Chas Adlard, Australian Author

Dirty, Filthy, Lovely Investment

My wife, Chris and the imperfect me entered the house investment market in March 2000. Well, that’s when we made our first purchase after a good six months of painstaking research. Chris did most of the reading – ‘cos I’m the writer – and deserves a certain amount of respect from me for her initiative.
We eventually narrowed ‘our market’ to an area that had primary and high schools, public transport, hospitals, doctors, supermarkets, sporting clubs, hotels, restaurants, etc. in a popular location. The South Australian government built most of the homes in the immediate area some thirty years before and many homes suffered badly from neglect. Although originally tenanted as government housing a lot of homes were slowly sold to the private sector.
Our chosen ‘house market’ was situated within sixteen kilometres of our own residence and we knew the area extremely well. In the past both Chris and I had lived and worked close by and had enjoyed the recreational facilities. Our children had attended local primary and high schools. Oh, yes – we knew the area – and then some.
Without any intention of buying we spent our weekends viewing and viewing and bloody viewing until I got sick of the whole deal. Chris, on the other hand, had the tenacity and dogma that stretched her viewing time to weekday lunches and nights. Yuk!
I stayed home and listened to her reports with a degree of perceived boredom while storing her newly gained knowledge away in a cobwebbed mind. If she found any gems, I’d sneak out for a private visit. By then the real estate agents were finding our presence tedious and certainly without any promise of profit.
So what had we achieved? We’d researched the broader Adelaide market using the daily and weekend newspapers – narrowed our research to our known local area and identified the best return and location for our investment. Chris lives on the internet and lately searches this growing real estate tool on a daily basis. We knew instinctively that the empty unloved home was our best bet so once again narrowed our inevitable path to investment.
As owner builders (see ‘Becoming a Blockie’ by Chas Adlard) we have gained some skills particularly in time management and people pushing. We also are prepared to fight utter filth. That’s it, mate – if you want to do this, you’re going to be a big time grime-fighter.
This article will touch only lightly on the merits of investment and the riches that you may gain. Others with far bigger brains and large bank accounts have already written plenty of good advice on property investment. Their books and the words within show the world a map of their industry. My words are predominantly for South Australians, although the first-time investor in other States and Territories may also find the following information of some help. You can be sure of one thing, Chris and I still have our feet solidly on terra firma. We will, however, show you the process that works for us in the preparation of the investment home for, hopefully, good tenants.
Can anybody become a Real Estate Investor? I think not, just the same as everybody can’t be a fighter pilot or a truck operator or whatever. An investor has to be able to run a budget, set cash flows, set and meet strict time schedules and manage the whole project under a great deal of duress and, in my case, with little sleep. There’s a lot more of course, but I’ll get to that. You will need a tidy mind, if that makes sense. Oh, and if you are an extremely thrifty person you might want to invest elsewhere – it’ll slow you down. Time, mate, is all important…
Your aim is to make a profit at the time of purchase. The mind boggles? Yes, it took me a bit of time to fully understand this concept.
Sure, when and if you sell a property there should be capital gain. However, you can only realise the selling price as determined by the current market. On the other hand, if you do your homework and find a bargain in the right location, you could buy well below the market price. Of course you will allow for renovations, but providing the end result still lies beneath the market price you should realise a profit. How much profit will be determined by your ability to research, appraise and project manage your investment.
Most of us have heard the saying ‘Risk equals return’ but we aren’t really prepared for a large risk so we work at reducing this element while still maximising our return. We, wait for it, respect – with reservations – the lending institutions, for without them we would be living in a tent. Small investors will require some equity and in our case our own home was the subject of such equity. Now, with a few more investment homes to our name, we can be a little more demanding and ask our lender to spread the loan without involving our own home. Returns, during a falling or stalled housing market are reduced but ideally we have found that a return of ten per cent pays the bills providing the rental market has a high occupancy rate. As the rents are raised this return will once again be achievable for investors. Ideally your lending organization should pre-approve your investment loan, as this will give you an edge over many other prospective home seekers. A word of warning - do your homework before making any offer with this readily available loan or you could find yourself in deep mire. In the case of an auction you must stick to the plot and not exceed your planned limit.
As property investment is a long-term investment you will probably choose the option of an ‘interest only’ loan, either fixed or variable, attached to an offset account. Look, you might be lucky and buy at the time of a good housing boom, but don’t count on it. Your aim as a property investor is to make a profit while securing a tax advantage against your new income.
Capital gain will occur and over a ten year period your investment might double in value (or better), but again don’t count on it. Remember, risk = return. Hang in there though, Chris and I have done this for a while now and we are still in it, if you get my drift…
I reiterate, your early research should combine the real estate opportunities on the net with plenty of out and about viewing. At this time you are not buying, so look at everything within your chosen area. Go to auctions and see how they work and hey, I’m talking lots of auctions and lots of open inspections. Remember, if you buy a lemon – then caveat emptor, ‘let the buyer beware’. And:
Don’t let the pre-approved loan mire your judgement – your aim is make a profit at the time of purchase.
