight, then I'm in a nice safe territory. So that's one of your numbers, if you've got that N figure right. The other important number is then how much work needs to be done and how much it's going to cost. So you need to work out exactly how much that renovation is going to cost. And ideally you need to be doing that before you actually purchase the property, because once you bought the property, it's too late to find out that it doesn't stack up as a deal first time around. We've developed tools to do this without getting tradesmen in quotes, but if you're doing this yourself, you get tradesmen in or you measure up when you go through for an inspection and you work out the square meters for your tiles and for your floorboards and anything that needs to be done and you get quotes for that kind of stuff. And then you work out the costs before you commit to doing the deal. And then the other number that's really important there is your other costs that go into that as well. So your holding costs and your buying costs and depending on how long that renovation is going to take. And then once you subtract all of that from the resale value, that gives you the price you need to buy it from in the first floor in the first place, I should say in order for that to be a viable renovation. So it's probably a little bit confusing. So I'll just recap if you start at the end value of what the fully renovated value of the property will be and you subtract all of your costs, which is your renovation costs and the holding cost, your buying costs, stamp duty, the whole lot and the profit margin you want to make. So let's say you want to make $20,000 on the renovation or $40,000 on the renovation, then that's the price you need to buy the property for in the first place to make it viable.

John, really good point. I'm just going to share quickly with the old. So with the investors Choice Mortgages, we believe in having as much information at your hands as possible. So for all our pre production approved clients, we give them access to RP Data Professional and you know, it allows them to go through and set up alerts, look at properties, you know, create their own valuations that the banks use. It's $150 a month. Usually it's an incredible tool, but one of the resources that I do love the most is this suburb report. And what John was just talking about there in that pricing disparity or that pricing difference that we talked about is understanding the difference. And as he said, from 0 to 10. So if we look here, we're at 25%, so this is 0 to 2.5, and then median is obviously at the 50% mark, and then we're at the 75% mark. Now, for a renovation, typically, let's just say for a cosmetic renovation, what you're trying to do is you're trying to potentially spend 10% of the value of the property. So. So if we bought a property for $610,000 and we're going to spend $61,000 on it, we'd actually want to make at least $2 back. So I'm adding an extra 61 on to get to 730. So this tells me if I'm buying at the bottom of the market, then there's still capacity for me to be able to make money out of that property. So if I'm buying at 733, you know, I'm doing a renovation that's maybe costing $73,000, want to add $2 for every $1 I spent, you can see here that it's just a bit over what the top or 75 percentile of that suburb is. So this tells me that it's a little bit difficult. I need to be buying below 730 to be able to have the capacity to add value in that suburb. So I think it's really important, John, to see that and look at that, because, I mean, as you said, there's a way that you can build up the costs and how much you should be looking at, but there's also making sure that that suburb has that capacity, so there are tools and resources that you can use. So we've discussed the suburb and understanding whether the suburb has capacity for you to add value. But what about the property itself? Just because a property looks run down and a dump, does that mean it deserves a renovation?

Yes. Not always. And I guess this brings us to the subject of over capitalisation, because many people get into a property, take on a renovation and it doesn't deserve a renovation because there's no value that's actually been added to the property. So you need to know those numbers first. But one of the biggest culprits we see for this is, call it the avenue of self expression. So basically taking it on as a bit of an Artistic outlet and renovating to the own tastes and not really thinking about what the market needs in that area and what's actually going to add value to that property. So when we bought our property in Brunswick in Victoria, we took on the renovation and my tastes were actually, I was interested in Victorian homes and period homes and all of that kind of thing. But what I saw when I was looking around at the market is the market wanted, they were happy with it to have a period home out front, but at the back they wanted modern, even though at the time that wasn't really my taste. But luckily I saw sense and I renovated to what the actual market wanted. We actually just made the decision that we're not going to renovate the property. Even though it's our own house and we're living in it, we're not going to renovate it to our own taste because we want something that is going to be an asset for us to climb the property ladder. So that's what we did. And we were able to look at houses actually in neighbouring suburbs that had got a really good price, so clearly what the market wanted and then used some of the elements that they were using on their properties and put that on our property to really increase the value of. So, yeah, don't renovate to your own taste. Renovate to the tastes of the majority of people in your market.

