Renovation project generating over $450k equity in 18-months
Location: Sydney Region, NSW
Purchase Price: $700,000
Strategy: Renovation & hold
We transformed this original 1980's home in Sydney from a $700k home into a $1.3million 'work of art', by spending only $140k.
Client's Story
With this next renovation project, we wanted to find a freestanding house in Sydney’s Sutherland Shire. The stunning beaches, national parks and all-round lifestyle location was the driving reason behind my decision. We knew this was going to be challenging though, given the median price for 3 bedroom houses was around $800,000 and we wanted to buy a 4 bedroom house for this next project - all for under $750,000.
The Search
Reaching out to some local real estate agents, we were able to locate a house that was about to be listed on the market. It ticked all of the boxes so far, being a freestanding 4 bedroom house with the scope to renovate. The first obstacle we had to overcome was the price. With an auction guide of $730,000 - $750,000, we knew we had to work quick and be strategic with our approach, in order to secure this property within budget.
With no time to waste, we organised a private viewing with the agent and got out to the property on the same day. It was in original condition (apart from carpet and paint) and was ripe for a renovation, which aligned perfectly with our strategy and goals for this acquisition.
After going back to the office and crunching some numbers, we knew this was the one given its potential to add-value. Starting with a slightly lower offer of $680,000 to test the waters and give us some room for negotiating, this was rejected - no surprise really. They came back to us with a counteroffer of $720,000 to sell it pre-auction.
After going back and forth with negotiations for the next 24 hours, we were motivated to get this one over the line. We submitted a ‘best and final’ offer, along with a signed contract in front of them - how can anyone refuse this, right? The next call we received was one of the most exciting to date. Our offer of $700,000 had been accepted - a done deal all within 48 hours!
The Purchase
As we used most of our budget on the acquisition, we decided to rent the property out for 6 months allowing us to save additional funds for the renovations, plus get some capital growth which we could extract later on.
We put the property on the market for $500 per week (3.7% renal yield) and found a tenant quickly. A lovely local family who just sold their home and needed a bit of time to find and buy their new home - this worked out perfectly! The tenancy went smoothly and we were now approaching the 6 month expiration.
We asked our mortgage broker to order a valuation so we could see how much capital growth gains were made in this short timeframe. The valuation came back at $780,000 which meant we had achieved approximately 11% capital growth in 6 months. We were stoked!
We could now extract 90% of this equity from the lender (as our loan was at 90% LVR) - that’s $72,000 to contribute towards our renovations. We spent the past 2-3 months planning the renovation (design and layout) along with calculating what it was going to cost all up. We even had a few different designs ready to go, depending on how much equity we were going to be able to extract.
We decided to go for our $120,000 renovation design (plus a $20,000 buffer for any surprises). This meant a contribution of $48,000 from our own pocket to begin with and the buffer set aside for later use.
After completing the renovations we had it revalued again by AMP which came back at $1,300,000. This resulted in a staggering $460,000 equity gain in a short 18-months which enabled us to continue building our investment portfolio, with the next purchase being a renovation/flip + development....stay tuned!
*Our client's real names have not been used for privacy reasons.
