24 Oct Ep 08: Q&A How To Avoid Renovation Mistakes & Increase Profits
In today’s special podcast we discuss the incredibly powerful strategy of strategic renovation!
We’ll give you the proven techniques, tips and tricks for getting it right every time and show you how to avoid the biggest mistakes that so many people make…
For more information on The Ultimate Guide To Renovation go to: www.ultimateguidetorenovation.com.au
- The active property investment strategy [1:06]
- What is the difference between a regular renovation and a strategic renovation? [2:08]
- What is perceived value? [2:40]
- John’s early days in renovation [3:50]
- The free renovation case study [6:50]
- Spray painting walls and ceilings [7:35]
- How to avoid spending money on the wrong areas of the house [10:30]
- The 2 simplest ways to add value when you have a limited budget [14:40]
- The importance of location in choosing your renovation project [17:00]
- Jane shares how she got started in renovation [18:19]
- How to use renovation as an active property investment strategy [20:00]
- The repeatable process of adding perceived value to property [23:01]
- How to approach the issues like asbestos and lead paint [32:00]
- How to buy without using your home as equity [34:30]
- The correct way to renovate to sell for lump sum profits [40:28]
- The renovation strategy for the time poor [47:10]
- Where to find reliable tradespeople [57:13]
- John gives advice on a existing renovation project by one of our listeners [62:05]
A strategic renovation is quantifiable, it has a defined outcome.
– John Hubbard
You’ve got to know what the numbers are, so you can make a profit.
– Jane Slack-Smith
Your Property Success Podcast Transcript
Ep 08: Q & A: How To Avoid Renovation Mistakes and Increase Profits
John Blackman: Did you know with just two investment properties and one single renovation that you could put over a million dollars in the bank? It’s true and why stop there? Welcome to Your Property Success Podcast, the show that explores the practical steps to making your property investment dreams a reality.
And now, here’s your host, a lady who only buys clothes that don’t have to be ironed, Jane Slack-Smith.
Jane Slack-Smith: I’m busy. It saves me time.
John Hubbard: No, I totally agree with it.
Jane: In actual fact, the ironing board fell out of the cupboard the other day. I thought, “Oh my God, what is this?” It was like a sign from above.
John: That’s funny.
Jane: So, a big welcome to the Your Property Success podcast and Episode 8. Thank you for joining us today. We really appreciate you taking the time to join us and we have an extra special episode coming up for you today. We’ll be taking some live questions and exploring a topic that is very dear to my heart and has been really the foundation of my property success and for so many other successful investors that I know out there. So, let me start with the question.
Today, we will be talking about a method that substantially increases the value of a property and build your capital base quickly. This is an active property investment strategy that anyone can use and it doesn’t rely on the market to increase the value of the property and it can be one of the most powerful and effective ways to build a property portfolio quickly. Can you guess what strategy I’m talking about? I’ll give you a hint. It works even if you can’t swing a hammer to save your life. Of course, I’m talking about strategic renovation and who better to chat with me about strategic renovation than the gentleman sitting beside me, the co-creator of the Ultimate Guide to Renovation. Hello John, how are you?
John: I’m well, thanks Jane. Hello everyone.
Jane: So John, let me start by asking you a question.
Jane: What’s the definition of strategic renovation and why is it different to a normal renovation that mom and dad would do on their own home for instance?
John: Yeah, probably it’s quantifiable. So it has a defined outcome, so that’s where probably where the strategic part comes into it. So obviously, if you’re renovating for your home, you make it exactly the way you like it and you renovate to your own taste and there’s nothing wrong with that. But I guess where the strategic part comes into it is you’re only concentrating the renovation on the areas that add the perceived value to the home.
Jane: And I guess the key to that also is when you talk about the perceived value, is that the perceived value is a lot higher than the actual cost of creating that.
John: Yeah. That’s the perceive part, yeah.
Jane: Yeah, that’s what I love.
John: Yeah, it doesn’t necessarily have to cost that much but it needs to look it costs so much.
Jane: That’s right.
John: And I guess it’s also strategically selecting the property based on its capacity to add that value in the first place, so that’s the other area where it’s going to differ from a homeowner renovation is from the very start before you even select the property, you only select it based on its capacity to add that value.
Jane: And that comes down to location.
John: Yeah, absolutely. Above all, it’s the location isn’t it? Yeah.
Jane: Well look, I think where renovation gets a bad name is where people get it wrong. They just don’t appreciate that the renovation itself is only one cog in that strategic renovation process. But anyhow, by the end of today’s podcast, you will have learnt the steps to carrying out a profitable renovation, and we will be answering some of your biggest renovation questions as well. So, a lot coming up for you in today’s show, so stick around.
Jane: Now John, you have had a lot of experience in renovation. First on the tools as a—
John: As a tradie?
Jane: –solid plasterer.
John: I was a solid plasterer, yup.
Jane: For how long?
John: Ah, about 13 years I think—
Jane: Okay, so you did the hard yards on site.
John: Yeah, yeah. I spent day in and day out facing about 3 feet away from the wall. You get a little bit sick of staring at walls day in and day out.
Jane: Oh my goodness.
John: Yeah, it was good. It was good actually. It keeps you fit. You’re spreading mud on the way each day. Mud is what you call the rendis.
Jane: Oh okay. I was going to say, “Spreading mud?” I miss that part of it.
John: Yeah, it’s like [Crosstalk]
Jane: And then you had your own investment properties that you did cosmetic renos on.
John: Yeah. The first one I did was a hold.
Jane: A structural renovation.
John: Yup. I was doing structure renovations pretty well from the start and just because I had tradie mates, like that kind of thing, so it wasn’t that hard to get up to speed on the mechanics of how to do it and then, yeah, I did a—the first investment property was we added a room and held that property, so it was a change of structure in the home to better use and we got some good money out of that, didn’t buy it in a great area to be honest. So at that time, this was 1999, I didn’t really have the overall picture down at that time. I was more—everything was from a renovation point of view. And then, did our own house and then subsequent houses that we would renovate and move into and do the renovation with the dust over the years
Jane: Yup, plaster dust. Getting to work every day covered in plaster dust. I think they’ve done that.
John: Yeah and they moved onto flipping after that, yup.
Jane: And then, now, developing.
John: Yeah. And then onto developing which is kind of almost by accident in a way. I hooked up with another guy and we pulled some resources to do to look at some of the nice suburbs in Melbourne and we did the whole suburb selection exercise where we try to discover which were the suburbs that we could renovate in.
Jane: The pricing the disparity [crosstalk]
John: That difference in price between the unrenovated and renovated properties. We’re looking in some of the areas like Cue and Cambwell and Hawthorne and Melbourne and we’re getting out bid at an auction by these guys who were paying in some cases $200,000-$300,000 above what we considered to be market value even though the market was moving, it wasn’t in a rapid rate, but it was moving and yeah, it turned they were developers and so we thought, “Oh, we’ll run the numbers on that” and we did so and we found out why they were able to pay that money and so we decided to get into that too. So, we did a couple of developments on the back of that but I think I’ll probably go back to renovation next.
Jane: So that’s interesting John. You’re going to go back to renovation from developing.
John: Yeah. I think I’ll go back to renovation next. Probably just a straight up tried strategy. Renovate, buy and hold, that’s it.
Jane: Oh my very favourite. Well, now we’re recording this podcast on the 20th of October 2016 and as we speak, the Ultimate Guide to Renovation once again is open for enrolments for just seven days. And this happens twice a year where we take a group of people and go through the 12 modules over a 12-week period. And in the lead up to this, this year, we have a free renovation case study that we release to demonstrate for people what’s possible using strategic renovation and if you’re listening to this podcast before the 27th of October, you can still find that case study at the Ultimate Guide to Renovation.com.au. And as part of that video series, people had the chance to ask me questions directly. So we have been living and breathing renovation for the past fortnight. So what better time to have a podcast about strategic renovation.
So, the majority of this podcast is actually part of a live webinar with our mentor students. So, John, some questions.
John: Yes. Who we got here. Lorraine’s got a hand up.
Jane: Ah, it’s nice to hear from Lorraine again. She used to send us a lot of questions. Hey Lorraine, how are you going?