‘Once more unto the breach’. The internet enables us to research investment property potential interstate and overseas, but to start with I’d remain in an area reasonably close to your own residence. During your early research and later project development you’ll spend plenty of time travelling between your home and the investment area/property of your choice, so keep the distance minimal.
That old, but ever so true cliché – location, location, location, is important for you as the investor, but to your future tenants the location is paramount. Transport, schools, shopping centres, doctors, restaurants, fast food outlets may start your list but ‘work’ is the tool that pays your rent. Does the local area offer ample employment opportunities? If not, will trains and buses answer your tenants’ logistical needs? No matter whether your tenant is a factory worker or engineer they will need current employment to serve your interest – literally.
We choose to use the intermediary buffer of a Property Manager, between us the landlords and our various tenants. Landlord’s insurance is a must and our policies also include home insurance. The landlord who shuns this option of a property manager may just be akin to the joker in the dock who acts without the guidance of legal counsel.
Real estate property managers do have a fee structure that ranges from 7 per cent (plus GST) to 10 per cent (plus GST) and even higher in some cases. As you add another investment house to your portfolio renegotiate the fee in your favour. Stick with the smaller real estate offices (they can be part of larger parent company) as your interests will be better served.
I mentioned that we entered the investment arena in 2000 but we had in fact, like so many first time investors, let a tenanted house go to sale – albeit 25 years in the past. However, our entry in 2000 was planned with a real purpose.
A word of caution - we choose to renovate our newly purchased rental properties at the time of purchase, a choice that many full time housing investors and accountants would call plain stupid as there is no tax advantage. You can only claim for repairs caused by an exiting or sitting tenant. If you purchase a property that has been previously tenanted then you will need a taxation history for your own accountant. Sketchy? Yeah, very – see an accountant or get advice from the Australian Taxation Office. The latter have a range of simple to read leaflets or go online. Good luck…
Chris just called me a coward. She is so bloody right! Again.
Why the costly renovations? Well not all are that expensive but we do want our tenants to live in a house that Chris and I could also call home. To date it’s pretty much paid off as our tenants, for the most part, have appreciated our efforts. We also run an incentive scheme for long-term tenants. For instance we might add a remote controller to a roller door after 12 months if the tenants maintain the home in good order. This doesn’t mean we’re a soft touch and we do increase rent annually.
Tip: this is essential no matter how nice your tenants turn out to be. You must follow market trends as it’s so easy to fall behind. It would be less fair to suddenly increase rent by $60.00 a week after 5 years of no rise. Plus the Residential Tenancy Tribunal would probably deem this unfair. Oh, yeah – the Residential Tenancy Act binds you, but providing you do the right thing the same Act will serve you too. When setting the rent be guided by your rental manager and don’t get too greedy.
The over-charging money-grubbing landlords have tarnished our industry. Their properties are often run down and on going maintenance is poor and in some cases non-existent. I can only hope that this unethical behaviour will diminish in the coming years.
I hope you’re paying attention, as this is important. I mentioned that a 10 per cent return will see most, if not all, of your expenses covered. However in the present market this is going to be damned hard to achieve. For this exercise we’ll say a return of 6.4 per cent might be on the cards after a great deal of research and canny dealing. So how do you determine the amount of return that you can expect from your new investment home?
(52 x weekly rent) x 100        =          Rental Yield
Purchase Price of Property
Example: You’ve found a potential property on the market for $235,000 that you hope to rent for $290 per week
52 x $290.00 x 100 (%)
$235,000                                 = 6.4% Rental Yield
Remember: this is a long term investment and should be weighed accordingly.
Applying the theory and testing the practical
The house was set in established gardens with a huge frangipani and carefully pruned fruit trees. Lemons on one tree held massive fruit that were delicious. It had a carport with roller door, a back verandah and a garage. The carpet inside the home was in dire need of a shampoo but still had plenty of wear and the rest – well, needed a lot of TLC. AND the house came with a ready-made ghost. AND, as I was to find out, a bloody termite nest of gigantic proportions that just would not go away.
We spent the first few days stripping wallpaper before the carpet beneath my feet started to swallow me. After a quick lifting of the carpet and underlay I found the lounge flooring to be almost invisible and in its stead the tell tale signs of termite damage. I phoned a local pest exterminator for an inspection that resulted in an expensive quote, but the job had to be done. The neighbours then informed me that the previous occupant, now deceased (but not necessarily departed), had faced the same problem the year before and had also paid for treatment. I increased our own expenditure by insisting on 300mm centres (the distance, in this case, between drilled holes to facilitate the termite treatment). In the back of my mind was valuable information given to me by an entomologist many years before. Termites apparently had no respect for the extended warranty given by many pest controllers. In the eminent scientist’s opinion the brake lights on the pest controller’s car were a far better way to determine the warranty period. Once the vehicle had left your street and the brake lights were no longer visible then the warranty lost most of its short-lived credibility. There may exist a fair portion of the old tongue-in-cheek in his statement but when you read the next paragraph you may agree with the entomologist.
