Hello, it’s Bernadette Janson and before we get into this episode, I need to remind you that the information in this podcast is general in nature, and opinion only. It should not be taken as personal advice. There are significant risks with buying and renovating property and you should maximise your profit potential and minimise your risk by seeking independent advice that relates to your personal circumstances through your own financial planner, accountant, and any other professionals that you are working with. The examples in this podcast are for illustrative purposes only.

Also, this episode is sponsored by a brand new training entitled How To Replace Your Income With Renovating. So it’s for you if you’re on a mission to go from a hobby renovator to a professional renovator. To either replace a dull day job, to retire, or downsize profitably. To pay off your mortgage, to help the people you love, and to have more money and more fun in your life. It’s been a while since I’ve done one of these and I’m pretty excited about it. 

What I’m going to cover in this training is the process you go through. I will cover the three core steps to going from pretty much where you are now, to a point where you have the capacity to generate income at will, and how you can replace income with renovating. Lots of people have this as a dream but actually haven’t figured out how to get there. So that’s what I’m going to be walking through in this training. 

I’m also going to be sharing with you my top tips for getting fast results. I have really nailed this and what I’m seeing now is that the students coming out straight from the Bootcamp, going into a project, and absolutely killing it. Because the alternative is going into analysis paralysis and doing nothing, which doesn’t get you what you want. So I’ll be talking about that. 

Also, I’m going to be talking about my proven fix for the biggest challenge that newbie renovators have. We all know what that is. It’s a missing ingredient. I’m going to be talking about how we approach the joint venture process. I’ve been working on this for probably almost 10 years. I’ve done a lot of joint ventures, can’t remember really how many, they’ve gone from being sometimes a bit painful to a beautifully elegant process. So, I’ll share that with you and the part that we play in that.

This is our entry-level training to our Bootcamp. Of course, there’s no obligation to join the Bootcamp but in order for you to really understand what’s involved, if this is something that’s on your agenda, this is a really good way for you to get those distinctions.

The other thing I should let you know is, it is a meeting and not a webinar. The difference is that with a meeting, you can actually see the people that you are communicating with. You can talk and be heard. I cannot stand the facelessness of webinars. We’ve outlawed them in The School Of Renovating because I really love to get up close and personal. So that’s the way we roll.

If you would like to join, you can come over to www.theschoolofrenovating.com/theleap and if you can’t remember that, you’ll find it in the show notes.

Should I Renovate Or Knockdown And Rebuild?

Bernadette: So today I’m going to be talking about how to make the decision whether to renovate or knockdown and rebuild. And this was one of the suggestions that was provided in the She Renovates Facebook group. I’m getting into it straight away.

I’m going to be talking to the scenario where this is your family home, and you’re considering either renovating or knocking down and rebuilding a new property and needing some criteria for making the decision.

Now, whenever someone asks something like this, I always say, “it’s a numbers game.” So either this or that. Do the feasibility on both and that will help you to select the best. However, when it’s your family home, there’s another level to be considered, and that’s your emotional connection with that home.

We’re all emotionally connected to our family homes to some degree and some more so than others. And it’s worth taking that into consideration. However, I do want to challenge that. 

So you’ve got a house it’s on a block and you’re thinking that you want to improve, and you’re not sure whether it’s worth spending the money on renovating or just knocking down and starting again. The first thing I would mention here is you want to really determine how attached you are to that block and to the area for your family home. Is it like, the place where you always want to imagine yourself living? Is it absolutely essential? Or if you had the opportunity or needed to find another location, that would be fine you could cope with that. 

It’s really important to know how attached you are to it because if the upshot of this conversation is better to use that for another purpose, then you need to be in the right mindset in order to make that pivot.

So the first thing to look at is the existing building substantial? Now, if it’s a little fibro shack on a big block well then I wouldn’t even be taking the existing into consideration because it’s probably not worth getting all that you know uptight about. And if it’s not very substantial in terms of square meterage, you might be better just to start again. However, that may not be the way you want to go, so the next thing is what sort of condition is the existing property in? 