So know who the typical market is. And we've talked about that on episode seven and I think, you know, I remember having a conversation with my sister when she was renovating her unit. She's like, well, I'm definitely doing Scissorstone in the kitchen. I was like, well, in actual fact, you know, the typically renovated properties in these areas are laminate. Are you over capitalizing by putting what you want in, which is Caesar stone? And the reality of the matter was that she would have spent too much money on it. She, you know, obviously didn't follow her big sister's advice and did put the Caesar stone in because she qualified in her own mind. But, you know, you can't be a.

Prophet in your own land, Jane.

Sorry?

You can't be a prophet in your own land.

That's exactly right. That's exactly right. But it's interesting. My very first renovation, you know, we thought it would be really funky to have a purple feature wall. And, you know, we did a purple feature wall. Looked very funky. Ten years down the track, not so funky. And about six coats of white paint later to try to cover it up. And I can still see it every now and Then coming through. I'm not sure if it's just my bias. And I can see like this faint, you know, violet there, but, you know, purple feature walls. Designing to your own taste is not great if you don't plan on making this a forever home or a property that you can actually retrofit what you've done. So, for instance, if you want a sewing room in your property with all of the, you know, benches, bench work or crafting room or whatever, and you can actually pull the benches and all of the. What am I thinking? What do we call these things? Shelves. All the shelves out. You can't. Haven't got room there for a bed. If you can pull it out before you sell it or rent it. Fair enough. But if you're talking about, you know, doing a. A sunken room, big television room with, you know, built in, big chairs, etc. Then it's a whole different story.

Guys. Guys are pretty good at doing that. You walk into a property and it's got a massive home theater and. Yeah, yeah. And yeah, they're the only ones that really wanted that. There's an. Or pools or huge decks or, you know, five car garages. Yeah, yeah. Blokes are very good at that. Yeah.

Yeah. And I mean, one of the most heartbreaking things you will ever go through having renovated a property is you put, you know, the love into, you know, your poor perfect laundry, for instance. And I think this happened with one of the properties that we were involved with, John. Perfect laundry, lots of love, making sure the shelf space was there, etc. And the people that came in and bought it said, well, I have a son with special needs. We're going to convert this into a bathroom and ripped everything out. So don't make it personal. You are going to live there for a period of time, but understand how to be strategic about it. And John, I'm just going to bring up a slide for us about the other ways that renovators could actually fail to make a profit with their property or with their property. So we talked about buying the wrong property, doesn't have the capacity to add value. We talked about over capitalizing, spending too much. We've talked about also the third one in there, which is renovating to your own taste. So let's take me through the other two. So we got paying too much and getting ripped off by tradies and discovering hidden problems after the purchase. How can we prevent those happening to us?

Yeah, paying too much for trades. I mean, there's plenty of outfits around that aren't that reputable. And one of the best ways that you can guard against paying too much for trades is one, getting educated on how much things actually cost. So we always recommend getting four quotations. And just through going through that process of getting quotations, you learn how much things are worth and often how to do things. So if you're getting a quotation for a front door, for instance, to install a front door, ask them the process that they're going to use to do it or what type of door they're replacing it with. And then you get to know the terminology of what the door is. Is it a solid door, is it a semi core, what kind of door is it? How many hinges are you going to be putting on, you know, and you're building up that knowledge base through that quotation process to educate yourself on that building process. So that's one. The second thing is recommendations are a really good way to do it. Now traditionally that means word of mouth. So if you've got a friend or a colleague or a family member that's used a particular tradesman, that's a really good way of doing it. Obviously there's some great places online, Jane, I know you can speak to this really well for doing that too with, you know, review systems and so on. Yeah.

So seekingservices.com and there's more and more. There's so many proptech kind of startups happening all the time where they're putting together some of the, the trace.

