The Ultimate Guide To Renovation Course - Module 4: The Right Property

You are now ready to find potential properties that suit your own personal property investing goals. Note that we are now four modules into the course and we are just looking at a property. This is an important milestone for you to acknowledge as most people start with a property then hope that they have got the right one. Hope, however, is not enough to get the results that you're going for. This module will guide you through the actual property selection in module three, Suburb Due Diligence, we analysed your one to three suburbs in depth and established where the pockets of potential were within each suburb. Now it's time to find the property that will be the cornerstone of your renovation success. There's four steps of the property due diligence process. Step one Carry out an initial property inspection using the Property Inspection Checklist. This is designed to be a quick initial inspection that seeks to clarify whether a property warrants the next step in due diligence. Step 2 Carry out a full appraisal of the property's current and future renovated value using the Property appraisal checklist. Step 3 Carry out a full costing of the property using the Property Evaluation Checklist. And step four Carry out a full property due diligence using the Property Due Diligence Checklist. So back to buying around the median. Remember, we always minimise risk by buying in the median values of the areas that we're looking in. So if the median price in your suburb is 550,000, you know that you are going to have to buy well below that to cover all your costs. First you need to determine what a $550,000 property looks like. The median property may be a three bedroom rented house. Then look at price points 20 to 25% below that median price at three bedroom rented houses or houses that can be rented as advertised on the real estate sites. Whether your property investment strategy is renovating to rent or renovating to sell, the same fundamental principles apply. It's about assessing a property's potential to create equity. Equity through buying under the market, Adding equity through a smart renovation the potential to create equity relies on you knowing four things. What is the current market value of the property? What will be a realistic resale or revalue price? What will be the total renovation costs including all fees? And who is the demographic that will buy or rent this property at the end? Even when holding a property, you need to know as precisely as possible what the end value of your property will be otherwise you risk over capitalization. As part of module three, Suburb Due Diligence, we've already looked at points one, two and four. Now it's time to establish exactly how much the renovation will cost. And to do that, we need to do an inspection. It's a good idea to organise a full hour with the agent to go through the property properly in order to get a thorough, thorough idea of the costs involved in renovating that property. To help you with this, you need your property inspection checklist. Here are a few things I always look fresh paint or wallpaper that may be hiding a problem. Look and smell carefully. Check the walls and ceilings for warping and cracks. Check the floor level and look closely for gaps between the floor and skirting boards. This may mean re stumping. Check that the doors and windows are square, as this is another sign that there's been some movement in the structure of the building. Look for tell tale signs of water damage, which can sometimes be found near bathrooms, laundries and kitchens. Check the bathroom and laundry for loose and missing tiles. Can you reuse the bathroom vanity, for instance? Look for any signs of damp, including rotting carpet mould on the walls or ceilings and musty odors. Also look for any signs that pest may be present in the timber, such as termite or borer. But the only way to know this for sure is to organise a full professional pest inspection. Make sure all of your light switches and power points are in working order. If your fuse box and wiring looks old, it's a good idea to arrange an additional inspection by your electrician. Depending on the age of your property, you may find that new mains are required, particularly if you are updating to a modern oven and heating and air conditioning system. Now go and test the water pressure in both hot and cold taps. Ideally, turn on several taps simultaneously. Partially fill the bath or sink and observe the drainage of this water. Sluggish flow could indicate damaged or blocked sewer drains. Now let's have a look at what you look at outside. Look at the line of the roof to make sure it's straight. Are there any broken tiles? Inspect all outside walls. Are they straight, rotten or cracked? And if it's a brick house, the state of the mortar between the bricks must be checked. Inspect fences and gates for strength, stability and check if base is rotten. If not, be sure to mark them on your checklist because these are expenses that need to be accounted for. Check roots of large trees near the house. They can cause structural damage if they are too close. Check that the land's water runoff drains away. Make sure there's adequate subfloor ventilation. The biggest single cause of restumping is a lack of subfloor ventilation. So make sure there's a gap for air to get through and ideally the soil height around the house should not be higher than the soil height underneath the house. I've seen a house that had been re stumped