Fourteen months later the termites took out a wall in the laundry. This I repaired and later that year we decided to sell when the house, thanks to a ‘bull market’, had doubled in value. With regard for South Australian law (at that period in time the owners of a residential home could not place the property on the market if termites had entered the roof space) I inspected the roof area and surrounds and found no termites. We instructed our selling agent to move the house at a reasonable price and ten days later the house was sold. I had also told our agent to advise the new owner to arrange for a building inspection. The new owner, a first time investor, did arrange for an inspection but failed to note the engineer’s (Building Inspector) report that clearly stated that the document did not cover termites. In hindsight, I’m sure the new owner would have been wiser to choose his own independent building inspector and a reputable pest-controller. He had instead accepted the selling agents choice of engineer.
I chose to lead with this story of termites so that you may consider these little devils while still at the ‘shall we buy it’ stage. A year later and the new owner contacted me – you guessed right, the termites were back. Maybe they didn’t even leave! I gave him the information he wanted in relation to the pest controller and wished him luck. He phoned me later, none of the work was covered under warranty. Incidentally, the same company had carried out the termite treatment on this property for three different owners.
I’m sure that most pest controllers are honourable and have the expertise to treat and contain these prehistoric insects but in cases of extreme infestation their success rate is diminished by the task itself. Certainly the new mesh barriers are a step in the right direction. Friends in Virginia, U.S.A. tell us that they repair their wooden termite damaged homes on a regular basis without batting an eyelid. Yeah, I bet.
So do you panic and sell at the first sign of termites, probably not. Many older homes in my home state of South Australia will experience some termite visitation and survive the experience. Good housekeeping, keeping damp courses clear of garden beds and paths, good plumbing and stormwater management should deter the blighters to a degree.
The ghost went with the house, no less than three tenants reported the existence of their sub-tenant and while not gaining a visual identification were all adamant that ‘bedroom 2’ held the answer. Me? I don’t believe in ghosts, but in the words of a great orator and writer: ‘I be greatly affeared of them.’
Now to your first viewing at an open inspection, unless you prefer to view it privately, then make an appointment. With the older homes of our choice we start at the street. I look firstly at the street footpaths for damage. Tree roots obviously play a part in wrecking paths but soil movement alone can create havoc and that forewarns me as I approach the property to be on guard. I carry a level, a torch, and a screwdriver and in the back of my ute, a ladder. The level is a bit hard to hide at an open inspection and tends to turn smiling real estate agents into grumps. Once more from the road I inspect the driveway and then raise my sight to the roof ridging, roof tiles, gutters and downpipes. If a house has moved off its foundations the roof may show signs of further stress, a bowed roofline or tiles that have wavy lines. Ridge capping and tiles that are damaged will need attention but for this first inspection the ladder stays in the ute. Water damage is the contributing factor in many cases, either through blocked gutters and downpipes or the failure to install storm water pipes. Failure to remove water from the house footings over a period of time nearly always attributes to costly damage. Fascia boards are inspected for damage or rot as I approach the dwelling. I check the brickwork for cracks and ensure the window frames have not begun to part-company with the bricks or distort. By standing at the corners of the building one soon develops an eye to detect a drop in bricks and mortar lines. But remember, I have the level. Many of the houses in our area show some sign of cracking and distortion. Newton’s third law, reaction to action, plays a part and generally a bad crack results in similar damage to opposing walls etc. Running the level across the stretcher pattern of the bricks (horizontal) and checking verticals at the building’s corners will point out the severity of footing damage.
Old earthenware pipes have a tendency to crack underneath the home and undetected water seepage can cause alarming foundation damage. If we move inside the home we still follow the same theme. Have a look at the bathroom shower outlet. If the tiles and grout are cracked around this drain hole the damage may come from underneath the house and may involve expensive repair. As the result of ground movement the pipe below is driven upwards with enough force to crack the area around the drain.
Check doors and cupboards throughout the home to ensure they close and open easily. If at any time you have the feeling that the floor is not level, trust your instinct and bring the level into play. Check ceilings, walls and windows for signs of stress and general damage. Remember to keep our friends the termites in mind and observe any water damage in all wet areas.
Does the residence need: painting – inside/outside, built-ins, carpets, curtains, light fittings, a new oven, tiling, new flyscreens/doors etc. and outside - does the home lack a verandah, carport, roller-door, a garage and a garden?
Do you need the expertise of an engineer and/or pest controller? Is the roof space insulated, is the heating/cooling adequate and does it work? Does the existing oven work? Does the hot water service (HWS) need replacing? How old is it?
Now before you make a ridiculous offer be careful not to mar your CASH contract with a heap of subject to this, subject to that. In South Australia we have a system that gives the purchaser two working days in which to ‘cool off’ on the deal. This allows time for panic attacks and ‘Oh, what have we done, dear?’ The two-day system also allows the purchaser time to organise an inspection of the premises and more often than not this can be arranged without going to paper. The vendor is very unlikely to say no with the contract subject to the ‘cooling off’ period. This is when my ladder allows me to climb on to the roof and later inspect the roof space via the internal access.