So we come across this with renovating a lot to a property that hasn’t had any maintenance done for years and years. It costs a lot more to bring up to scratch than something that is in great condition. So when you’re considering renovating as opposed to building that has to come into the equation, if it’s got a poor foundation, asbestos, all the plumbing’s shot, all the wiring shot, you might really be at a point where you probably should think about not going down the renovating route.

But then there are a few other things that might come into your decision. And one of them is, does the property have any heritage significance? So is there anything about the property that is worth preserving? It might be architectural features. It might be materials that are used in the property stone timber and it might not necessarily be something that’s listed by the national trust, but it could still have aspects that you want to preserve. And even if it’s not a significant property in terms of history,  there may be aspects of that property that are significant to you. Might be the staircase. It might be the shape of the windows. So really working out what it is about the property that you’re attached to can really help with that decision.

Once you’ve identified what it is you really love about it, you can decide is it worth keeping the whole home for that. Or can I reuse those elements in my new home? Or maybe do a partial knockdown? So maybe it’s not all or nothing.

The other thing to look at when you’re considering this is whether the home impacts the access to the property. So let’s say that in your home, the access is also the main road, which is not ideal, okay? But if you were to remove the existing property, you might have the opportunity to bring a driveway in off a side street and hence get the address and the access off the main road onto something that’s more desirable.

So that would not only increase the value of the property, it also increases the level of comfort living in that property. So another thing to take into account.

The other thing that you want to look at is if you’re planning to knockdown and rebuild, will the property that you want to build, be sympathetic to the area? Will it fit in with surrounding buildings and homes? Because if it doesn’t, what you could end up with is the best house in the worst street, which is not really what you want. And what you will be doing is bringing everyone else’s home’s value up, but you won’t be getting the maximum value out of your property because it’s just not in character with the area.

Also thinking about the planting, the natural environment, how will a new home fit in with that? We’ll that be sympathetic to the landscape? Or are you pretty much going to have to demolish everything to build, which is another consideration. I’ve seen plenty of people who’ve planned their renovation or their build around a tree. So it’s not unusual. And I think given that it takes anything from 50 to a hundred years to grow a decent tree. That’s not surprising.

Now, the other thing that you want to think about is will your decision incur GST? What you may not know is if you were to knockdown and rebuild, you most likely attract GST if you were to sell that within five years. So by attract I mean, you have to pay 1/11th of the sale price to the taxation department in GST. And that even applies to renovated properties that fall under that substantial renovation category in the taxation department’s definition.

Now the best way to determine whether that’s the case is to firstly, speak to your accountant. And if you can’t get clarity there, then submit for a private ruling. So private ruling from the tax department is binding. That’s the best way to get certainty around that. If you don’t think you’re going to be selling the home in five years, then you can, probably not worry about that.

But the other thing to do, if you are going to be concerned about it, make sure that you keep really good records. Keep all your receipts because if by chance you do have to pay GST, you want to be able to claim back as much of it as you can. And you won’t be able to do that unless you have the receipts and the records relating to your build or your renovation.

Now, if you’re still not clear about which way is the best way to go, then I would say the next exercise to do is do the numbers. Sit down and work out what it’s going to cost you to renovate that home to the level that you want to renovate it to? And then if you’re planning to rebuild, what that’s going to cost? Including demolition, site works, and then the construction of the new home and pretty much everything. So you’re starting from scratch again. So floor coverings, curtains, everything. In order to do that, the best way to go about it is to engage a quantity surveyor who will prepare a report that will provide you with estimates of the costs for each scenario when comparing building new from renovating.

Renovate Or Knockdown And Rebuild – Estimate Costs

There are probably three main ways to go about that. Firstly, you can just go to your local builder, get some plans drawn up, and get it built. You can go to an architect,  get your architect to formulate the plans, then take it to a builder to build. And the third way is you can go for it to a volume builder who does project terms. So basically you select the floor plan that you like, and then they build it in a nutshell. And process of each of those scenarios very substantially.