requiring re stumping again within two years just because they didn't address the subfloor ventilation. Now look under the house so you can check and see exactly what's going on. Check stumps for rot or signs of termite attack. Be sure to check the condition of your eaves and gutters as well. So in my opinion these are the five biggest hidden costs. Assuming you're pest free, the five biggest hidden costs include rewiring, re stumping, re plastering which is often needed after restumping, roof repair and plumbing. If you've got all five, you might want to start thinking about looking at another property. I would normally reject a property if it only has four of these. Now of all the things we have discussed during this inspection, you probably scared the living daylights out of you and confirmed all your worst fears about renovating. But hang in there. Knowing exactly what is wrong with the property means that we know what to work on and and what we can do and what the cost of the renovation is. So let's just have a look at some of those surprise costs of renovating. Surprise costs can completely destroy a healthy bottom line, especially when the budget is tight. There's no way you're going to catch everything, so be sure to factor in a bit of extra unexpected spending when you're planning your financials. So these include doors, removal of rubbish, not factoring your own time holding costs, cost of delays, cost of subdivisions and das surprising pest and plumbing and electrical expenses. So let's get on to the building and property inspection. Most people are familiar with pest and building inspections. Please consider spending money to get an inspection. This is a really, really good investment. A pre purchased building inspection can save you 30 thousands. You will know what expenses you are likely to be in for and the inspection report could be used as a bargaining tool to lower the purchase price for the property. So let's look at low return and no return items. As discussed, renovating is all about where you can spend the least amount of money to add the most value as quickly as possible. Unfortunately, in nearly every renovation project there are always low return items or even worse, no return items. These are items of work that needs to be done in order for the house to function properly and safely, but have no perceived value and therefore don't add any value to the resale or revalue price. So these are some typical low return items. Fixing the gutters, the fencing Repairing the roof Levelling the floor or re stumping Fixing the plaster cracking. Typical no return items are plumbing, foundations, wiring, termite damage and existing illegal building works the role of your property and building Inspector As a trained and equipped professional, your building inspector can discover and reveal significant and costly defects that will need urgent attention. Consider, for example, a seemingly minor symptom such as a sticking door or window. The average home buyer would simply note that the door needs a little shaving off the top, but an experienced qualified inspector might uncover major structural movement of the foundation system of the building. All homes, regardless of age or condition, will harbour a list of defects. Learning just how severe these are and how long the list is and how much fixing them will cost will have a direct bearing on your purchase decision. It can determine whether you are happy and satisfied with your well informed decision to purchase, or whether you become overwhelmed, angry and frustrated when the magnitude of the unknown, previously undiscovered or undisclosed defects become apparent after settlement. When it's way too late. Here's a hint. Forge a relationship with the building inspector who will also assess the cost of the fixes involved in the renovation. That way you have an expert assessing some of the costs that you're going to be up for up front. It also makes sense in any negotiation, whether in buying a home or buying an investment property. The power of negotiation remains with the person with the knowledge and the evidence. So don't sign anything without understanding all the detail of the report. Be cautious and err on the side of expecting the unexpected. Buyer Objections Buyer objections are the things that prevent prospective buyers from considering your property even if you're not selling. These objections have to be recognised because the valuer will certainly recognise them and adjust your valuation accordingly. Buyer objections are things like a busy rogue Are you being overlooked? Is there an ugly facade? Is it an awkward layout? Is it situated on the low side of the street with potential water issues? Is there a proximity to power lines or a proximity to industry? While some buyer objections cannot be overcome, such as an extremely bad location, for example overlooking a bad vista, or an incurably ugly house, there can also be an opportunity to see value where others can't. Building a portico entrance or rendering might rectify an ugly facade. Erecting some privacy screens may overcome a minor overlooking problem. The trick in overcoming buyer objections is to think outside the box. You may create a feature and an asset out of solving a problem of course, you have to be sure of your ability to overcome these problems. Otherwise they'll become your objections when it comes time to sell. So don't walk away as others may, as you could get yourself a real bargain. Rather, look to see what could be done to overcome these issues.