In other parts of Australia you may well have to apply conditions to your cash contract but try to use the ‘keep it simple stupid’ (KISS) factor. You may arrange at the end of an open inspection to visit the home later and bring your ladder or engineer into play. I reiterate, if you think an engineer’s report is necessary then choose your own engineer and do not, as many do, rely on the selling agent’s choice. A written report is more expensive but is probably a move in the right direction. Don’t forget to involve a termite inspection from a reputable company.
Underpinning is also an option where extreme footing damage exists and at the time of writing attracts a cost of approximately $1600.00 per pin. Added to this cost is cutting and removal of footpaths, debris removal and carpentry work to level any wooden floors etc. The house is literally jacked up and put back in place, an act that causes the home to receive reverse stresses. It is best to allow the house to settle for ten or so months before redecorating. Trying to keep the budget on track might become a tad difficult with this type of radical reconstruction, so be careful.
So let’s assume you have decided to make an offer. I simply jot a figure on the back of a business card and leave it with the selling agent. Most times the agent will phone later after he/she has finished their ‘opens’. Better agents will generally write a contract before hitting their vendor with the ‘good?’ news.
Wheeling and dealing requires a cold heart? Oh, it does – but they don’t have to accept your offer – so please make your first offer cheeky and your second offer, if required, in a similar vein. I once made an offer that saw my embarrassed wife running to the car to hide and the sales agent positively guffawing with incredibility. Six hours later the vendors accepted my offer.
The agent phoned me with his mouth full. Crow pie, perhaps?
We’ll need to evaluate each potential investment property so I’ve prepared a -
Checklist (and yes, I might be once again – reiterating)
Location, location, location - history:
Can the land be sub-divided?
Very hard to find as investors snap these up and often are prepared to pay over the top. These investors are often the knock down and re-build types who love corner blocks, although hammerhead blocks are also becoming the norm. The latter refer to the block that is accessed to the side of the existing dwelling and the new home built at the rear. Contact your council for guidelines, but as a rule most subdividable blocks exceed 770 square metres.
Can the house be changed to suit a larger family i.e. add a bedroom?
This is a real plus as a fourth (or more) bedroom attracts more rent. If you’re unsure about load-bearing walls and the removal thereof, check with a builder. If you’ve already booked a building inspection, check with the engineer while on site.
What cosmetic changes can be made to modernise the house?
Rendering unsightly brickwork, painting a roof, building a pergola, erecting a carport or verandah may add enormously to your investment and make the house a better home for your tenants. We find that a roller door is a cheap and effective way to enhance a home. While expensive when new they are extremely cheap as a second hand item. A coat of paint, new kitchen tops and cupboard doors brighten up the daggiest house. New floor coverings and curtains will complete the picture. We’ll look at this again…
First Inspection:
Roof line, is it straight, are the tiles out of alignment (wavy)?
Check walls for damage externally and internally (close and open all doors and windows)
Look along brick lines. Does the house need underpinning?
Has the house rolled off the footings?
Check the shower cubicle - has the drain moved?
Check for water damage around home - where does the stormwater go?
Look for termite damage
What trees need removing?
What is the state of the driveway and paths - are they cracked?
What is the state of the power supply?
What utilities are supplied i.e. Electricity, Gas (Natural or LPG), Telephone (landline) and Water
Do any encumbrances exist and, if so, what are the consequences?
Check the roof space for vermin, rubbish and insulation
Check all fences for damage
Where are local shops, schools and transport etc?
·      Avoid places with swimming pools/spas - you don’t need this headache for a rental property.
Sign contract subject to written engineer and termite report (unless you’re in SA with 2 days cooling-off and can arrange an inspection during this time)
Insure house and contents immediately contract is signed (My Insurance Broker is embedded in my mobile, well – you know what I mean) If you cool-off cancel the cover
Read water, gas and electricity metres and take a photo of each metre. Arrange for the connection of these services as required.
Maintain a diary/log of all maintenance, labour, installations and costs
Record all subcontractor information, names addresses, phone numbers, ABN, tax exemptions, liability insurance and Building Licence No.
Does the home need a new kitchen, bathroom etc? Or is there other work that requires a quote on site i.e. new carpets? Does the house require heating/cooling?
Before signing the contract ensure that the vendor will grant access for the above.
Find alternative ways to beat quotes and save $$$$.
You’ve signed the contract:
Important - order all materials ASAP as you’ll need them available after settlement
For instance: should a new roller door be installed? Order now.
Phone any trades people that you will need and book
Permission to work on house prior to settlement, remember few Financial Institutions allow entry… however, we’ve been given access on numerable occasions by drawing up a ‘Licence to Occupy’. This is obviously only granted on vacant homes, so ask the selling agent about this before signing the contract. If you can get in and start renovations it’ll save you money. Mate, the earlier you can get tenants to pay rent the better.