And you're even a big fan of Airtasker, right?

I personally use Airtasker and you know, I, I actually had someone come, I've had them pull up, put up lines for me. I've had them, you know, align photos and put up photos. I had someone come into the office here and put up a TV mount and he at during the day worked for a company that would charge hundreds of dollars to do that and came and put it up after hours for me for 50 bucks. So you know, areas like Airtasker, but for your renovations where you're actually, you know, really going to need maybe insurance, depending on your state, how much insurance that you're going to need as well, you need to make sure that you've got qualified tradies. But one of the other tips that I've used is if you find a really good tradie that you like. So for instance, you know, we had someone who was just, you know, super, a carpenter that was super handy. You know, he cleaned up after himself at the end of every day he was there waiting to come in on time every morning. And we asked him, you know, who would you recommend? Because when you've got a really good tradie, they like working with other good tradies. So they say, oh, you know, I need, if I needed someone for tiling, you say, well, give Ben a call. Because Ben, I've worked with Ben a few times, he's really good. So you're going to get that same expectation around the same standard. So you know, you're not going to end up being ripped off by the tradies and they're out. I mean there are there to make a profit. So don't expect that you're going to scroll down on every dollar, but you're going to get, you know, get what you pay for often. And if you do get some really extraordinarily high quotes, and this is the problem with maybe going with one or just two quotes, if you get some really high quotes, it might just be that they're too busy and they're just trying to decide, discourage you. Then you have a false sense of how much that renovation really should cost.

Yep, that's a very common trick, but very common practice to if people are busy, they just put out a high quote and they'll make the time because it's worth their while, you know, crunch their time. But if they don't, so be it. So it happens all the time. The other comment I'd just make what you said there about good tradesmen, like working with good tradesmen. It's so true. And often groups of tradesmen go through their entire careers working with roughly the same group of people. And they get used to even coordinating each other. And obviously not. There's then a kind of a social reason. You don't want to hold up your friend by not showing up on the day and not having an area ready for the plumber to come and lay his pipes, for instance. So that has another additional benefit to just finding a reputable tradesman.

And look, you know, if you're doing your renovation as you can afford it, it might be tempting, for instance, to just do the kitchen and maybe delay the bathroom until later. Get a quote that gives you an idea of having the trades there all at once. So maybe having the plumber to do the fit out for both of them would be a lot cheaper than having them come come back for a second time. So, you know, there are some, I guess, money that you can save by having a number of those jobs that are, you know, the same to be done at Once. So go and get the quotes, work it out. See what the difference is of just doing maybe the kitchen in the beginning or, you know, doing everything all up, but you don't have to, you know, polish the floorboards before you know. At the same time that you're doing the kitchen, you can do it as you afford it. But it does bring a space to an interesting topic, John, which is there is actually a sequence of doing the work as well, which we talk about in our course and actually I'll give you a link to an ebook later and potentially if you're interested in a video series as well where we talk about so many of those things because there's too many things to cover. But John, just pulling up here on. We've got discovering hidden problems after the purchase. There's number one way that we can get around that, isn't it?

Yeah. Which is just enlarging the screen a little bit there so I could see your slide. But yeah, it's, it's. You need to get a property inspection because there's stuff there that even if you've done a lot of renovation, you've got a lot of experience, there are still things that can be lurking under the, under the surface and you want to be careful that you don't get stung with those. And some of the big ones of those are subsidence, which means that the often that there's been water or lack of ventilation under the house and the house can sink on its stumps. That's particularly nasty when you get a solid brick house because that could mean that the underpinnings of the brick walls themselves have experienced subsidence. And underpinning is quite a costly exercise as opposed to re stumping, which could be anywhere from Maybe, you know, 7 to $12,000, let's say, is a range in a typical size house. So that's, that's something you definitely want to watch out for. The other thing is, is pests if you, if you strike termites, that can be a real deal breaker and can really make your life miserable because you can. It could mean extended periods of time. We had a friend who bought a property in Sunbury and clearly, you know, when they eventually found the termites, they'd been there for a long period of time, wasn't passed on to them via the agent. And I, you know, previous owners would have had to have known.