Lorraine: Hello, I was good. I was just wondering that spray painting walls and ceiling inside when you’re doing a reno, have either of you has done that?
John: Yeah, I’ve done it quite a bit. I really like it. I just hide them from cog tire or wherever, just nail a sprayer and one of the jobs I did I actually sprayed the inside and the outside and roof in three days. So, we’ve put a coat on the inside—
Jane: It would take me three days to do a room. I think two coats.
John: Day of taping up price 4 days—yeah, so you would do the whole house a lot sooner than that if you didn’t have to wait for it to dry.
Jane: Yeah, exactly, on a hot day.
John: You use a lot of paint.
Jane: A lot of paint, isn’t it?
John: That was a rental property. I just paint it all one colour, whisper white is normally what I’ve used. But I’ve also used it, I’m in a period property where it’s got Victorian ceilings and big cove corners and I find it really easy to paint those ceilings as well, so if you’re doing corners, it’s way easy to spray it than to get in there with a brush and paint it that way and it’s good the ceiling and stuff.
Lorraine: Yup. Can you do two different colours. Can you do a wall colour and then a ceiling colour or does it always have to be the same.
John: Yeah, That’s what we did in this house. So, we just sprayed the ceiling. We didn’t care about the overspray on the walls because we then just went in and cut in with the wall colour and spray over it.
Jane: It’s a lot faster.
Lorraine: Okay, so you cut in with a paintbrush?
John: Yeah and just painted the walls with a [crosstalk] Most painters will use a roller. Most of the time, I’ll spray the first coat on and then I’ll have the second painter or painters or whoever running through with the roller and it’s more just to give that finish—
Jane: The texture.
John: Yeah, the texture, so when the sun hits it—and then they normally just spray the remaining coats. You can paint exterior walls. I used it on Renda so it’s great for Renda because you can really get around fast with that Renda with a big—normally you would use a big long neck woollen roller for Renda—doing the hand actions again Jane.
John: But it takes ages to paint a wall particularly if it’s cement because it sucks up the paint like nothing else. So spray is really good for that. If you use a lot of paint, you got to buy the big tins, the big 20 litre tins.
Jane: You got some painting planned Lorraine?
Lorraine: No, not yet, not yet. I just wanted to know. I read about it and I thought oh I just want to know can you paint a ceiling white and then a colour on the walls. I just didn’t know how you do it.
Jane: Start with the ceiling first. Like with everything, we say start at the top and go down.
Lorraine: Thank you.
John: All right, see you.
Jane: See you. Okay, next question from Christine. “Thank you Jane. This is very informative and I think intuitive. I know what to look for and where to put my dollars. It’ll be interesting to see if your renovation videos prove me right or wrong. It’s even more important now that I’m looking for another property though in the past, most have not had much in any work to be done on them. Now, I’m looking for my daughters, the daughters are even more important and I don’t have lot of money to spend on a property, so it will have to be a renovator’s delight. Thanks for imparting your knowledge so readily. It’s very kind of you and something we don’t see in this day and age of take, take, take, rather, you give, give, give. Thanks again.” Ah, thanks Christine. Sweet.
John: It’s nice isn’t it?
Jane: So Christine, what brings to the question I think we could probably answer to where is the bang for the buck. Where are you going to spend your money and let’s hope she agrees with us.
John: Yeah, that’s right. Well, I think it starts—if you think of it from the buyer’s point of view and even though we might be renting the property out, it’s the revalue that we’re looking to do. Adding the value which comes from the valuation and the valuation comes from what someone would pay for the property. So, if you think about when someone pulls up outside the house, the first thing they look at, that’s kind of where I start to think about it, the street appeal and there’s also the figures that people throw about, you know, 60% of buyers make up their mind for [Crosstalk]
Jane: I think people make up these, 80% of buyers in the first 30 seconds.
John: Whatever that is—let’s say a significant amount of people make up their mind before they reach the front door, so that’s one of the big ones just from the outside point of view.
Jane: I know my husband, Todd, when we had the value we’re turning up to get valuation on one of the properties that we had renovated, he actually mowed the entire street, median strip, so the valuer came in thinking the street looks great. Well, this is a lovely— [crosstalk]
John: Look at this [Crosstalk]
Jane: Rather than the fact that they’re around the corner from McDonald’s and there’s rubbish running up and down and so—
John: That’s really good yeah.
Jane: We took it a whole different level. But inside, it’s just the basics, the light and bright paint. Paint is just an amazing spend for the value you get back. And where people want to live, it’s the kitchens and the bathrooms, it’s the pretty bling, and making the property look like a million dollars without costing a million dollars. So, really understanding what that level of fixtures and fittings are of the renovated properties in the area not exceeding that but just adding the value where the value can actually be seen the most, so it’s not about fixing the roof tiles, it’s not about removing the boards or even doing plumbing issues or putting in the new electrical because they had to get updated. That money doesn’t get same.
John: No. You don’t see that money at all. You often see things that require renovation. There are improvements that can be done and this is the trap that you look at it and you think. “Oh, I could make that better. I can improve it…” but if it’s not adding that value, it’s—you have to change it.
Jane: You have to question why you’re going to do it.
John: There’s a fellow that asked me to look in on his renovation that was in Coburg. It wasn’t even on the driveway side of the house, it was on the back section and the neighbour’s side, along the 1200 wide gap between the house and the fence, that he was going to replace all the weatherboards. There were some that were a little bit rotten in spots and so on, but nothing that a bit of builder’s wouldn’t fix kind of thing and there was some peeling of paint that have just scraped off and so on, but he just adamant that he was going to replace these weatherboards and I said to him, this adds no value. All you’re doing is spending money that’s coming directly off your profit but he just couldn’t live with himself leaving them on there.
Jane: And the thing is, not only spending the money but it’s the time. You lose that time in the project as well—
John: And energy.
Jane: And as you know every day is a dollar—
John: Yup, momentum.
Jane: And you if you start some of those exercises and you pull off something and something else goes wrong, and it’s never just the job is it?
John: No, no. The way I look at it is you can come back and the idea is to generate equity in the property. That’s the goal. So, if you can generate equity in the property, then get a little capital growth over the next months or years, you can come back and fix up those bits and pieces as part of the maintenance, but then you got a property that’s actually working for you signing off behind the 8-ball.
Jane: Absolutely. And it hurts. It hurts leaving some jobs undone but sometimes they just don’t deserve to be done.
John: Yeah, no, it does. And I always think if you had, and normally this is the point where I start, if I had the smallest budget possible, what would I do and it’s nearly always painting and staging.
John: And I should fill those who don’t know, staging is furniture hire that you put into the house during the sales campaign but you also use it for rental properties, right?
Jane: Absolutely. Well I actually—not for the actual renting of property but for the valuer to come through and see your property and although there are so many valuers who say, look we’ve been to uni for four years, we’ve done all our assessment and comparable sales, the walkthrough which usually only takes 7-10 minutes is just verifying the fact that everything’s in place and we’ve got it all there but you can’t tell me subconsciously walking through, when you’re inspecting a property, you’re inspecting that club, club, club through the empty echoey property—
John: Space, yeah.
Jane: Compared to the beautifully finished rooms and I’m just saying, okay, I run little surveys myself but I see people walking to one bedroom, next bedroom, next bedroom and it’s like yeah, yeah, it’s got a wardrobe, there’s a window, there’s security, there’s not much to see and they just put their head in, it’s like, “Yup, yup bedroom” when it’s empty but when there’s a bed in there and a couple of side tables or whatever, they walk in and they open the wardrobes. It’s not like there’s anything different between the wardrobes, you’re not going to have anything in there between it being staged or not but it’s just that connection that people feel with it.
John: Yeah, just human nature isn’t it. And I think even valuers aren’t above it.
Jane: They’re human too.
John: Yup, that’s right.