Are all utilities in working order? If not book an electrician, gas fitter etc
Mini skip to site
Remove all debris and rubbish
Remove old air conditioning units etc
Remove all curtains and blinds and discard or keep as needed
If floor coverings are in bad condition then remove (you should have already arranged for a measure and quote)
Don’t forget to order new curtains and blinds as needed
Clear garden and prepare for landscaping
Remove all rubbish
Remove old combustion heaters (we tend to remove all wood fires, but the choice is yours)
Check those broken roof tiles and ridging damage – replace and fix
Check for bird damage and entry to roof space (broken tiles etc)
Check roof space via internal entry points
Check that all TV aerials work
Check air conditioning units and service as required
Clean all gutters and test downpipes
Check if gutters need replacing and order same
Check and clear all garages and sheds
Check that all gates, where fitted, work
Check roller doors where fitted
Remove mini skip
Landscape garden and provide water saving devices
Install rainwater tank if needed
Plant native shrubs or tough South African varieties only (checking local area will give you an idea what will grow without too much care)
Important: install hardwired smoke detector/s. Even when present the unit should be replaced every ten years. Hey, everything wears out…
If HWS is over nine years old, replace. We do this as a matter of course, but again it’s up to you
Turn off water inlet valve and service all plumbing outlets and reseat etc (remove shower rose first as the little bits of brass love to hide)
Remove all light fittings, overhead fans and exhaust fans (clean and store)
Check that windows are operable and fix where needed, replace glass if broken
Clean windows inside and out
Clean all surfaces and cupboards
Check cupboard hinges and check tracks where applicable on wardrobes
What curtain rails need replacing? Purchase as required
Change locks (cut extra keys) and fix where necessary. Purchase window locks and fit if needed
Fix damage to all walls and ceilings, doors and woodwork
Prepare for paintwork and walls for decorating, paint house inside and out
Have floor coverings laid, fit curtain rails and rehang new/cleaned curtains and blinds
Inspect property and write an inventory (for your record and insurance purposes)
Get three real estate agents to evaluate the property before renting. Did you make a profit?
If threatened with financial ruin, sell the house. We’ve always thought that selling for a price $10,000 under market is a far better option than bankruptcy. So far though, so good… Was that a black cat crossing the path?
What next:
Late last year we bought another investment home and unlike our previous investments I decided to extend our normal budget. This, I hope, will be a strategy that I (Chris is forever vigilant) don’t regret – it is, however, a good example of that ‘long term’ investment. In five years time, all being well, we’ll revisit and compare market prices and evaluate our profit or loss.
Here we go - the property lies north of Adelaide, South Australia. Chris had done her homework as usual and bullied me into submission. Grudgingly I agreed to a drive-by evaluation. Remember we know the area and as a location, there’s few better. All the boxes are ticked: shopping centres, schools, transport, medical centres, sports, entertainment and most importantly, employment opportunities.
Chris and I use ‘Property Assist’ and for a small fee you can obtain a print out that provides amazing details. If you’re a South Australian search your own property – you’ll be surprised. Sufficient to say, you’ll know what its worth and a lot more besides…
The house was vacant and hidden behind a jungle of vegetation and after a cursory look, I was interested. If I have one redeeming factor it is the ability to see the ‘finished picture’. I knew what had to be done and knew the outcome – it was do-able…
We attended the next open inspection and swapped words with the selling agent who is known to us. He gave nothing away and I, as usual, was arrogant and loud. Chris played the all-so-nice prospective buyer while I started an in depth evaluation.
Empty, run down and damaged. Firstly, by termites – but they had long gone, leaving a wall and door frame in sad repair. This house was built on piers and not on the more familiar concrete slab and over its thirty-year lifetime the steel structure had become tired, probably corroded. As a result the house bounced unpredictably, especially when I transferred my ample weight into a leaping menace. In truth I probably managed a two-centimetre jump. No floor boards here, just huge sheets of structure board. The only place the termites could attack were the inside walls (studwork and frames), and they had. I knew where to look, as it’s often the same – built-ons. In this case, according to council searches, the built-on was quite legal but nevertheless the damage was extensive. Was I worried? No, the repair was relatively simple.
The rest of the damage was caused, I assumed, by the recent occupiers who, by deduction, had lost legal entitlement to the home. Mortgagee forfeiture is always sad and for a while Chris and I dismissed the idea of making profit from another’s misery. Then, after considering that someone has to buy it, we got over it…
So many of these homes have been vandalised, not by unknown intruders but, stupidly, by the occupiers themselves. This house was no exception. The gas HWS had been removed – including the copper pipes - and the internal walls were riddled with fist-sized holes. Light fittings and flyscreens had been taken and the whole house yearned for TLC.
Fresh paint throughout would brighten it up and even a splash or two outside wouldn’t hurt.
The kitchen needed new bench-tops, a new stove and exhaust fan. The bathroom ceiling was in poor nick and tiles in the shower had fallen in a heap. Carpets and curtains needed replacing and the built-in robe in Bed 1 needed attention. There was no smoke alarm and the evaporative air-conditioning unit and ducting needed replacing.
This sounds bad? Nah. Chris had spotted the redeeming factor, the old rumpus room would make an extremely large fourth bedroom. It did, however, require a new ceiling and light fittings. No big deal.