Yeah.

Because there was, there was evidence that, you know, a few finger holes and walls and stuff like that. Yeah. And they had to move out of their house. On two occasions. And I think one occasion was like about three months while they. While they did a second, you know, they had to do this treatment, which is chemical, not great for the kids to be hanging around. They had to move at home, come back in, they did a second round, move out for that again. So, yeah, that can really turn your life upside down. So hiring a building and pest inspector is really something worth doing before you do any purchase. It just gives you that peace of mind that you're not going to get caught out in something horrible like that.

It's interesting, John. One of our ultimate garden renovation students who started with a meth lab that she was renovating has in recent years, you know, one of the townhouses that she owns that's part of Estrada had. They found incredible amount of termites, and it's costing hundreds of thousands of dollars at the moment to essentially rebuild it. So, you know, and remember, go back to episode two. We talked to Emma, who was the first home buyer, episode two, who at the pointy end of negotiations when the pest inspection came back to that showed termites. Listen to how she negotiated and what she did to get around it and still secured the property and did it so that she was confident that the termites were dealt with. So it's really important. And I think also, you know, when we talk about this, the financial freedom framework, we talk about slamming it and slamming it. You know, as you know, we've spoken to Scott around negotiation. The other thing around slamming that property once you find it, is the inspections that you need to do. So it's really important that you understand how that works. And, you know, understanding the process of actually buying is so very important. Head back to episode five, if you missed that episode where that was discussed. You know, it's. It's some. It's an area that, you know, after you've been through the entire buying process and you're setting a strategy and then getting the loan set up and getting the grants applied approved, and then going and sourcing the property, doing all the research that you do, the legwork and inspecting the properties. It's kind of like, I'm over it now, but no, you're not. You need to slam it. So that negotiation inspection is so important. And as we just saw, you know, it is possible to actually lose quite a considerable amount of money if you don't identify those beforehand. So really good tips. Thank you, John. Well, look, how about we move on to some of the areas where people can add the most value. And as I indicated before, I'M going to think I've got it here. I'm going to give you the ability to go and download, download a room by room strategic renovation guide that we have if you're interested. There's also a video series that takes you through some renovations that we have done and we talk about so many things, hours, hours of content. We couldn't go into so much here, but go to janeslacksmith.com roombyroom and get that ebook because there's so many things and John, we go through in that ebook so many of the areas that you can add the most value, such as the areas where there's the most livability, the kitchen and then the living room bathroom, painting. What else is on that list?

Yeah, there's a lot. And it starts from the time that someone's driving up the if you think about what we mentioned before about the valuer and how he's looking at your property post renovation, he's looking at it from the point of view of two buyers driving up or one buyer driving up to that house and their first impressions of that house. So it starts from the very time you pull into the street and then the, the street appeal and then as you enter the enter the property. So street appeal is one of the big, big ticket items in adding value to a property. The other ones. And there's many things. I'll just mention that before I get onto the next one. Jane, there's many things and we can look back around to this you can do to improve your street appeal, which aren't necessarily very expensive. And paint is the coverall that solves so many problems when renovating and adds so much value. But then once you get into the property, it is those living spaces and in particular the kitchen and the bathroom, which are your big ticket items there.

Absolutely. And you know, I think the thing is that knowing how to do that strategically and being really clever with it is so important. So how about we just go in deep. We've got a few minutes left into some of one tip around painting. Should you paint or you know, should you replace? So here's a really. I mean, this is a section from the Ultimate Guide to Renovation, but we want to give you some tips that you can take away from here as well. So John, do you want to take us through? Should you repaint before you replace?

