Essentially I am considering securing a particular 2 bedroom investment property.
The bathroom is in need of a total refit, the kitchen requires improvement and the opportunity exists to add a 3rd bedroom.
Is it possible to borrow the purchase price inclusive of the renovation expenses, with a 10% deposit?
Is such a thing possible?
TA
Yes, very true.
I had similar thoughts, however I figured if you don't ask you don't know.
You can get a construction loan from a bank. They assess what you are going to do, value it adds to the property and the builders contract. They then pay the builder directly in stages as they do the reno/build.
That may work
Exert from home loan experts:
"Additional work completed by contractors
In some cases, part of the work isn’t being completed by your builder.
Some common examples are:
Swimming pool
Pergola
Driveway
Power pole / power connection
Landscaping
Site clearing
Shed, dam or other hobby farm improvements
If you can provide a formal written quote for this work then we can often get the bank to extend the loan for these costs.
It really depends on the nature of the work and the lender that we’re working with as to whether this will be possible or not.
The key is to give us this information at the beginning of the process!"
Depends on your capacity to repay, your credit score, value of the property etc.
Could you borrow the cash against a different asset?
Potentially, however I don't think I would head down that track.
The option exist to refinance following the renovations, however I would imagine its counter productive financially.
In my mind, the ideal situation would be 10% down against the purchase price and physically cost of renovations.
From there I would make a $10K repayment.
The idea being to keep repayments 10k in front.
I do realise this may not be achievable.
These days the only straightforward option is a 105% guarantor loan (https://www.homeloanexperts.com.au/no-deposit-home-loans/) using your parents' property. This is assuming that 90% is the best you could get otherwise.
I’d buy it and rent it out on 12 month lease as is,
Then borrow the money and renovate, potentially on a low interest card if you can’t find a better option.
Then get property refinanced with new value, pay off card and claim scrapping on items removed as they have been in use.
Plenty of risks involved in this really depends on the figures, the property and your own financial position.
Chopping the unit up to make another room without approval can be lucrative, but is a bad idea.
Thank you, appreciate the suggestion.
It would be best to ask an property manager not connected to the sale,
How much can I rent it for?
How much can I rent it for if I spend $X renovating listed items.
You may find an extra $30 a week might not be worth the risks getting in further debt for.
Excellent advice.
I have done my due diligence in that regard.
Realistically the bathroom needs renovations to make the property liveable.
There is a significant water leak from the shower, which has been there for some time.
The shower needs to come out, as well as a quantity of tiles and plaster.
The vanity has been replaced with a unit suitable for a small powder room and the entire bathroom needs some paint love.
The intent is to install a combined bath and shower unit, a suitable vanity, tiling and repaint.
All on a very tight budget.
Do the pipes leak or is it waterproofing?
The shower structure its self.
Interestingly, the property has been owner occupied.
What would have started out as a simple repair has been let go to the point of being a significant repair.
It depends on the exact problem and the individual body corporate and your location but some of the cost may be paid by body corporate, is it timber frame? does it leak from above or from a sewer riser?
Is it so unliveable it could affect your loan finance, I’d just patch up what’s there paint everything white, your not the one who will be living there, I’d put off major Reno’s till you’ve saved the cash. Is it in a region where there is little demand for rentals?
You need to factor in lost rent in the cost too if it takes 6 weeks to fix it.
I can see you running into a lot of finance issues on this
Firstly, it's likely you will have to do this in 2 separate transactions. Complete the purchase @ 90% LVR, however when you add the mortgage insurance cost you will be closer to 92%
After that you will have to apply for a top up. You will need to provide a contract from a licenced builder for the work to be done and the banks valuer will take this work into consideration with a new valuation. If you were going to do the work yourself it will now cost more through a builder but no other option. Also, just because you spend $30k on renovations it doesn't automatically increase the property value by $30k. It will all depend on the opinion of the valuer
If the property valuation doesn't allow for a top up then you may have to borrow through a personal loan at higher rates and then refi into the home loan later on in 6-12 months
We bought our house for 850k, needed a 530k loan but asked for 600k instead (didnt need to give a reason, but it was so we could do renos over the next couple of years). They had no issues, so long as we could afford to repay the 600k, and the value of the property was never going to drop so low that they couldnt get their money back. The want a larger loan - more interest!
I doubt it, bank has no garuntee you won't snort the extra money on cocaine, then stop paying mortgage
LVR is on the value of the property not potential value, could be wrong tho