The garden was not a problem. I operate a Bobcat and my son owns one, he’s a great guy… I would need a couple of roller doors, mainly for security and street appeal.
After the ‘open’ had finished we waited, but not for long. There’s always that neighbour who is full of wisdom, not bad guys by any means – just informative. We soon learned that the house was indeed a mortgagee sale and although once proudly kept, had fallen into disrepair.
We had the opportunity to introduce ourselves to more neighbours, had a chat and left. With a few short conversations we’d established our own neighbourhood watch, should we need it.
The property was set for auction a couple weeks down the track so Chris and I had plenty of time to think. Housing prices were holding steady in S.A. during September 2009 and I was sceptical about our chances. However on the 29th September I attended the auction.
I’m used to the process and used to the local crowd of hangers on. Beside the numerous real estate agents and neighbours I couldn’t see any opposition, but I’d been wrong before. South Australia had new auction laws that were fair and most equitable and better still, were backed up by government auditing. Endless paperwork of course, but that wasn’t my problem.
The auction started on time and some pseudo punter opened the bid at $120k. When the auctioneer started to circle and re-circle I knew I was in the box seat. I waited until the boredom started to set in and then made a bid of $175k.
Proceedings stopped at the second fall of the hammer and the auctioneer approached me. He’d converse with the vendor momentarily and be back. On his return the vendor had given a counter offer of $180k that I accepted readily.
The auctioneer was about to restart the proceedings when he was called to the phone. The gloves were off now and the lending institution identified and now they wanted a higher offer. This can happen, as the lending institution must try to achieve a reasonable price in the case of a mortgagee sale and their reserve was $200k.
I didn’t budge, I’d come to the auction with $195k maximum in mind and now I had the edge. After more banter the auctioneer decided to bid the auction to a close. My bid of $180k would do the trick. So off we went again – I made my offer – and at the second fall, the hammer paused. Auction rules still applied but we’d go to the table and negotiate.
Two hours later I bought the property for $185k, paid the deposit of $18,500, rang my Insurance Broker and walked away. Oh, incidentally there’s no ‘cooling off’ period under auction rules, but a deal’s a deal and I don’t renege.
I sucked on a couple of lemons until the smile left my face. I wasn’t to know that the sourness would soon return. Settlement was to take place on Friday 30th October, so I had four weeks to wait but not to be idle. I had work to do.
Thursday 1/10/09 – 8.00-11.30 am
Booked electrician to be on site: 10.45 am 2/11/09
Booked gas fitter/plumber to be on site: 1.15 pm 2/11/09
Ordered gyprock (ceiling cladding) and installers for: 0830 am 4/11/09
Ordered the removal/replacement of evaporative air-conditioning (new) 0730 am 9/11/09
Booked painter/decorators for 0800am 10/11/09
Ordered new carpet/underlay for 0800 am 19/11/09
Arranged for measure and quote for 2 new roller doors and surrounds
Ordered a 6m mini-skip for Friday 30th October (late afternoon)
As you can see, I get into it. OK, I use the same trades people and buy carpet from the same source but I turn most houses around within 2-3 weeks. I’d allowed 3 weeks for this one and a huge budget of $30,000. This budget was three times the norm, but I had nicked the property and knew a quick sale of the renovated house would return my investment plus $15k. I was prepared for a blow out of 10% for unforeseeable expenses but no more.
During the following weeks I mulled over the many jobs that were to be done and prioritised. I keep each investment house as a separate entity and run a spreadsheet accordingly. I also carry a folder in the ute that contains all current information on the job at hand. You’ll need to keep a mileage log that records trips to and from your place of residence plus any trips to hardware stores etc. in relation to the rental property.
Chris has the job of ‘curtain coordinator’ and during this waiting period had already found a house full of inexpensive curtains at a local store. We use neutral tones throughout and our preferred carpet is industrial strength nylon. The underlay is top notch and the result is pleasing.
We use the same slightly boring paint for internal walls in all our houses. Again the colour is neutral and we can reuse leftover paint for additional houses or repaints.
THIS IS VERY IMPORTANT: You are NOT going to live in this house so don’t treat it like your own home. Think with your HEAD and NOT your HEART.
Got it? Good. You will though, trust me…
I took a trip to the local hardware where I purchased a huge box full of electrical sockets and switches, plumbing products, light fittings, 2 exhaust fans, three ceiling fans, door-stops, a post box, a rotary washing line, a TV aerial, assorted lengths of wood and an internal door. My local electrical store gave me a good deal on a shop-soiled chef’s stove with gas cook-top and electric oven (the ‘wow’ factor). Later I purchased a new H.W.S. The last two items would not be installed until the house renovations are finished – they tend to walk.
I ordered flyscreens for the windows and 3 flyscreen security doors (the latter to be built on site) and after a measure and quote ordered 2 roller doors.
I decided to contact and hire a local builder to fix the termite damaged wall and door frame, repair the broken tiles, install new melamine doors on the BIR (Bed 1) and install new kitchen bench-tops (already on order).