Yeah. This is one of the things that we see people do and I must admit I've been a little bit guilty of this myself is just ripping in or getting in there and ripping everything out and then you realize, and then as the budget gets tighter towards the other end of the renovation, you're putting stuff back into the property that, you know, in some cases you should have just left what was there. So it's the idea that repaint before replace, so it doesn't actually have to be replaced. Because when you're renovating to add value, there's a lot of things could be replaced or a lot of areas could be renovated, but they're not actually areas that add the value. So if you just, for instance, repainted your bathroom tiles and repainted your bath instead of replacing it, or even the vanity instead of replacing it, that might be enough, given the other things you've done in the rest of the property. So there's products on the market that do this. You can buy them from Bunnings. And even with tenants, they last for a good many years, probably longer than the particular styles of kitchens that are around at the moment. So here's another example with painting bench tops. So this is a very easy process. Little small roller. You can buy this product from Bunnings. It just rolls straight over an old laminated bench top and change those handles and you've got a completely new kitchen that Most, you know, 99% of people walk into that property and they would not know it's not a new kitchen.

Yeah, absolutely. And it's funny, I remember when we had one of our initial students in the Ultimate Guide of Renovation way back in 2012, and he was quite successful. I think he'd done like 15 property purchases and renovations and we had him to go back and have a look at them. And in actual fact, it was growth that had actually allowed him to make most of the money on what he thought were successful renovations. But he was just about to rip out an entire kitchen, which is his go to move, and he was going through the course and said, oh my God, didn't even think about, about it. And, you know, saved himself $15,000 straight up.

So like he was like demolition man. The day he got, the day he got the keys, he'd get in there and just strip everything out.

Because everyone loves demo day, right? It's like, well, you feel like you're so far ahead because at the end of the day everything looks done and then it's the slow process of rebuilding it back up. So it's good days. So let's head over. We talked about bathrooms. What about the exterior?

Yeah, exteriors really some low cost things. You can do the exterior, which really make a huge Difference. And there's a saying that says that most people make up their mind when they're going to buy a property before they reach the front door. And there's lots of statistics that have been thrown around for this. Regardless of whether it's 50% or 80% or whatever the statistic is, it's a significant amount. And it's. And it just makes common sense that when you're approaching a house, particularly to live in, remember this is the way that the valuer thinks about it, that you're going to have an objection to some properties over other properties. And the objections might be that the lawns unmowed and there's trees in front of the property and there's rubbish and all that kind of stuff. So some simple stuff that you can do in the front yard is things like painting the facade of the property. Replacing the fence is a great one. Using garden beds and just simple planting, just not expensive. Just clean and cleaning the place up and putting some nice straight lines in. Making huge difference. But, yeah, fence makes a huge difference. The garage and carport. So dark colors, and particularly if you've got a carport that has been there from the 80s or the 70s or something like that, they can be. Even if the structure looks a little bit dated, a dark color generally makes something disappear, whether a light color makes a feature of it. So painting a bit of a dated balustrade or a carpot or something like that in a dark color. Yeah, it tends to draw the eye. The eye's not drawn to it and you forget it's there.

And it makes it feel a bit more established. I feel like it's worth a bit more. So great tips. As I said, we have a book@jameslagsmith.com roombyroom we go through every room. But that's just one tip about how paint could allow you not to have to replace things, which can be very, very costly. So I've got a few questions here. Carolina's question, how much should I realistically afford to spend on a renovation? So we threw around a few numbers before, but your thoughts on kind of the rule of thumb, when to use a it, when not to use it, on how much to spend on a renovation.

Yeah, the method that I used before is the most reliable method. Now, I know that everyone loves rules of thumb, and I'll give you one in a moment, but I'll just recap that one first, which is basically working out what the resale value would be post renovation and then working your way back from there. So what's the renovation costs? What's the profit margin? Oh, sorry. What's all of your other costs? So add up all of your costs, including renovation costs, what's your profit margin you need? And that's what the property needs to start at. Now, when I say start at, that could mean that's what the property needs to be to buy it for, or it could be the current value of the property before you actually went down the track of renovating it. So some of the other, I guess, rules of thumb that people use is around 10% of the property value on a cosmetic renovation. So when I say cosmetic renovation, it's typically what we've been talking about. Repainting and not replacing. It's anything that doesn't involve a structural change. So for instance, if you were to remove the bottom of window and make it into a sliding door, into the external wall, that's a structural change. Or if you were to move a wall within that property, that's a structural change which would need a permit nearly all cases. So that's the difference between a structural and cosmetic. So cosmetic renovations are typically around 10%. Now, it doesn't give you license to spend up to 10%, but it does give you a. A ceiling not to spend over is the way that I would use those.