I’m currently really planning a new build on a block of land in country Victoria, and it’s just blown me away. Just how cheap volume builders are. So I of course did some fairly serious due diligence to make sure that I got someone that was going to give me the outcome I wanted because we’re planning to sell it. We want something that’s got the level of finish that a critical audience might look for.

The price is coming out at about $1,200 a square meter, which is extraordinary, given that I live in an area where it’s not unusual for a building cost to be closer to $5,000 a square meter. Yeah, so if you can find a volume builder who has a floor plan and has a reputation for doing good work, that is a very cost-effective way of getting a house built.

And so the last thing that I think you should think about and this is, why I asked you to decide is how attached you are to that block and to that particular location? How emotionally attached you are to it? Because a savvy property investor would look at any property that they were considering the next step with and work out what is its highest and best use.

Now, basically what that means is what can you physically do that’s financially feasible. The Australian property Institute defines the highest and best use as an asset that maximises its potential. And that is physically possible, legally permissible, and financially feasible. And so basically what that means is that you look at the block and figure out what sort of building will produce you the best outcome.

Now, if you’ve bought for you, your family home, a block of land that has potential for some townhouses or a duplex then there may be significant gains to be made by developing that site and going and finding another site for your family home.

And for some people that might sound sacrilegious, but what you’ve got to remember is that for most people, their family home represents the bulk of their wealth, okay? So you’ve got to get it paid off by the time you retire. And if you, I’m going to say, stumble across an opportunity to produce a significant chunk of money or, like basically create an investment portfolio in one hit, then why wouldn’t you?

If your emotional attachment to that block prohibits, that’s fine. That’s why I said figure that out first before you go looking at what else is possible with that block. Now Charley Valher requested this topic, I’m sure would have done this exercise, but you never know.

And so how would you know, how do you determine what you can and can’t do with the property in terms of the planning laws? And the first thing I would suggest that you do is actually go to your state’s e-planning portal. That will provide you with information around the planning laws and what you can and can’t do. Unfortunately, some can be quite challenging to navigate. So to the untrained eye,  that might be a bit much to ask.

So the next step is to have a meeting with the town planner and that’s basically a town planner’s job. To navigate the planning laws to help you get the best outcome for your site. That’s something that I’ve done recently and it’s a very useful exercise because they will give you not absolutely the outcome that you can achieve, but they’ll give you a pretty fair idea of what you can and can’t do on the block. Unfortunately, it’s very rare that you would have a block that someone could say to you, “There on the spot. Yes, you can build four townhouses on it or whatever it is that they think that you can do.

Once things go to council that have to be taken into account, they can give you a very fair idea of what is possible for that block. But of course, it will require more due diligence. 

Okay, so that’s it for this topic. So for anyone that is wanting to go through that exercise, I hope these points have been helpful.

For me this week, I have just got back from Adelaide. I did a talk in Adelaide last week and just had a lot of fun because the fringe was on. And so it was absolutely buzzing.  Stephen and I were staying in the city. I loved meeting all the Adelaide renovators at Caroma. And just for those of you who missed out, we will be coming back in October. I’ll let you know when that event is up on the website. But so I’m going to look forward to that.

So this week I’m going to Melbourne, as I mentioned, I’m doing this project in Echuca and I just need to go down and get the contracts organised and get it set in stone. Unfortunately, it’s a reasonably slow process and I’m expecting it to be slower because the building industry is so under the pump at the moment. So I will be very surprised if it goes completely smoothly, but we want to get it started as soon as possible because the sooner it starts, the sooner it finishes.

The other thing that I’m doing is I’m going to Canberra to visit one of our students because she’s got her first project sold. I just really love to see it. I love going to see our students’ work.

Now, if you haven’t already done so, please come over to iTunes and leave us a review. Give us any suggestions that you would like for future episodes and we will be so grateful. We read them all and we are so appreciative of you for making the effort, so thank you.  I hope that you’re having an amazing day and I’ll see you next week.