I was on track at this stage and my 3-week schedule looked OK. I also visited the local sand and metal dealer to price the materials I required for the garden. Oh, and I also spoke very politely to my son who in turn, promised me the use of his Bobcat. On ‘im…
Closer to the settlement day I made enquiries about the government incentive in regard to ceiling insulation. I managed to place an order a day before the government grant changed from $1600 to $1200, thanks to Chris and her computer.
Three days before settlement I took a bank cheque for the balance owed and deposited it in my Land Broker’s account.
Chris arranged to take a few days leave at settlement to help me with the initial cleanup and the day before settlement we were ready for the first assault. Ah, remember those sour lemons.
Friday 30th October. That Bank lost or mislaid the title, settlement won’t occur. What? Late that afternoon the mini skip arrives on the driveway of the new property.
No cleaning and clearing this weekend – 2.5 days bloody wasted.
Monday 2nd November. Settlement to occur in PM. Later, still no title, promises of settlement tomorrow.
Now we’re in trouble, not only has Chris wasted her leave but I’ve also got to juggle my subcontractors to keep them. There’s no problem with the electrician or gas fitter and I move them to another day. I manage to move the ceiling fixers and the painters back a day and hope for the best. Now, we’ve paid our cash, no worries there – so what the hell do these bankers think they’re doing? I’m angry now. I ask for and am denied a Licence to Occupy but am again assured that the title is en-route from Sydney and a Tuesday settlement will happen.
Tuesday 3rd November. Settlement did not occur and we’re spitting chips.
Remember that’s a lot of cash sitting around and costing us interest. We’re losing valuable (rental) time too and what’s worse the poor buggers who are just about to lose their house are still paying unneeded interest on their outstanding loan. This situation is absolutely disgusting. 4.5 days wasted
Wednesday 4th November. Yippee, settlement occurred at midday. We’ve lost five days…
All systems go: with Chris to catch and carry I remove the old rumpus room (now Bed 1) ceiling that is bowed and distorted. It’s a dirty job and I’m allergic to the old insulation, even with a mask. I whinge and bitch, but the job gets done ready for the ceiling fixers who arrive first thing in the morning. Late in the evening we’ve removed all the carpets and underlay, the old curtains and the debris from the ceiling. We can’t work after dark as the electrician has to check the wiring first and I’ve already annihilated some light fittings and wiring. I had the electricity connected to the house but I’ve left the main power switch off.
I’d better give you a floor plan:

Floorplan image
House image
House exterior image
It is - a dirty, filthy, lovely investment – trust me!
The following day I am on site early with my trusty camera at hand. Tip: take a number of photos at the beginning, during and at the end of the re-fit. The ceiling fixers arrive and get to work.
I transfer the outside rubbish to the mini skip. I’m out of order now but the ceiling removal was a priority and as the skip is nearly full, I complete the job. The 6-metre skip is removed and another one takes its place. You might want to order 2 smaller ones if your site is restricted. Shop around though as the price varies up to a $100 per hire.
OK, I’m starting again – as I do generally, from the roof down. The ladder is in place and secured to the carport. At my age falling off a ladder or worse isn’t very engaging. I know the tiles are chipped but they’ll do and both ridging and capping is in reasonable order so I start on the gutters. I’ve got one those power blowers so the job takes little time. Good, no complaining neighbours. I run water through the down pipes and find one blocked.
When you check the roof tiles give the outside and gully tiles a close examination. This is where the pesky birds build their nests. You can remove an amazing amount of debris as a result of their residency. If left to accumulate you will have resident rats and mice and a fire risk.
With the downpipe running clear I move my ladder inside and enter the roof space via the hatch. I remove a few empty cardboard boxes and that’s that. I’m relieved, as in the past I’ve spent half a day clearing these areas of rubbish, which were in essence a veritable fire hazard.
Chris arrives at the house before noon having extended her leave. She begins cleaning the kitchen. I remove the old oven and dump it without ceremony into the skip. A wall exhaust fan soon follows. I find more old carpet in the garage and once again the bin begins to fill.
I remove the old ceiling fans and a couple of cracked light fittings. In the late afternoon I do a deal with a neighbour, a carton of beer changes hands, and he cuts the weeds. I remove the broken rotary washing line and it joins the oven.
The next day I sweep then vacuum the floors. Chris has returned to work. The bloke next door has done a good job so I employ the blower and soon the garage and the yard is tidy.
Tip: keep 2 cartons of beer at hand, it works wonders. I have a 40-litre Engel in the ute and the beer is always cold.
The windows are next and light enters the house. They were bloody dirty and needed a couple of goes inside and out. Oh, the worn outside blind found the skip too.
Saturday sees the electrician on site. He’s got a lot of work to do and after a few hours – even more. This phenomenon blows the budget asunder. Most of the wiring is in poor order and many power sockets are connected with light cable – not good. The power-board and safety switch need replacing and I just sigh and nod defeat. Poop happens.