Yeah. And I think the thing is, I mean, we talk about a number of renovation strategies. You know, there is the. The refresh. And the refresh can just be, you know, some angle getting in there and putting in some. I was going to say angle grease.

But it's elbow grease.

Elbow grease. Putting in some elbow grease, cleaning things up, as John said, maybe fixing up the garden, first impressions. Then you could go to the repair where you pull out your toolbox and you then maybe painting some of the vanities or the kitchen or resurfacing the bath. And then there's the rejuvenation, which is really around that 10% mark of the cosmetic, which is the new kitchen and bathroom and maybe some floorboards and painting. And then you can go to the full on, you know, restructure, which requires the DA or council approval. So there are so many types, Carolina. And it's really important, you know, as we said, to start with just understanding what the capacity is in for the property to actually create value for yourself as well. So. Good question. Thank you for asking it. I have another question here. Where's. Actually it's a statement. It's from Scott from hello House, who if you want to jump into the first house buyer group, please do that. Jump over there and continue the conversations. Scott's in there. He's our master negotiator. And you probably saw him in episode three discussing all of the negotiation techniques that he's learned as a real estate agent over 20 years that he's now sharing. And he makes this interesting statement and I'll read it out because it's very long. You're only going to see a little bit on the screen. In a rapidly rising inner city market in our main cities right now, there is the block effect. It's still playing out, driving up the unrenovated prices versus the finished product. What's your view on instead of buying to say $800,000 property and spending 10%, $80,000 and then having to take on the time, the risk, the renovation versus buying the finished product, say at $900,000 up front. So Scott brings up a point that we talked about previously, which is in our own experiences where we had seen these TV shows really affect markets where we were seeing the unrenovated properties almost outselling the definitely the dated properties, but even getting comparable up to the renovated properties because people wanted to to have their own effect on it. And this is why it's so important to do that suburb analysis that we talked about. And John, you know, we went into quite a bit of detail on that pricing, what we call pricing disparity, which is just making sure that there's enough of a gap between the renovated and unrenovated properties in the suburb. So I think Scott's brought up a really good point.

It's really important not to be doing renovations for renovations sake. So, yeah, you definitely would not be wanting to buy a property that had no value to add in the first place.

Yeah. And I think he just goes on to say if you buy the finished product, the rent should already be at the max market rate. My angle is around the total cash required to buy and renovate it versus borrowing for a higher amount and retaining your cash at the bank that would otherwise be used on the renovation to then go and instantly purchase property too, to grow your portfolio. Thoughts? Okay, so another question there, which is essentially he's saying if there is no difference within the unrenovated properties in the area, then save yourself some time and effort. And obviously we've taught you how to look at how being in a growth area, buying the property that is renovated or already if it's in a good growth area, and then you're going to have a shorter period of time to be able to potentially get to your second property because there'll be an equity growth potential. And if that first property has already been turned into a rental property, then the renovated property is going to get more rent. So once again, really good questions and insight from Scott. Now, John, as I said, we do have that renovate for profit book with a room by room guide to how to do that. But mums and dad investors, how they can safely achieve financial freedom using renovation. And as we've said time and time again, you as first home buyers should be considering yourself investors and using these savvy tips of successful investors to be able to create wealth creat for yourself. So make sure you jump over there. I'll put a link up the top for you so that you can see that. But you know, John, I think the, the main thing here is that, you know, renovation is part of what my philosophy is, which is the trident strategy. You know, buy below the market, buy in an area that has good capital growth, and renovate to add value at least $2 for every $1. Because by having those three ways of making money, you know, you can create for yourself the wealth and the financial security that you want. And we've done it ourselves. John's been renovating for over 25 years.