Jane: Actually it’s interesting. We have a couple of valuers in the private Facebook group and it’s interesting that he dare takes on some of the questions that we discuss openly as a community in there. But I just want to add a couple of things Christine. Firstly, fabulous that you’re inviting your daughter to a part of this process especially because you’ve don’t it before because as you know we really believe that by educating your family and having your family see what you do that you are creating a future for them that has a potential for them to replicate what you’ve done but also the people with young kids, you know, getting them involved with this process. So we really see this is an intergenerational kind of thing of giving back. But, you know, I started with $45,000 and I spent–$25,000 went to stamp duty on my first property, and I know that—I made sure that I could buy in the very best area that I could buy, so all of my funds went into the purchase. Now, I subsequently got a private loan to personal loan to do the renovation but what I’m saying is, if you’ve had a choice of being in area that wasn’t so good and buying it $400,000 or keeping your renovation budget and buying in an area of $450,000 and being in a better area with a better dynamics with a better growth potential, I would buy in the $450,000 area and wait until maybe you have some equity or have the cash or take a loan to actually do the renovation on that property because they key is the location, isn’t it John? We keep saying that time and time again.
John: Yup, absolutely.
Jane: So, buy obviously using all the tools and the things that you’ve seen here with an eye to renovate and understand the numbers behind it and the profitability, etc., but realize you don’t need to do it straight away and if you’re going to sacrifice anything, it wouldn’t be the location, it would be the renovation budget to buy in a better area.
John: Yup, I agree. You can always do that renovation later.
Jane: Yup, absolutely. Great question. Thank you so very much.
John: Tell us how you got into renovation in the first place.
Jane: Oh my goodness. Well, I had actually spent a lot of time researching on where to buy and I knew that I had just a small amount of money. I only had $45,000 and I had a borrowing capacity that was going to get me to around 430,000 purchase price. So if you do the math on that, you realize that stamp duty was going from that $25,000. I had a 5% deposit and I was really dedicated to buying in the best possible area that I could, so I had done all of that research and I knew that if I wanted to create equity or even just get back my $45,000 in my bank because I was a bit worried by the fact that I was draining the entire bank account and if I wanted to do that quickly, I needed to actually create money and it was like creating money out of thin air and the only way that I knew to do that was in renovating. And it wasn’t, I kind of read books and Jen Sommers had talked about renovating properties, so I had not experienced it personally and I kind of made some of the mistakes that everyone makes but for me, that first property that we bought in the fabulous location had the renovation plan really strict on the budget and the timeframe to achieve it. I took a personal loan to do the renovation straight away and that renovation added so much value, I can literally say it changed my life because 9 months later, that $425,000 property was worth $700,000 and I put out over $100,000 and went and bought another property worth the same amount of money in Sydney, then just replicated that and replicated and replicated and that first $45,000 which the government got $25,000 of it, that was the only time I ever put my own cash into purchasing a property and subsequently having bought many many properties and renovating since. I would use equity to renovate, equity for the deposits, equity for the stamp duty, so—
John: So it was to save money for all of them.
Jane: Absolutely. And it was a turning point in my life when I stepped back and went, “Hmm, I just earned more on that property in 9 months than I earned in a year working.” And you kind of look at it and go okay, I know I can’t give up my job because you need that serviceability for the loans but if you get to an equity position and you can do this from an equity position going forward yourself, then you’re less and less dependent on your own income and you have that freedom of choice of deciding where you want to work or like me, giving up work and starting my own companies. It was just an absolute moment, I guess a turning point moment where I could’ve gone down the path of just keeping my money being saved and potentially buying a home and just having the home forever or maybe upgrading or actually using that first property to develop a property portfolio that now allows me to do what I when I want with whom I want and say no more importantly to the things I don’t want to do. But you know, I made mistakes. I had a purple feature wall and I was lucky you know the people who moved in, the renters really were arty and worked for the oxter.
John: Actually, as far mistakes go, features aren’t too bad are they? You can [Crosstalk]
Jane: It did take like 4 lots of antique white to get over the top but yeah not the bad. Didn’t overspend, kept to budget
Jane: So very very diligent on that. And I think, other than those small mistakes, there wasn’t anything that was too substantial because I guess I kind of put my engineering hat on said there’s a timeline, there’s a process, there’s things that have to be done by when and by whom, and let’s do it. So I was very focused on that and I was very focused at the same time of watching the market and what was happening to other properties and when I can up with my own valuation document to give the valuer of comparable sales, I knew that the other properties were minimum worth $700,000 so I knew that I had to leave it on that profitability that I needed.
Jane: But enough about me and my renovation. I do like to reminisce but let’s get on to your questions. Enjin on the phone, so
Enjin: Hey guys! How are you?
Jane: Fabulous. How may we help you?
Enjin: Okay. My question is, I know the way of doing—change the kitchen and the bathroom a way to add to value, what is it worth if you put a deck behind the house. How does that work with adding value to the property?
Jane: When we talk about bang for your buck and from a cosmetic renovation and adding value and trying to almost feel that gap of pricing disparity which is the difference unrenovated and renovated houses to create that profit for yourself, you’re looking about creating value and the bang for the buck is usually on the street appeal, it’s on the kitchen and bathroom, it’s on those kind of big communal areas. Now, will a deck add value because I know the kitchen and bathroom will but the deck may add value in Queensland but it may not add value in Hobart and it’s around being–
Enjin: It’s in Blacktown.
Jane: In Blacktown. Well, it’s about being fit for that market. If that outdoor living space is characteristic of what your target market is and you’re looking to sell or to rent the property out?
Enjin: No. To rent.
Jane: Okay. So if you’re looking at renting the property out, sometimes it’s nice to have that old little bit extra whereas when I’m thinking of little bit of extra, I’m thinking of two showerheads in the shower. I’m not thinking about a $5,000 deck. You often want—especially for the valuer if you’re going to revalue and try to pull equity as well as a potential tenant, you want people to walk into the property and sometimes that little extra feature is the thing that’s like, darling, we just have to have this, either rent it or buy it. And I know put in one of the properties that I had and you’re probably saying in courses because I use my properties often in pitches but put in some fixed book cases in the hallway and the number of people who walked in to rent the property and just went “Uh, my God, I’ve always wanted to have bookcases” and it was a silly little thing. It was really wide hallway. It looks kind of weird and we thought, we’ll we got room to do this and it creates extra storage in an older style house that doesn’t have a lot of storage and it was a real—
John: Personal touch.
Jane: Yeah, it was a real kind of showcase. It didn’t cost a lot of money if you’re going to create this almost additional room by bringing the outside in and it is a feature that you’re seeing on other properties that are renovated, then you have to make the decision that whether it’s a selling point for the potential renter that’s going to say, “Yup, I’m never going to move a the market price or a little bit more for it or if you’re making the decision that says, “I’m going to spend and it’s not going to add value,” like, we know you can spend $50,000 on a pool that is not going to add $50,000 in value.
Enjin: So, it’s not direct—if I spend $10,000.
Enjin: Because I’ve been getting quotes for it and it’s actually coming back a lot more than I anticipated, and unfortunately, I thought of jump the cue a bit by—there was an existing staircase and I’ve just finished to knocked that out and now I’ve got no option but to put it back in.
Jane: Okay. Well, that helps.
John: I might be able to help you a little bit. I’ll give you a couple of tips that I do even on home properties. One is, I don’t build out of merbau or hardwood. I build out of tree of pine which you’ll shave at least a third of your timber cost off pretty well straight away.
Enjin: Does that have the durability, the pine?
John: No. Not as hardwood will, but I find even with merbau, you’re going to be staining every couple of years anyway but it’s a really good product and also, if you don’t use the 70 or 80 mm board and you get, let’s say, 110 or 140, so the wider board, you’ll get a more higher end look than just the standard deck, so once it’s stained and the stain is the real secret to this but if you use a wider board and then stain, you can really have a nice-looking deck which is going to be fine, you could stick tenants in there for 10 years, come back and stain it and sell the house, and it would still would be perfectly fine. The deck will look good assuming that it’s well built. And the product that I use to stain it is made a crowd called Ecodex, it’s a product called Quantum, and it’s merbeau stain and I’ve had a crack at all the different oils and stuff on the market that nobody hears and this is by far the best. So Quantum by Ecodex in a merbeau stain and it comes up really good and I’m using this on higher end developments as well.
