Learn how much cash you need for renovation deals across different loan-to-value scenarios. Using a $400,000 purchase, the speaker shows cosmetic renovations require $100,000 to $160,000 depending on LVR, while structural work needs $220,000 to $280,000. Holding costs are calculated separately based on your loan amount and timeline.
Questions this video answers
$400,000
LVR means the loan is X% of the property value (e.g., 80% LVR means the loan is 80% of the value and the buyer provides 20% as their own money).
Financing the deal. So how much cash do you need to take on a renovation? Let's look at a few scenarios. In these scenarios, I've left out the holding costs. These should be added, but they are based on the loan amount, the interest rate, and the length of your renovation. And also if you are renovating on borrowed money or SA. So let's look at a cosmetic renovation with an 80% loan to value ratio. Quick comment on LVR loan to value ratio. That means your loan is 80% of the value. So you're putting in tipping in 20% of your own money, your own savings in this case. So let's have a look at that. The purchase price times 40% is the actual cash that you require. As we saw in the rule of thumb costing calculations, the 40% breaks down to acquisition costs, renovation costs, holding costs, and selling refinance costs. That's 40%. Now, the purchase price at $400,000 times 40% means you need $160,000. So that's a deposit of 80% at the purchase price of $400,000. Your acquisition costs of $24,000. Your renovation costs, remember, 10%, $40,000. And selling refinance costs $16,000. Obviously, that $16,000 is a selling cost, not a refinance cost. So the total cost is $160,000 or 40% of the purchase price. Now let's have a look at another scenario. Let's say you only have a 5% deposit. So you have a 95% loan to value ratio on a cosmetic renovation. If you are able to obtain a 95% loan and they are difficult on a purchase price, then the calculation is as followed. The Purchase price times 25% is the cash that you require. In this case, the purchase price of $400,000 times 25% is the cash that you require, ie, $100,000. So we start with your deposit of $20,000 of the purchase price of $400,000. That's 5% acquisition costs. They don't change. 6% renovation costs. 10% is $40,000. Your selling costs $16,000. And so we're looking at the total cost of $100,000. So let's move on to structural renovations. We're going to look at a structural renovation with an 80% loan to value cost. So the purchase price times 70% is the cash required. The purchase price, $400,000 times 70% equals the cash you need $280,000. Now, this is how that's made up. The deposit of 20% on your $400,000. Purchase price is $80,000. The acquisition costs 6% $24,000. Renovation costs $160,000. Remember it's 40% and the selling cost $16,000. Total costs $280,000. Now let's look at structural renovation with a 95% loan. It's the purchase price times 55%. That's the cash you require. So so the purchase price $400,000 times 55%. The cash required $220,000. So we start again with the deposit 5% equates to $20,000. Acquisition costs renovation costs don't change. Selling costs $16,000 so the total cost $220,000. That's what you need for a structural renovation with a 95% loan to value ratio. These examples are indicative only merely to show you how to calculate up the cash you need. Remember, holding costs also need to be added. However you need to make sure you can borrow the balance as well. One comment about holding costs it is dependent on the time frame of your renovation so it's dependent on you. So that's why we've left this out.