Boy, aren't I tried.

And then you moved on to developing as well.

Yeah, I agree. I think there has to be a really good reason to take one of those prongs off the table because they're all minimising risk and sometimes, depending on the market conditions, some of them are protecting you more than the other ones. But so there really does have to be a good reason to take one of those off the table.

I think so. And I mean, just in wrapping up, John, your thoughts on renovation as one of our super strategies to add value?

I think for first home buyers, it's a fantastic strategy because you're starting out and you want to use as much as your available budget to get into the best property you can possibly afford. And if that means you can buy it for a little bit cheaper, because you know your numbers and you're buying a property that has capacity to add value. And then you can use a bit of sweet equity, as we call it, bit of elbow grease or angle grease to add value to that property yourself and not have to pay other people do it. You know, YouTube's great for learning how to do stuff. It's great because it's money in the bank. You're building equity in that property and you're able to climb the property ladder faster. So I Think it's a fantastic strategy for first home buyers. And it's a strategy that you can do without a lot of the tax implications and so on that come from other strategies that are trying to be a little bit more tricky and it's the way most Australians have built their wealth. So I think fantastic strategy for first time buyers.

Well, John, thank you so very much for joining us. Thank you for sharing your insight and knowledge as well. And I really appreciate you sharing the thoughts with first home buyers. I know you and I have been working on helping investors for so many years, so it's a bit of a change of tact. But some of our thoughts into what they can do. I think we're giving them a bit of a leg up.

Right. Thanks, Jane. Been fun.

Okay, bye. Bye. All right, guys, well, guess what? It is time for my speedy summary. So if you're a first home buyer and you're looking at adding value to your property, then you can do that through renovation. It is my secret, sneaky sixth step in the financial freedom framework. So we talk about the five steps. This is a six step. Once you have a slammed that property whilst you're living in that property, you can renovate it at a time that suits you. When you get the money to do it, you don't have to do it all at once to create extra value. It is like having your own vending machine. For every dollar you put in with a strategic renovation, you should be getting $2 out. So what is a strategic renovation? Well, strategic renovation can only be done on a old properties, not new. So buying new actually takes this entire strategy off the table for you. Now I talk about my Trident strategy, three ways of making money. We've talked about how to negotiate to make money when you buy. We've talked about how to be in a capital growth area. So your property is making you money for years in the future. And now we're talking about supersizing that and doing a renovation that strategically can add $2 at least for every $1 that you spend. And if you decide to rent that property out in the future, create a higher rental income for you. So the gap between your mortgage repayment and costs and the rent you get is even smaller. So what are the things that people get wrong? Well, they buy in the wrong suburb. They don't understand pricing disparity, the difference between the renovated and the unrenovated costs of properties in the suburbs. So you have to be in the right suburb first. That's why it's important in the beginning to see it and understand your strategy before you even begin. Then what you need to do is have a property that has the capacity to add value. Not every property that has the need for a renovation deserves a renovation. So understanding if there's capacity is by looking@realestate.com domain.com au or even using RP data that allows you to be able to look at the sold properties and look at what the renovated properties are selling for and unrenovated and working out using trades quotes. And we've talked about at least four so you're not ripped off to be able to understand is the capacity to make some money. So you need to understand what the buying price is, what the renovation cost is, what the profit you want to make and what your holding cost is. And if that end total is actually higher than what the renovated properties are selling for in the suburb or the renovated comparable properties in the suburb are, it's time to walk away because you're not going to make money out of it. So renovation is a super sneaky strategy to allow you to make money in any market. So we talked about Also there's some room by room tips that I want to share with you. Check out the link to be able to see the www.janeslagsmith.com roombyroom all those tips and tricks but we talked about how to repaint. We shared a few other tips. Get in there and watch the entire episode. It is fantastic. And that is it for the super strategy. So without any further ado it is time to say goodbye and we are going to go to the closing credits.

First Home Buyers show and Jane will be back next time with more tips, tricks, resources and interviews.

See you then.