Enjin: Thank you very much guys.
Jane: Okay. So back to the video series, oh there are so many questions here. Let’s go through ahd grab one. Says Kim, “What a wonderful transformation” So she’s obviously looking at the before and afters on video 3, my favourite video. “The property looked totally different. How does the paint wear on the bench tops and in the bath? Does it scratch or peel easy?” Now, what we showed in video 2 was the product that we used which is a white night paint product and it’s actually called White Knight tile and laminate primer. Now, John, you’re the practical person here. Do you want to take us through the preparation and everything as well.
John: Yeah, just to give the background, it was a dated kitchen. But it was in pretty good nick. It was pretty solid. It was probably, I would say, maybe early 90s kind of kitchen. So the decision was made that we didn’t need to pull it out and this was a low cost renovation in a lower end of the market, in the 300s. So the decision was made to repaint the kitchen. So it was the White Knight product that we used, the laminate primer and paint and in terms of its durability, it’s pretty good. If you’re concerned about the durability, you can certainly put another, you can add an extra coat of the paint on and that will make it a little bit more durable but I know in one property I’ve had, I had to swap out the kitchen itself twice whereas it would’ve actually been a lot better for me just to go back and repaint the bench top. So in the scheme of things, for the purpose of what we’re doing for that property, it’s fine and you go back and paint it at a later stage if it does get scratched. It’s not going wear as well as a laminate top. It will scratch slightly easier and probably chip slightly easier over time but it’ll get you a good 3, 4, or 5 years and it’s not that hard to do another coat if you need to.
Jane: Send it back and to paint again. Actually, it’s funny I spoke to a gentleman from Altona Meadows yesterday. He’s got a property that he’s selling there and he was asking specifically about the video 2, this White Knight product and he was saying he had planned to replace the kitchen before he sold and he’d seen the video and went, “Wow, this is great and he said but my worry now is that I might to do the bench top it’s then looks so good and with the plastic handles on the doors, it’s outdated.” I’m like, “Change the handles.” He’s like, “Oh my gosh. Yes, I can do that too.”
John: It’s really easy bang for buck. I mean, in that video series and it’s only up until the 27th of October, so apologies if you listen to this in the future but it showed where we painted the cupboard doors and drawer and just replaced the handles, painted the bench top and it makes such a transformation. When you got a kitchen like that and it’s in the lower end of the market and there’s really no added perceived value for swapping that out for a new kitchen, it’s just extra cost that comes off your profit. Whereas you can paint it, get 90% of the same “wow” factor and it’ll last you for a bunch of years too.
Jane: It’s just about thinking about things differently. Remember, Craig who was one of the first testers for the Ultimate Guide of Renovation course and he was in the middle of a renovation and he was about to rip out the kitchen, he went, “Gosh, I had never thought about it. You saved me thousands and thousands of dollars just by that one little tip” and we’re obviously going in a lot more detail in the course but yeah.
John: He was saying that he would get—I mean I think he did a dozen renovations and the first thing he would do is he’d roll up and he’s just got the place, and so half of the stuff when he saw the video, “Uh, you leave most of the stuff in there.”
Jane: He’s like, do we replace it? Do we reuse it or we retask it somewhere else? Because there are things that you can do with things, so anyhow, but great question. Oh, another practical question here. Sandra, “Hi Jane, finding your videos helpful. However, I am interested in how you approach the issue of asbestos and lead paint when renovating all the properties?” Look, the question about asbestos and lead paint is really relevant especially with these older properties because there is significant safety related risks with them and I just wouldn’t mess with it. So if you do suspect that you do have lead paint, I would go straight down to your local hardware or paint specialist and get some thoughts about how to deal with that. It’s going to involve PPE, personal protection equipment, and the same goes with asbestos. I had one of my properties and it involves getting the professionals in, getting black plastic, and you have to dump it in specific parts of the council dumps, some dumps don’t take it but get professionals to deal with this. Anything that that’s going to risk your personal safety is not worth it. I mean, I used to wear steel cap boots on my renovation sites, just protect yourself.
John: yeah, it’s worth it. It’s amazing how many accidents happen. You’re really upping your odds of an injury when you’re working on a renovation site so yup they happen all the time.
Jane: Same to goes to kids.
Jane: It’s good to have your family involved but just watch them. Kick them away for anything dangerous.
John: Yeah, that’s right. And it doesn’t necessarily mean if there is asbestos there that—because often you’ll find a lot of old houses have asbestos and it doesn’t necessarily mean that you shouldn’t buy that property. You just need to know what you’re up against, so it might just be, for instance, we bought a property it was just in the sheds out the back and we got some quotes from I think 3 or 4 asbestos removers. In the end, the cost us about $1200 removal of that asbestos, but it was clearly asbestos, and it was exposed in everything and it actually ended up being an asset to us because everyone coming through the open for inspection instantly recognize it, No, I’m not touching. It wasn’t much an expense to get rid of it.
Jane: I’ve seen a lot our students renovating in Brisbane and it’s not unusual at all especially when they’re doing bathroom renovations that there is asbestos board there, it does add to the cost of renovating obviously, but you are aware of that beforehand because you’ve done the right inspection. So, all of these things—and that’s why we say, the quick work calculator work out the cost your renovation before you put in an offer because you got to know what the numbers are to make a profit.
John: Yeah, that’s right.
Jane: There’s no point in buying a property and then finding out you’ve got all these extra cost because it could eat up your profit straight away. Great question. Another question. I’ve got Jackie, and Jackie says, “I wanted to ask, I already have a lot of equity but how can I buy and flip without losing or using my home to buy and flip another and to make it worthwhile. It’s a great time to buy and in the past, we bought, renovated and sold and we’ve done very well but the buying and selling fee and stamp duty is rather off putting. Look Jackie, it’s a good question and I guess the fear is that sometimes if you’ve got equity in your home, putting that home up as security is a real worry and it’s a substantial one and one that we all have. There are a couple of ways that you can do this and flip properties. One is that you might, for instance, access some of the equity from your home so let’s just say you’re buying a $300,000 investment property so you might buy it with a 20% deposit, so you need $60,000. Let’s say $15,000 for stamp duty and legal fees, so $75,000 and le’s just use a rule of thumb of 10%, you’re going to use $30,000 to renovate the property, so you ran at about $100,000. Give yourself a little bit of buffer, you might take $120,000 of equity out against your home and then you go and buy the property, $300,000 property with an $80,000 loan to value ratio potentially with a whole different lender, so you’re going to take out $240,000 loan. So you’ve actually separated to some degree the costing against sizes properties. Now, there is a bit of a problem with that and that is obviously, if you do this regularly, you’ll be hitting your credit file regularly and we know with the changes of EPER and ESIK restrictions from June 2015 that lenders are being a whole lot more difficult about this, so this could create a problem and you may find that lenders don’t like the fact that every six months that you’re re-financing. I do have a little trick that I use with my mortgage clients who do have this flipping strategy and that is go to an initial lender that has portability as part of the loan product feature. So what that means is the day that you’re actually selling that property that you have renovated and ready just to sell, you could actually buy a property in the same day back-to-back settlement and you’re moving that $240,000 loan across to the new property. Now, the issue with that is that some lenders do require new application and your credit file again when they change security, other lenders don’t. So it’s around knowing which lenders do and which lenders don’t and these policies are changing all the time.
John: And your timing has got to be pretty spot on there too, yeah.
Jane: And this is the pain right. You know yourself having flipped properties, you’re in the last days of your staging and you’re trying to get people in, in the market, and the auction is coming up and you’re trying to sell.
John: That’s where I am right now.
Jane: And then you’re trying to buy a property at the same time and convince them that everything’s going happen on the same day, so that corresponding thing is difficult. Now, there is—I even have a more advanced trick that I use with some of my clients. I’m about to say flipping clients but they sound round when you say flipping clients—
John: flipping clients.
Jane: And that is some lenders allow you to actually move the loan to a new security that’s not a property but might be cash, so you move the $240,000 loan to $240,000 cash but we don’t know all end up with $240,000, right? So you can have 100% loan to value ratio, you’re paying interest, it’s only secured by the cash until you secure the new property.
