Adding Value via Extension!

[kmor110]

Hello Property Gurus,

Looking for opinions on the below scenario, preferably from anyone who has extended an existing dwelling before.

My PI strategy ATM is to add value through do-ups, own a place already worth 500k ish with about 240k equity in it, 30k revolving credit.

We are looking at a 1 bedroom 80sqm 50's batch on a 550sqm section freehold, would imagine buying as is, about 390k.

Big back yard, with good access and pretty flat. We were looking to add an extension off the back of the house with a hallway and 2 bedrooms off it. Probably 30-40sqm. No plumbing planned. Local agents and sale prices indicate the house would be worth somewhere in the early to mid 500s after this (including new bathroom, possibly maintenance on piles and paint interior/exterior on the existing house).

What do you recommend I find out before making an offer, or what conditions would you include on such an offer.

Any other warnings or advice for a rookie on the above scenario.

THANKS!!

[Leftette]

WARNING: With an original bach of that vintage you will never know what you'll find when it comes time to add-on. Never underestimate the extras that may pop up. So it's therefore impossible to budget/forecast with any real accuracy.

[kmor110]

WARNING: With an original bach of that vintage you will never know what you'll find when it comes time to add-on. Never underestimate the extras that may pop up. So it's therefore impossible to budget/forecast with any real accuracy.

Hey Leftette, I would carry out a builders inspection to minimise the risk of any major unforeseen issues.

Excuse me if I'm wrong, it sounds like you are speaking from experience. Do you mind sharing this with me?

[PTILoveYou]

What if you convert the 1 bedroom into 2 bedroom without external extension? How much would it be worth?

As it is a batch, is it a holiday home type? Can you get 100% occupancy during the year??

[Leftette]

I added a $300k extension to a $750k home of 70's vintage. Hardly a bach and yet there were still issues that were unexpected crop up. None of which a building inspection could have foreseen. You see them when the wrapper is peeled off though.

[PTILoveYou]

If it's for investment, and the extension cost is more than $100k, then you should really think about using that money as a deposit for another investment property.

[kmor110]

What if you convert the 1 bedroom into 2 bedroom without external extension? How much would it be worth?

As it is a batch, is it a holiday home type? Can you get 100% occupancy during the year??

Hey Gary - I did think about turning it in to 2 bedroom, I anticipate that it would require some significant reconfiguration internally, along with required renovation of bathroom, general repairs and perhaps some maintenance of the piles I would conservatively budget 40-50k if I went down this road. I would think it could achieve mid 400s as a nice 2 bed, so there isn't much fat to play with there. There would also be less competition in buyers as it's a very 'family' and first home area so a 3 bedroom would really be ideal in terms of appealing to the most amount of people.

In terms of occupancy, there is a year round demand so I do believe you could get 100% occupancy but the yields would be very poor would anticipate high 300s for a nice 2 bedroom and mid 400s for a 3 bedroom roughly.

What are your thoughts based on the above info?

[kmor110]

I added a $300k extension to a $750k home of 70's vintage. Hardly a bach and yet there were still issues that were unexpected crop up. None of which a building inspection could have foreseen. You see them when the wrapper is peeled off though.

Wow! Was it a significant extension i.e. more than a couple of bedrooms? Or was it quite comparable? What sorts of things did you come across with the 'wrapper peeled off?'

[Leftette]

A double garage, bedroom, office, bathroom, stairwell and billiard room. We found some soft timbers, the water mains that wasn't where it was supposed to be, issues joining the roofing, and the requirement to underpin with concrete columns that make the Coliseum insignificant.

[kmor110]

A double garage, bedroom, office, bathroom, stairwell and billiard room. We found some soft timbers, the water mains that wasn't where it was supposed to be, issues joining the roofing, and the requirement to underpin with concrete columns that make the Coliseum insignificant.

That sounds awful Leftette, what sort of roof was it? Gable or flat? What about this requirement to underpin with concrete columns? Why did this requirement come about?

Thanks for sharing your knowledge...

[kmor110]

If it's for investment, and the extension cost is more than $100k, then you should really think about using that money as a deposit for another investment property.

Hey Gary - I would be looking for capital gains. I.e add value, live in it until ready to resell.

Yields are poor in the area generally and still working to build up my seed capital until I can take on the risk of an investment property.

[PTILoveYou]

Hey Gary - I would be looking for capital gains. I.e add value, live in it until ready to resell.

Yields are poor in the area generally and still working to build up my seed capital until I can take on the risk of an investment property.

Well if you buy well then you will get more equity quickly to buy an investment property in the short term future.

[elguapo]

Hey Gary - I would be looking for capital gains. I.e add value, live in it until ready to resell.

Yields are poor in the area generally and still working to build up my seed capital until I can take on the risk of an investment property.

Turning it into a 2 or 3 bed may make it more marketable, but from the numbers your quoting it's not a great way to go as far as investments go.

If your happy with the place as it is, focus on paying down that mortgage.

[kmor110]

Turning it into a 2 or 3 bed may make it more marketable, but from the numbers your quoting it's not a great way to go as far as investments go.

If your happy with the place as it is, focus on paying down that mortgage.

Hi El Guapo, thanks for joining in.

Can you please explain why you think it's a poor investment?

If we bought for 380, spent 120 renovating to 3 bed, sold for 550 (assuming no change in market!). We would be in the black 50 (less 20 agents fee if we sold). A comfortable amount of 'fat' and likely would turn this around within 12 months in time for summer 2015. For this scenario, we would not require extra lending. Making 30k in 12 months seems better than sitting in our current mortgage (fixed for another 8 mnth) paying $250 of principal a fortnight, saving $200 a fortnight (only 10k generated over 12 months give or take). Plus I'll get to learn about adding value through extensions first hand.

Other option would be to go buy IP but our trouble is we can't really afford to cover 2 mortgages currently in case of vacancies etc.

Advice appreciated!

[crashy]

The building act just changed. You can add a 10m2 patio without a permit. You can also enclose an "existing" patio up to 5m2 without a permit (still must meet building regs). So build a 5m2 patio, take a photo. Then close it in. Small bedroom maybe? Or maybe move the dining room there and the dining room becomes a bedroom