Should You Renovate or Knock Down and Rebuild

Often with investment properties there is the opportunity to renovate it or to knock down and rebuild. How do you decide which option is best for you and what is going to give you the best return on investment?

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0:30 – Having options is a great thing and be grateful for that
3:46 – The ultimate outcome is important, but so is the capital cost
6:37 – It comes back to strategy and what kind of return on investment you want

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Transcription:

Ryan 0:00
often with investment properties there’s opportunities to renovate that property or there’s also the opportunity to knock it down and to rebuild something else so with a lot of the properties that we look at there’s actually the opportunity to do both simon himself has invested in a property where he has been farming and iring about whether to knock that down or whether his long term strategy will be to keep the house and build a granny flat in the backyard so today we want to talk about some of the ideas behind whether or not you should knock down and rebuild or renovate a property and some things for you to think about to help you make a decision on your investment property so

Simon 0:35
what i love about this idea is having options so when i’m investing in property and when we’re investing for our clients essentially what we want is options so can we renovate can we you know maybe that’s cosmetically maybe it’s structurally or can we knock it down and rebuild something can we add granny flats in the backyard you know can you subdivide develop there’s so many different options that you know if you’re going into into a property where it’s you know maybe just a unit or townhouse and you kind of limited with the ability to manufacture value there it can be quite difficult but with a house on a nice piece of land something that might be a bit dated like the one that we’re sitting out the front of is the moment you’ve got a few options which is you know essentially what you ideally want to be looking for

Ryan 1:24
and that’s what’s so cool about it so i think if you’re sitting around thinking should i renovate should i knock down and rebuild at least be grateful that you have options available that you have those options to consider i think that’s really cool about your investment property is that you have those options so simon board and investment property if you haven’t seen that video heard his story i’ll link to it down below where he talks about what he purchased but basically bought a really rundown property he did a minor cosmetic renovation on it spending a few $1,000 in order to get it painted cleared out the yard and rented that property out and is now tossing up between okay in the future will i build a granny flat on the back or will i knock down and rebuild and that’s a decision that you don’t have to make right now

Simon 2:09
exactly

Ryan 2:10
so exactly you’re currently in the stage of purchasing more properties so it’s not something you’re not looking at building the granny flat just yet and then obviously buildings gonna cost a lot of money so it’s not something you’re looking at doing

Simon 2:21
yeah yeah so i’m in the accumulation phase of my property investment journey and then once i’ve gone through that initial accumulation phase coming back to where i’m semi consolidating and converting into cash flow plus capital growth and converting from single income to julian carb i’ll have a better understanding of what’s going to make the most sense financially because this is an investment it is not an emotional purchase it’s always going to come down to the numbers now what i like about knocking down and rebuilding is the fact that you’re not going to have many maintenance issues moving forward so you’ve got a property that’s you know brand new you’ve got warranties on most of the things that are inside that property and you can you’ve also got depreciation benefits on top of that you’ve got something that you literally do not have to worry about that i could do a significant renovation on my property which you know it would probably cost a minimum of about $100,000 to do a renovation that’s going to actually bring up the value of the property and make it worthwhile so

Ryan 3:26
and so then if you’re looking at granny flat as well $100,000 for renovation 120,000 for granny flat you coming extremely close to the build cost of a dual income property

Simon 3:36
which is probably roughly around 250 to $260,000 for may luckily

Ryan 3:42
so there’s a few things to think about when it comes to what to decide so obviously you got to decide on what the ultimate outcome is going to be in terms of capital growth for your property and in terms of cash flow so a new build property i guess a renovation as well can get more rents and can get higher valuations but being new as well can be quite desirable for an area but you also have to think about the capital costs and how much it’s going to cost you in order to do that and how much extra rent or how much extra capital growth you’re gonna get going with the more expensive option versus the least expensive option so it’s really just like one is better than the other they’re both different strategies you’ve got to look at the finances behind it how much is it going to cost and what’s your return going to be to really understand what’s going to be the best decision for