John: The new one.
Jane: Petty advanced.
John: That gives you the leeway on not having to do the back-to-back settlement.
Jane: And you’re still paying interest on something that’s not requiring any income, so you don’t want to have that there forever, and once again, you want to be the lender that’s not hitting your credit file then subsequently moves to a new asset. You have to keep the loan to value ratio the same. The reason that I did that example on an 80% is that paying mortgage insurance for a flip is just another cost that you’re going to have to add on. And technically a borrowing cost, speak to your accountant about it, borrowing costs can be claimed in a year, for instance, the LMI is being discharged or as a borrowing cost, it’s normally claimed over five years, so speak to your accountant about that but still–
John: That’s what mortgage insurance
Jane: Why pay mortgage insurance if you don’t have to as an extra cost and if you’ve got the equity in your home, but what Jackie said is she doesn’t really want to use her home which is a bit of a problem. So, you might be using cash that you have to do this whole flip. Some people, and this is a way to get around that whole hitting your credit file, if you’ve got, say, a million dollar home and a lot of equity and you’ve got $500,000 in equity, it’s tapping into the equity in your home and buying outright the new property, not getting a loan for it, and then selling it, and then building up your—paying back your, say , line of credit for $500,000 again and a bit more, put $100,000 in your offset account that you might make off this deal and then do it again and again. So you’re actually using that equity in your property. Now, the fear that I hear from Jackie and many people and rightly so, there’s no coincidence that chapter 12 of my book is flips to flop is that it can go wrong and unless you understand the step by step process, the numbers behind buying before you even put in a bid and how much profit you’re going to make, then there is risk. So, if you’re pulling equity from your home or doing the entire purchase from equity in your home or even using your cash, there is a risk if you get it wrong, so we’re all about reducing risk here and hence why we’ve spent a lifetime in developing a step-by-step process to help people to actually see how not to make the mistakes we’ve seen so many do.
John: Great question.
Jane: So John, let’s just take a moment to talk about the renovation to sell strategy and most people call it flipping. There’s a lot of information out there, I think it’s almost national sport if you look at TV. There’s a lot of people out there buying properties and renovating and selling but it’s not that easy is it?
John: No, it isn’t. And this is probably the area of renovation where we see most people come stuck is the buy, renovate, and sell strategy, particularly if they’re going to give up their job to do it.
Jane: I know.
John: But it can be tough even if you’re not doing that because it really does come down to the numbers and it takes more due diligence—maybe not more due diligence but it’s more important to get the due diligence right because you haven’t got that safety net of capital growth that you have with the buy, renovate, and hold strategy.
Jane: Absolutely. And getting the numbers right is so important because obviously, you’re going to have a cost associated with a capital gains tax as well and that can change depending on whether you sell within 12 months or after or if it’s your home.
John: Yeah and over and above that, the strategies to work around those things when an accountants are quite advanced which is what developers and professional flippers and so on use.
Jane: Absolutely. But there is a lot of benefit to flipping as well. You can make a large cash kind of nest egg and put that towards the next one, but the thing about flipping which I find a lot of people miss is that the target market is completely different to if you’re going to buy, renovate, and keep the property or rent it out. And in actual fact, we’ve shown that within a suburb, that this specific streets where owner occupiers want to live and the specific streets where renters want to live and really, if you’re going to buy, and renovate, and sell, your target market is the owner occupiers, isn’t it?
John: Yeah and it’s really easy to underestimate how important that is. I remember when I first came across you in fact which was you’re doing a weekend seminar with Nadine Simmons, inventor of the Dotmap, and I was actually flipping a property at that time and we’re at the point of selling it and we had an offer, really awesome offer, which is a terrible thing to happen when you’re selling a property just at the start of the campaign and then that offer dropped away, that buyer pulled out right at the last minute on the day of signing the contract. And it turned out that property, we went through the entire auction campaign and we didn’t sell it. It ended up selling 3 or 4 weeks later, but there was that period there where we’re starting to get really really worried and that came down to the fact that it was a family house in an area that really didn’t have a high percentage of families present. We knew that going in but we thought we saw enough comparable sales to–
Jane: Not be such a big deal.
John: Yeah, to cover ourselves but it turned out that it wasn’t. And when push came to shove, there wasn’t a broad enough market to sell it and it really taught me a lesson at that time how important it is to get that demographic right and that was when I met you and you were doing the course with Nadine Simmons and you were all over that location and suitable property for the market and demographic research with the census, but yeah, really and a really important thing to get right.
Jane: And I think sometimes also I expect the people and they’ve bought a property and they’re going “Oh, I don’t know if I’m going to sell it or if I want to keep it and rent it.” Well, you should’ve probably decided that before you bought the property because you may be in the wrong area. So, this is what’s so important to, you know, we talked about starting with your goals and then going to your property investing strategy, understanding your strategy and then your buying criteria before you buy rather than buying a property and going “Okay, how is this going to get me to my goal” and “Gee, what strategy can I use?” And I find people miss that whole pre-foundational stuff right upfront.
John: Yeah, you’re making money before you buy. No doubt that that’s true and every single time, that’s been the case for me and when I’ve cooked the books a little bit or cheated a little bit, that’s when I’ve gotten to into trouble or got close to trouble anyway.
Jane: I think the other thing, remember when we had a chat to John Edwards about what kind of price point was the minimum to really justify enough profitability or enough pricing difference between the renovated and unrenovated properties to cover all of those costs and the profit and the renovation and when flipping and he suggested, now this is probably 18 months ago, he suggested around $650,000. We would probably put $100,000 on top of that now and say around $750,000. It can be done at a lower price point because we know we’ve got students to do it and it can be done but the issue with it is that at that lower price point, if you’re looking at buying at $300,000 dollars to cover your costs and profit and everything–
John: Transaction costs, yeah.
Jane: You’re not needing to sell around $450,000 and that’s a big price jump within a suburb where a median might be $370,000 or something.
Jane: Buying far below the market and then renovating that far—it’s difficult.
John: It is and it’s a bit of an Irony of flipping that it’s riskier lower in the market but then again it’s also risky higher in the market if you’re doing it for the first time because you’re doing that due diligence for the first time which is so critical to get right with flipping but as you go higher, that spread of value does naturally increase and also I think probably a lot of the renovators get knocked out of the market too, like, as you get into the millions and so on, there’s less people that are needing to renovate. I think those flippers get knocked out of the market.
Jane: And usually, to try to create that high and better use of the property, we’re talking about a structural renovation as well. So we’re talking about a longer timeframe, we’re talking about getting approvals through council. We’re talking about more money because sometimes you’re knocking off the back of the property, putting on the box on the back, our famous strategy, but that costs more money. We’re not talking about a lick of paints and buying extra $150,000 in the market.
John: No, no that’s right and the idea with those structural renovations is you’re literally forcing the higher and better use because it’s not just relying exclusively on that difference between unrenovated and renovated, you’re actually adding a bedroom or you’re adding a substantial structure which knocks it up into the next category.
Jane: I guess flipping is a strategy people really want to talk about a lot of the time and when they get into the numbers, there’s a little bit more work involved. Now John, do we have some more questions?
John: Absolutely. Let me just unmute Fanos here.
Jane: Fanos. Hey Fanos.
Fanos: Hello. Hi.
John: Hey. How you’re going?
Fanos: Can you guys hear me?
Fanos: Awesome. Thank you. I’ll be quick with my question. I’m all for buying and holding and renovating but I’m more interested in a strategy that would work for you if you’re already a high income earner and not able to really take time out to do renovations yourself and I’m hoping that—because I knew a lot of investors, they buy brand new because of the depreciation and all the tax benefits but I’m just wondering what your thoughts are around that strategy?
Jane: So can I just clarify, it’s around should you buy brand new if you’re busy and don’t have a lot of time and can’t renovate yourself?
Fanos: That’s right, yes. I mean, in terms of the time that you’re putting in, I mean, obviously, I’m on a very high tax bracket, so I need to make sure that it’s worth my time taking my time out to do the reno as opposed to just doing my day job and then find something on the side.
