What started out as a hobby has become a profitable second career for Deb and Ted Wilson, whose eyes for a good renovation or subdivision opportunity has paid off to the tune of more than $650,000. Jane Howdle reports.
Based in Ocean Grove, near Geelong in Victoria, Deb, a book keeper, and Ted, a wool specialist, have transformed 13 properties in Victoria, NSW and Tasmania since 2001.
“We have always purchased places that were a bit ‘yucky’ – unloved, unfinished, unwanted,” Deb explains. “By doing this we have been able to buy well and add value quickly.”
Where it all began
After purchasing their first home in 1987, Deb, now 42, and Ted, 47, did some basic renovations, selling at a profit a few years later. “We were hooked from there,” says Deb. “We realised that buying something messy was a good idea, so the next property we bought was also unkempt and overgrown. We subdivided a little bit off that one and it was quite a profitable thing to do.”
Following the birth of their two children in the mid-1990s, Deb and Ted’s approach to property investment became more serious. Where they had previously lived in a house, and renovated or subdivided it before moving on to the next project, they decided to remain in the same family home, using the equity that they had built up there to finance their other investments.
How they do it
The couple decide upfront what profit they want to make, then find the property that will deliver that to them. To work out whether or not a property will make money, they first get an estimate of what it would sell for in a renovated state, based on recent sales in the area.
Next, they do a detailed analysis and costing out of the purchase, the renovation, holding costs and the costs of sale, before working out the maximum purchase price they are prepared to pay to achieve the profit they want.
Deb and Ted built relationships with local real estate agents early on, and they continue to reap the rewards of this. “Now they bring opportunities to me, saying, ‘we’ve got this property coming up, would you like to take a look at it?’ Of course, we also use local newspapers and the internet,” says Deb.
Where they aren’t able to view a property personally, the couple will send someone they trust along on their behalf. And while they were very hands on with the renovations in the early days, they now rely more heavily on experienced tradies to do the hard work.
“We used to do more, but we’re getting older,” laughs Deb. “I still coordinate everything though, and we do any of the work that we can ourselves.”
There isn’t as much need for renovation work these days, however, as “we’ve kind of moved on to bigger projects”, with a primary focus on the re-zoning and subdividing of larger properties. “If there’s the opportunity to subdivide, we always will.”
Deb and Ted prefer to fund their renovation and subdivision projects by using existing equity in property they already own – usually their own home – to pay for cash requirements such as deposit, stamp duty, renovating costs and holding costs.
“The bank allows us to draw down an interest-only loan to 80% of the value of our home and the funds are transferred into a 100% offset account which has to remain in credit,” Deb explains. “We deposit our salary and business income into the offset and we only pay interest on the net balance of the loan less the offset account balance.
“We then take out an interest-only home loan for the purchase of the property we are going to renovate – usually an 80% lend. When we sell the property, we repay the home loan but the offset account remains available for the next project.”
The couple avoid overcapitalising by choosing structurally sound houses with no need for large outlays, doing their due diligence upfront. “We use a spreadsheet that costs out every aspect of the renovation upfront so we don’t miss a thing,” says Deb. “We stick to our plan and our budget as closely as we can.”
Your starting point
Deb recommends the internet as a good place to begin, preferably focusing on a familiar locale. “It’s much easier and you’re not going in blind… Focus on finding the right kind of property.”
“We always say the big yucks make the big bucks,” she adds. “We love them – the tattier the better… These properties can be a goldmine.” To find them, Deb recommends setting up alerts on sites like www.realestate.com.au, looking in the newspaper and asking agents direct.
“Be clear of your investment strategy, as this will dictate the kind of project you’ll want and, therefore, the type of property you’re looking for,” Deb says. “Do you want upfront cash now, a property that’s going to grow in value over time, or regular cash flow? We’ve learned the hard way that if you change your mind midstream it will always cost you more.
“For example, if we were looking for a property to rent out we’d look at the net cash flow first to make sure it was going to pay for itself. You’d approach the renovations differently, too. For a re-sell you want everything to look shiny and new but with a rental you’re probably not going to go to the same extent.”
The future’s bright
The couple has recently established Renovating Riches (www.renovatingriches.com), a membership website which shares their experience of renovation and subdivision.
“It’s possible for anyone to make a strong profit as long as they know a few secrets and stick to a solid, proven formula,” says Deb. “I can’t wait to give up my day job and share my passion for property and experience as an investor with others on a full-time basis, via Renovating Riches. Renovating and property is something that I love and it’s terrific that I’m able to share that.”
The secrets of their success
Deb and Ted recommend:
- Be clear on why you are buying a particular property and know your exit strategy before you start
- Know what profit you want and what type of property you are after
- Accurately assess a property to see if it meets your criteria
- Don’t pay more than you should
- Stick to your rules, to your budget and to your plan as much as possible
- Make changes that will add maximum ‘perceived value’ in the eyes of the buyer
- Put property on the market at the right price
Add value by:
- Cleaning/removing rubbish and clutter
- Modernising fixtures and fittings
- Adding a carport
- Adding a new front fence
- Creating a new room/outdoor living area
- New window furnishings
- Creating more light
- Remodelling kitchens/bathrooms
- Subdividing the land
- Adding security
- Improving heating/cooling
Avoid properties that have problems with:
Access, roofs, stumps, electrical/wiring, plumbing, rising damp, shower recesses,
pest damage, and being heritage-listed
Ted and Deb’s top tips
When preparing to invest in property,look for:
1. ‘Ordinary’ homes that ‘ordinary’ people would buy, as this ensures a bigger pool of potential buyers
2. Houses that need ‘cosmetic surgery’ rather than a major overhaul
3. Houses that are structurally sound to avoid outlaying money on restumping, rewiring, etc, or other ‘invisible’ improvements
4. Signs of an ‘ugly duckling’ that can be transformed into a swan, for example:
• outdated décor and/or floor plan
• the worst house in the best street
• potential to create another room
• dirty, smelly, mouldy, untidy
• unfinished, unloved
• people who want a quick sale
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