The gas fitter turns up and prepares the copper work for the H.W.S. He too will be on site often. Tip: discreetly note the times they arrive and depart. My blokes are pretty good, but I still keep tabs and if they seem preoccupied with their mobiles I give a subtle hint - ‘Turn the bloody thing off.’ I’m known for my subtle hints. I also dock their time out.
Chris is in the house, there’s plenty to do. I pick up the baby Bobcat from my son and start work. The weeds in this garden are most unsavoury and many are on the noxious list. As the skip is already two-thirds full I have to spend extra time removing as much dirt as possible. I know this will mean lots of weed poisoning in the coming months.
Aren’t we lucky? Adelaide enters a heatwave of mammoth proportions, and by the end, records are to be broken.
The original driveway was formed with crushed marble so I decided to add 20mm blue metal and form the garden beds with pine bark. It’s really all about ‘smoke and mirrors’, simply an illusion. I’ve done a fair bit of brick paving and landscaping over the years and learned a few tricks.
By the end of the weekend the garden transformation is complete, the neighbours have given their approval and the Bobcat is off site. The skip though, is a tad full.
During this last week I have kept in contact with my subbies, reassuring them that everything is in full flow. As a result the air-conditioning guys arrive promptly on Monday morning. By 1pm the old air-conditioning unit, ducts and outlets are replaced with a new system. With temperatures in the 40’s I’m well pleased, my painters are going to be spoilt.
The painters arrive on time the following morning and just behind them come the insulation guys who within three hours have finished their work. The new kitchen bench-tops arrive after lunch and are quickly installed. We’re making up lost time now and have recovered 4 of the 5 days lost. The beer tastes particularly good that night and Chris is ecstatic with our results. I’m pretty pleased but hyped up as usual. Sleep eludes me. Again.
During the next few days the painters are busy. The outside woodwork and gutters will need painting and the fencing and garage are to receive a light coat. I install the new washing line and post-box, Chris scrapes old paint off the windows and later I get to give ‘em another clean.
A chippie arrives on site and we explore the termite damage. There’s no wood left so I head off to Bunnings and buy a whole heap of treated-pine. A couple of days later and the chippie is finished and gone.
Exhaust fans and ceiling fans are installed and I follow up with the light fittings. The new melamine doors are fitted to the BIR and the tiles are fixed. The mini-skip has finally been picked up and the house is looking good. I reseat all taps on the property and fix soft-touch washers. There’s a door to replace and many more odd jobs that fill the day.
Miraculously all the painting is finished just hours before the carpet arrives. By that evening I have fitted the new curtain rails and Chris has hung the new drapes. By the end of the next day the gas fitter has the oven and H.W.S in place and working. The insect screens are fitted to the windows, and just in time the roller doors arrive. I have to get parts but the roller door installer gets the job done.
We’re waiting on the security doors, but who cares – job done.

 Old kitchen image  New kitchen image

Renovated house image

‘Smoke and Mirrors’
By widening the driveway and adding two-roller doors and a bit of paint to the house the effect is stunning. The house looks far larger and a new pathway leads to the front door, ready to welcome our new tenants.
 3 weeks before…
Let’s have a look at the costing:
Purchase price:                                                                                 $ 185,000.00
Settlement costs:                                                                               $ 8,591.27
Landlord’s insurance                                                                        $ 510.40
Sub-total                                                                                           $ 194,101.67
Electrical goods/labour                                                                    $ 3,041.66
Gas fitter – labour                                                                             $ 890.00
Air-conditioning                                                                               $ 3,860.00
Oven                                                                                                 $ 1,659.00
H.W.S.                                                                                             $ 835.00
Carpet/curtains                                                                                  $ 3,960.33
Hardware                                                                                          $ 1,599.65
Ceiling                                                                                              $ 1,660.00
Landscaping                                                                                     $ 1,284.00
Builder                                                                                              $ 2,629.12
Decorating                                                                                        $ 6,100.00
Roller doors                                                                                      $ 2,596.00
Screen Doors                                                                                    $ 900.00
Mini Skips                                                                                        $ 585.00
Total                                                                                                 $ 225,701.45
Renovations total cost: $ 31,599.78
Note: Electrical/labour came in at twice the estimated cost. (I haven’t allowed for extra bank interest on our loan due to the 5-day delay with settlement, but I should)
Are we happy? Yes. We had the house valued by real estate agents for a realistic quick sale price that came in at $ 245,000.
NB: The 4-bedroom house next door, not fully renovated, was at that time on the market for $ 269,500.
As a long-term investment this property is sound. Maintenance should be minimal over the next ten years. The house is now rented for $ 275 per week (many similar houses in this area are rented at $ 290 plus), but where does that leave our return?
52 x $ 275 x 100
$ 185,000                                                                                         = 7.7 return
Nearly 8.0% Rental Yield – not bad, but let’s involve all our costs and I’ll round the cents…
 52 x $ 275 x 100
$ 225, 702                                                                                        = 6.3 return
Although each rental property is and should be judged as a separate entity our overall property return is, well – better.
I wish any new investor the best of luck, but please remember ‘risk = return’.

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