Jane: Yup, absolutely. Actually, it’s funny, I was talking to the ex-CEO of a very very large well-known mortgage broker company recently and he said one of the first things that he said to his office manager was, “Unless I can make $400 an hour doing a task, you do it.” So coffee, picking up laundry and everything, I thought, “Well, that’s an interesting way of looking at it.” I respect what you’re saying and I think that there are two questions here and the first one is, if you’re too busy to A: Find a property or B: Renovate a property yourself, what do you do and C: The next question is, if you are time poor, then should you buy new? And I think the assumption is that if you are on a high tax bracket and maybe you’re looking at some maybe negative gearing and legal tax minimisation that can assist you whilst creating wealth with a property that goes up in value, that there is some tax benefits obviously associated with the depreciation on newer properties. I think the risk you could fall into here is one that I see often when I’m reading client’s fact finders and looking at them with few of getting lending for them is that they’ve bought properties maybe off the planned units or house an land packages where they haven’t actually done the house and land construction themselves, they’re kind of bought from a developer whose been selling that as a package and the developers are kind of making the margin profit and not the person whose ending up the property. And I think that it’s almost a false economy because the negative gearing component of that type of strategy is something that’s one part of the big picture and the big picture is buying the $500,000 property that in 7 to 10 years’ time is worth a million dollars and you’ve created half a million dollars worth of equity, and that’s the big picture goal of it. Being fortunate enough to be able to cash flow the negative gearing is fantastic and it’s something is something that you just do knowing what the big picture is. And so, that brings me back to, does a new property necessarily have the growth potential to be able to create that value? Some new properties can do that but I think you need to be very wary. I know that market reports as part of the Residex quarterly reports are coming out next Friday and they always give what the oversupply or under supply of properties are in any given state and it’s really that supply of properties and usually the new properties where the oversupply is which where the risk is. So, if you look around, you have Brisbane, Sydney, and Melbourne at the moment, there’s a lot of development, there’s a lot of inner city properties and we try to kid ourselves that we’ve heard that we had to be wary of this but the reality is, I spoke to a lady last year and she was lamenting the fact that they had this beautiful house in Cue in a Blue Chip area in Melbourne, they bought an investment property which is a house and land package in Point Cook which is out Western Melbourne. Other house and land packages came onto the market, they were newer, the tenants were not really loyal to one house over another, so the next house that was newer and nicer at the end of the tenancy they move to, people got a bit desperate and reduced the rent which then became their market rent that they had to accept and in the end because I couldn’t rent the place out, they ended up moving from their beautiful to this property out in Point Cook and rented their home out because it was the economic advantage. But she said, so we’ve learned our lesson, so now we’re not going to buy over 20 k out of town and we’re not going to buy house and land, we’re going to buy inner city units. And so she’s trading one strategy that is fraught with not having that capital growth potential based on oversupply and based on the potential of not having growth because it’s not the population demand there or the income demand that you also need, the income growth that you need to build a suburb, and moving from a house to a unit and out of town to inner town in actual fact, the same risk is there–
John: You just swapped the oversupply of land for oversupply of units.
Jane: Exactly. So, I think you need to be very very careful when you make that consideration. There are some very nice high-end development opportunities that people do take advantage of but often when you’re going into that high-end development opportunity or brand new unit in a boutique kind of development, we’re talking over $750,000 to a million dollars and we’re talking your yield usually comes down from maybe 4%-3.5% rental yield down to maybe 2% rental yield, so it’s going to cost you a lot more money as well out of your pocket each month. So you kind of need to be very savvy in buying new. The reason that John and I are just such advocates of the renovation on the older style property is the fact that there is that scarcity of land associated with the typical 3-bedroom house 10-15 k from the CBD.
John: Yeah, I wanted to paint that scenario, how would you do something like that if you weren’t going to, for instance, look for the property yourself or do the renovation yourself.
Jane: And I think this is, one of the things that I find with some of our students is, even Ultimate Guide to Renovaton students, they get to module 2 and module 3, module 4 and see the real effort required in finding the right property in the right area that has the right characteristics to suit to their buying criteria and the mere fact that they’ve been through that buying criteria, allow them to know what the property needs to look like and the characteristics. And then it is too hard and that’s why we’ve got a bit of a bonus there in the module that says, now, if you need to engage buyer’s agent, these are the questions you ask and this is what you do. But the fact that you’ve actually gone to a buyer’s agent, and so just to be clear, a real estate agent represents the needs of the seller, and a buyer’s agent represents your needs and they usually engage for $1500 to $2500 as an engagement fee but the success fee of actually achieving your property purchased for properties over $500,000 is somewhere between $8,000 and $13,000. So, a buyer’s agent, if you went to a buyer’s agent and said I’ve got $400,000 and I want to buy in Brisbane, then they’re going to get your $400,000 property in Brisbane. If you went to a buyer’s agent and said my buying criteria is the purchase price is $400,000, I want to have renovation potential but I don’t want to keep the tenant out now. I don’t want to have to do the renovation now but if I could change a 3-bedroom house under the same roofline to a 4-bedroom house, that would be great. I want the property to be characteristic of the area, so if the majority of people are living in 3-bedroom houses, that’s what I want it to be. I want to have—
John: 15 k from the city perhaps.
Jane: Yup, my rental yield to be 4%. I want to have the vacancy rate less than 2%, I want to have predicted growth of the area of over 7%, so once you have the buying criteria now, and then you give that to the agent, that’s what they’re going to go look for, they’re not going to look for the open slot, so buyer’s agents can do that. Also, buyer’s agents can recommend and so can real estate agents recommend project managers who can actually manage a renovation for you. So late last year—well, I actually did 2 renovations last year.
John: In 2015, yup.
Jane: If anyone’s read my book, one of my strategies to revamp and that’s often, as a property investor, you get to maybe the top of your borrowing capacity, you can’t borrow anymore, look at your current portfolio and see what you can do and two of my properties came up for lease last year, and I took the opportunity to jumping to both of them and do quick reno and they’re both in Sydney, I’m based in Melbourne. my builder managed the renovation for one of them and you may pay a bit of a premium to have someone manage your renovation. My sister had someone manage, actually, a project manager manageD her renovation for her and it was a $30,000 renovation and they charged $3,000. You know, $3,000 to get a renovation done, well worth it.
John: Yeah, absolutely.
Jane: So, does that help you Fanos?
Fanos: Yeah, that’s awesome. It’s really good to see your perspective on it. I appreciate it. Thank you so much.
Jane: Okay, my pleasure. What Sharon says, “Thanks for the video Jane. I’m looking forward to seeing the completed cosmetic changes. I’d be interested to hear more about how you find good reliable trades people who produce a quality work. Oh my gosh, this is such a worry for so many people having good trades people isn’t it? Look, it’s not just having good trades people, it’s about actually even to get them to “turn up” sometimes, you’re sitting there for hours going “Where are they?”
John: Well, I think that’s a good place to start actually. I have a rule if they don’t get back to me with their quote, I don’t follow them up because I think if they can’t even get back to me at that stage, how many problems am I going to have in the job.
Jane: Yeah, looking after them. Look, there’s a couple of things that I do. One of the things is, if I’ve got a rental manager or a relationship with a real estate agent in the area, I’ll ask them for a recommendation. If you’re looking to do a major structure work, often just driving around, you’ll see someone advertising the fact that they’re doing construction at the moment and they’ve got the builder’s information up on the board. I’d also often go through the local newspapers or maybe suburbs Sydney and have a look at who’s advertising there and I would also, if I’ve got a trusted trades person that I have used previously and I’m happy with the quality of the work, they clean up after themselves, they turn up when they say they’re going to turn up, they’re professional in the output of what they produce as well. They like working with similar people So often, what I’ll do is I’ll say like, Lenny, my builder in Sydney for instance, Lenny I’m looking for a tiler or a painter, is there someone you’d recommend and they recommend others that are proud of their work and here’s another little tip, rather than potentially paying a builder 10% of the job to manage it or your professional project manager, often of the tradies know each other, they’ll ring each other up at night and go “Mate, don’t turn up at 7, I’m not going to have the painting done, turn up at 11 and you can then start the tiling.”