Simon 4:30
you exactly in may like the property that i owned that i’m considering either renovating or knocking down and rebuilding i essentially don’t ever want to sell that property it’s going to be one of my foundational properties that’s going to support my financial freedom in the future whereas so i’m okay with spending an extra 1020 $30,000 to rebuild and not have any of those maintenance issues where i could actually renovate renovate and make Spend a little bit less money if I was going to sell that property. So keeping the money in my pocket, knowing that I’m going to sell that property in the future, if that was my strategy, I’ll probably go to the renovation. Plus it’s got good characters similar to this one behind, it’s got that nice Queenslander feel about it. So it’s got really nice character which can emotionally appeal to people. But when you build brand new houses, sometimes they don’t have that character that the older style homes do. So there’s that as well, when it comes to your strategy, is this a long term property that you plan to hold forever? Or is this one of the properties that you are using for the capital growth to maybe pay down some of your five foundational properties, so that’s a battle there too.

Ryan 5:42
So weighing our between is a word keeping the character of the older style property, but just making it really nice. So that’s going to emotionally affect someone looking to purchase that property. So you can get the best resale value for it, also, maybe saving some money compared to the build. So you’re getting higher resale with less costs, obviously, that’s a consideration. Whereas if it’s I want maximum cash flow for this property, I want low maintenance for this property, I want this property to last me another 40 or 50 years into my life is a property’s already 50 years old, or seven years old, or however old it is, and may make more sense to

Simon 6:19
build exactly because if I rebuild a brand new home, I’m not going to have to think about that property for at least 15 years, because but that means in 15 or 20 years time, I’m probably going to have to do a little bit of work, you know, definitely probably going to have to repaint, and, you know, maybe fix up the flooring, if there’s carpets or something like that. Whereas if i if i renovate, you know, there’s still going to be those ongoing costs, and you still got the structure of the property that’s 50 years old. So the bones of the property is still going to be 50 years old. But if I rebuild, they’re going to be brand new. So it comes back to you know, strategy, what is this property? What is this property going to be in my portfolio? And can I justify the amount of money that I’m going to spend on the renovation? Or the new build?

Ryan 7:09
Yeah, so it comes down to your strategy comes down to what kind of return on investment you want? And so the answer is that it depends what’s better to renovate or to rebuild, it really does depend on you and what your goals are, it’s not that there’s necessarily one way is better than the other. Because even for the same property one way, renovating could be better for one person knocking down and rebuild could be better for another depending on how long term their strategy is or what they’re trying to get out of it if they’re trying to get capital growth and cash flow, or whatever it is. So Well, there’s also an earlier property that we looked at today, which I’ll put some images of which was just orientated very strangely on the blog. So we find fine for a, I guess, that iraq property and fine for a single income property. But this is an opportunity in that property to add a granny flat. And so that property would definitely more be a knockdown rebuild for someone who’s looking for cash flow, because you can’t add a secondary dwelling, but it was on a corner. And so being able to knock it down, you could then build a Julie income property with each of them having access from different streets as well. So depending on the shape of your property, yours, you can fit a granny flat in the backyard. So it’s a it’s a harder decision you need to make, whereas that one is a lot more obvious. Yeah, if you’re going for that cash flow play, it makes so much more sense to knock down that property and rebuild. And the cost of the property was basically land value.

Simon 8:38
Yeah, you’re getting the house for free at almost a discount, after we, you know, ran some numbers in some comparable sales. It was like oh, well, I’m pretty much getting this house for free. So it makes it that much more worthwhile. Yeah. So

Ryan 8:51
this is something that you’re thinking about and not sure about, if you’re thinking of potentially maybe knocking down and rebuilding a property and you just want to talk to someone about it. Maybe want some introductions to a builder that we work with here. Then we are offering free strategy sessions so you can get on the phone to us talk about what you’re thinking. And then we can give you some helpful tips and help you understand what’s going to be best for you. And if you need those introductions, then we can help you with that as well. So go to onproperty. com. au forward slash strategy, and you can book a free strategy session over there. We look forward to talking to you I wish you the absolute best in your renovation or your knockdown, rebuild, or whatever happens on your property journey, and until next time, stay positive

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