John: Yeah, because from a tradies point of view, they don’t always that the owner, particularly if it’s a [__00:59:22 builder] is telling them are the right things, so they call each other because they want to actually get it from the horse’s mouth “Ah, you’re actually turning up there tomorrow or not?”
Jane: And look, I’ve also used serviceseeking.com.au. You just put up the job that you’re interested in and people quote on it. The good thing there is that the people don’t turn up and you can give feedback and say this person didn’t turn up for the quote, they get struck off if they haven’t turned up 2 or 3 times. So you can actually look at what they’re doing and I’ve put a couple of jobs up on Airtasker, just simple jobs getting people to do simple touch up things. You know, there are a couple of different things and also the great fallback is go and speak to people that you know and ask them what they’ve done and when you do find some tradees, ask them for a referral so that you can speak to people that they’ve done work with.
John: Yeah. Referrals are great aren’t they? I think you really need to do that. The other thing is just asking to look at their past 3 jobs because you don’t want them cherry picking the best jobs they’ve ever done for their brother-in-law or their mate or whatever.
Jane: Back in 1976.
John: Yeah, that’s right.
Jane: Mom loved by kitchen bench.
John: Yeah. If you’re going to look at their last 3 jobs and then they give you the phone numbers to speak to the people and you ask, “When did it carry out…” blah-blah-blah, that’s a good way of doing it. What I found just in as a general observation is there are a couple of different types of tradies. If you think of the nightmare ones that everyone’s kind of worried about that kind of dodgy brothers, they really go from job to job and they don’t do repeat business, so they’re just kind of flying under the radar, stinging someone, doing a nasty job, and then disappearing off to some other unsuspecting person, then you get the—at the other end of the spectrum is the tradie that’s really building a business and he’s a small business operator. He’s got the nice van with the sign writing and he might have a couple of other tradies working for him plus two or three apprentices, that kind of thing. And they’re definitely at the more efficient end and they’ll return your calls, clean up and everything after them and they’re really good tradesmen but they you pay a bit of a premium for that convenience. What I like and what I go for is the, there’s kind of a meet in the middle and the tradesman that work for builders. So the builder really coordinates them, directs them to which job they go for but they spend most of the time working for one or two builders and they’re really good at their trades but they’re not necessarily at all at the business side that guy with the van and the 3 apprentices is good at but they’re really good at whatever their trade is. They tend to work for, let’s say, 40 to 60 dollars an hour depending on what kind of trade they are and they will charge you the same rate most of the time or similar rate that they charge their builder so instead of paying your $85 or whatever it is for the guy with the sign writing on the band, you’re paying builder’s rates for traders that can do the job really well and even if it comes down to the fact that they’re not as clean as the guy on the van, grab the vacuum cleaner and clean up yourself because you’re going to spend a lot less money and it’s not that hard to do a little bit of a cleaning up at the end of the day too.
Jane: Absolutely. I completely agree. Okay, so next question. Let’s see who’s online with the question.
John: Okay, here we go. Stacey.
Jane: Hey Stacey, how are you? You’re on.
John: Yup, loud and clear.
Stacey: Hello. Good evening. I don’t know what’s up with that technical but anyway it’s working, that’s good. I’ve been getting some quotes on the new acquisition that we have.
Stacey: Thank you. Yeah, very excited about it and scared too.
Stacey: But we have done—yeah, it’s probably healthy fear isn’t it.
Jane: I think so.
Stacey: We’re 2 hours from the property so, so far I’ve done 2 quote days on those 3 hour blocks, we’ve seen six tradies in each block.
Stacey: So yeah, pretty tight planning. But it was really interesting seeing how much their quotes vary, so for example, one I wanted to get your thoughts on, when we bought the property, what we are expecting after building inspection was probably some degree of reblocking to level the property as it probably common with a lot of building inspections, we couldn’t get a really good look underneath without removing base boards which of course we couldn’t do but we could see a mix of concrete stumps and redgum stumps under the building so we knew that something had been done and that there was some existing damage in the areas of the house that is lath and plaster. Anyway, so I’ve had 3 quotes so far from levelling all companies that have a very reputable name and they’ve come in and the first one suggested $13,500 for total restumping the second one $8,900 for what was a mixture of restumping and some reblocking, and then finally another local crowd for just reblocking only for $3,800 and it’s really interesting that they’re differing so widely, so I’m sort of interested in the builder’s perspective and your perspective too Jane as having done a number of renovations.
Jane: I’ve never restumped though Stacey. You’re on your own with John here.
Stacey: Yeah, you’ll probably run away from that one but we couldn’t.
Jane: There is opportunity of bounds. We’re not the people who walk away from those kinds of things.
John: Is it when you’re walking Stacey, does it really feel at sea, is it leaning down on all the corners and–
Stacey: No. It’s solid well.
Stacey: The floors are wonky no doubt. It varied up to 50 mm and you can see the chimneys on either side of the building. It’s an old building, so you can see where the chimneys are, where everything else has kind of sagged.
John: Yes, that’s right.
Stacey: So when the building he’s big man and he said he jumped around in all of the rooms to get to really test out how strong the floors were and he said it’s really solid but wonky.
John: Okay. So, you can see it’s a tell-tale sign around those chimneys because they’ve got the big blue stone foundations and the joists kind of all stay, that’s original level and the rest of the house sinks and the chimney stays where it used to be. But you’re saying it’s only still 50 mm, if you would stand in the corner of the room that’s got the chimney in it, and you look across to the chimney he reckons only a 50 mm rise?
Stacey: 50-60. One of the restumpers used the water level to get a fairly accurate idea.
John: Yeah and are you’re looking to have polished boards in the hallway in the bedrooms?
Stacey: Yes, in the hallway and carpet in the bedrooms probably. I’ll have to do the numbers still.
John: Because one option which you’ll cut down your cost and I normally do this before I try and do it before I quote or I let them know that I’m going to do it is pulling up your floors in the bedrooms. And if you’ve got carpet going put down, it’s not expensive, you’ve got to be willing to let go of your floor boards in the bedrooms, but you can actually sell them to the yards because everyone loves the old floor boards. But if you’re willing to lift the floors in your bedroom, you can shave thousands off your restumping that way and it’s quite cheap to replace flooring just with sheet flooring whatever it is in your state. Chip board flooring which is only, let’s say, $200 to $300 for each room, so that’s one option, lifting the floors and—
Jane: Why does it make it cheaper? Because you got easy access?
John: Yeah, because they’re not crawling under the floors. It’s a really horrible job having to crawl under floors to do. It’s a big job. They’ve got to dig down often 600 minimum to get some clay before they pull levelled footing and then hang their stump in. It doesn’t sounds like a major—if it’s 50 mm, I mean, it’s just a little bit past wedgy because often what you’ll do is the loose ones, if it’s not bad, is you just stick wedges and the stumps are solid, you just stick wedges under those bits and sure up all your joists, and it gets rid of all the bounciness and that will kind of do for the most part. Is it a rental property or is it going to be a rental property?
Stacey: It is going to be a rental property, yup, with the possibility that we would use it down the track. That muddies the waters just a little bit.
Jane: If it’s 50 mm John across the room, you’re saying that’s not such a big deal.
John: Well, I’m surprised you can even see it.
Jane: Really. And so what would be significant. What would constitute restumping?
John: Well, a lot of the ones you’d go in period houses in open for inspections would be 100 to 300 mm.
Jane: Okay. So, 50 mm you could just use wedges and fix. Did anyone suggest that?
John: It won’t fix the fall on the floor but it will fix the bouncy section.
Jane: Bounciness, yeah.
John: And it’s the kind of job that a carpenter could do and often carpenters do that kind of thing and it’s maybe a half day, a day kind of work but—
Jane: For less than $500.
John: Yeah, typically. I don’t know if you’re thinking about, I mean, it’s kind of something you have to make a call on because obviously you want to hold the property for years and it’s definitely not a bang for buck. It’s a low return or no return item. People just expect the floor to be left also. You won’t make anything back on it but at the same time if you are selling it, it’s a buyer objection. Potentially, it’s a renter objection as well. But other thing you’ve got to consider if you are doing any replastering or anything like that particularly if you’re putting new sheets up, then you should do it because what happens if you decide to replaster and you decide in 10 years’ time after it sank to 100 mm that you want to jack it up. It’s going to pop all you plaster off the wall you’ll need a new plaster.
Stacey: And that is really where the issue is right now. It’s like there are two scenarios, you do the foundation and have it absolutely right and there’s already cracking from either the previous job or from the consequences of it over some time. And if we do the floors, if you just do the plaster now and leave the floors as they are, the property manager that I had in and had a good look through the place and look, a person in this area, in this market, will not rent it because the floors are a bit wonky, as long as everything else is fresh and nice to be in. However, from our point of view, if you’re going to spend money plastering, painting, there’s a few wiring touch-ups that have to be done, you have to go back and then redo all that again once you decide you do want the property.
John: Yeah, particularly if you’re putting in new sheets on walls. If you’re adding any walls and putting new plaster sheets as opposed to dispatching the lath and plaster. I kind of see that there’s the two options there. I think if you go down the restumping road, I will just going to be getting multiple quotes and you’ll kind of find a middle ground there somewhere that you, after gleaning some information of each one of those restumpers, I think you’ll just get a bit more informed to be able to make a good decision.
Jane: Because $10,000 is a big difference isn’t it.
Jane: It’s a no return.
John: I see this in a lot of cases too. You get a huge variation between quotes. I’m always trying to get four quotes myself.
John: The other thing is, with lath and plaster, one of the best ways to patch it and it patches up pretty well and will hold for years is using corner cement. So, if you get a plasterer and what they do is they get like an old chisel or a big wide screwdriver, they rake out the cracks and this is something you can do yourself. It’s not a really skill job. So they rake out all the little cracks to make the mouth of the crack wider and they wash it out with a bit of water and a paintbrush, so it gets all the dust and then they fill it with wet corner cement which is an adhesive that really gets in there and sticks and it’s also flexible, not just like normal basecoat plaster or something that you use on plasterboard. And then, they scrape it back, stick another coat of corner cement and then a little bit of topping compound which is what you do use as top coat on plaster but you can get that from Bunnings in little tubs and so on as well, and sand it back and—
Stacey: I’m scribbling.
Jane: You can listen to this in recording.
John: That’s right. So, two lots of corner cement and one coat of top coat or sometimes you’ll see in Bunnings, they’ll call it an all-in-one, like a premix, which is exactly the same thing as topcoat.
Jane: And that flexible corner cement just gives you a little bit of movement without cracking.
John: It will. You can get years out of that sometimes and often when the crack comes back, it’ll come in a different spot. It will actually hold with a corner cement and crack somewhere else in the wall which wasn’t correct, but you can get—it might buy another 5 or 6 years, if that’s going to be a better situation down the track or a good situation.
Jane: Especially if you’re thinking about moving into it as a home in the future. You might want to suspend some of that big expense until you can do that.
Stacey: Oh that’s really good. Thank you very much.
Jane: Maybe we just saved you $10,000. These calls are so worthwhile.
Stacey: Yeah, it’s really good.
Stacey: It’s good to hear the extra perspective. I appreciate it. Thank you.
John: Yeah, no worries.
Jane: Okay, well thank you so much for that question. Now, as I mentioned in the beginning of the podcast, this podcast is a little bit different because it’s in celebration of the launch of the Ultimate Guide to Renovation course which is only open for enrolments between the 20th and the 27th of October 2016. So for those of you who are listening live or within that period, there is a free video case study that is running at the moment of a renovation that was actually done.
John: Yes, through the 27th of October. So you can find out all about that on Ultimate Guide Renovation.com.au.
Jane: Oh my goodness John. Another huge episode. Well, a lot of takeaways for everyone.
John: Yeah, I hope so.
Jane: Now, what time is it?
John Blackman: Yes. It’s that time again where you get the chance to test your suburb knowledge while the entire nation holds its breath. Ladies and gentlemen, it’s time to play, Suburbs Against the Clock. The rules are simple. To play, all you have to do is answer a question about 10 suburbs in the city of your choice within 20 seconds. The lucky winner of Suburbs Against the clock will win 1 year’s free access to Your Property Success Club. Your Property Success Club is an in-depth monthly master class which gives you the practical tools needed to grow your portfolio yourself without having to spend a fortune on expensive seminars or even leaving your own home. So, who do we have standing by to play Suburbs Against the Clock?
Stephanie: Hello. Hi!
Stephanie: It took me awhile to figure out how to work it.
Jane: Welcome to my world. That’s why I’ve got John here. He’s in control everything that’s technical.
Stephanie: I don’t have anyone to help here.
Jane: No tell me Steph, where are you based?
Stephanie: I’m in Melbourne.
John: Melbourne again.
Jane: So tell me Step, are you a renovator, a property investor, or just starting out? Whereabouts are you in your journey?
Stephanie: I’m an investor. We’ve got two properties but it was just bought on a whim and none of the research or anything went behind it. It was funny, we turned up to auction—it wasn’t even an emotional buy. I think it was probably what people call impulse purchases, so I don’t know. We’ve got two of them and they’re doing okay, so lucky, but yeah, we’re looking for our third but I think this time we’re going to do our due diligence.
Jane: Oh, well, let’s hope that you can win access to the Your Property Success Club to give you a little bit of extra information. Are you going to be playing for Melbourne?
Jane: Okay Steph.
John: Okay Steph, so you’re familiar with the rules, 10 suburbs in 20 seconds.
John: Okay, perfect. Can you name 10 suburbs in Melbourne with freeway access?
Stephanie: Greensborough, Thomastown, Sunshine.
Jane: Yup sunshine
John: 10 seconds
John: Five, quick.
Stephanie: Diamond Creek.
John: Six, quick.
Stephanie: Williamstown, St Kilda.
John: I got eight. How many did you get?
Jane: I got 10. I’m pretty sure I got 10.
John: Okay Steph, I think you’ve won.
Jane: Suburbs Against the Clock. Congratulations.
John: Well done, well done.
Jane: We’ll get you access to a year of Your Property Success Club.
John: Yup absolutely.
Jane: Which is pretty exciting.
Stacey: Fantastic. Thank you so much.
John: No problem. See yah.
Stacey: Bye guys.
John: And if you would like to test your suburb knowledge and the best and only suburb quiz in Australia, simply—
Jane: Still…surprising isn’t it?
John: Yes. ripped off maybe. That’s a shame is it?
John: Simply email email@example.com and use the subject line Suburbs Against The Clock and feel free to give us any suggestions for future questions.
Jane: Because we are running out of those fast.
John: Yes. That’s right.
Jane: Now, if you would like instant access to the transcript plus get access to some free training we have for our community and all of the show notes and links to everything we mentioned today, go to yourpropertysuccess.com.au/ep8, that’s yourpropertysuccess.com.au/ the letter E for echo, P for papa, and the number 8 or just Google YPS podcast. And John, we should mention that the Ultimate Guide to Renovation 2016 is open for enrolment right now.
John: Yes, 7 days only until the 27th of October so if you’re listening at this time, keep a look out for the competitions and giveaways there too. You can find out all about that on Ultimate Guide to Renovation.com.au and if you’re listening at this time and the video series is still running, you can pop you email address underneath the video to be notified of all of the competitions and giveaway. We give away the Ultimate Guide to Renovation each year in a competition.
Jane: And an iPad.
John: And an iPad.
Jane: So, a lot of information today. I hope you’ve enjoyed our very special podcast from strategic renovation and stay safe and here’s to your property success.
John Blackman: Ladies and gentlemen, it’s important for you to understand that you need to take care in applying what you’ve heard on this podcast to your own personal circumstances. Every one’s situation is different. And while we go to great lengths to ensure that everything we share is accurate, the information in today’s podcast was based on personal experiences and opinions and is not intended to be specific to your circumstances. We are not real estate agents, financial planners, lawyers or accountants and are not liable for any loss, damage, or misunderstanding caused by reliance on any information provided or inferred. We highly recommend you seek out the services of a professional or mentor to help chart your own path to property success.