Team Spirit in Real Estate Renovations

Written by Matthew Liddy for the API Magazine – January 2007 edition. Full-time investors in real estate Paul and Cindy Henderson have teamed up with like-minded investors on two recent projects.

Paul and Cindy Henderson don’t need any help to complete profitable renovations in real estate. They’ve been focused on building their wealth through property real estate investments for about three years, and have spent more than two of those years as a full-time renovation team. However, two of their recent real estate renovation projets have seen them teaming up with other investors to complete two very different projects – a duplex renovation and a home makeover aimed at raising $42,000 for charity.

In the case of the duplex renovation, Perth locals Paul and Cindy joke that it’s been one of the easiest makeover real estate projects they’ve undertaken – since their business partners did all of the work. That might now sound fair – but the Hendersons did put up the omney, handle all the payments and complete the settlements on purchase and sale.

“Our real estate partners had the time but not the money,” says cindy. “We had the money but not the time,. So it was a great real estate project which worked out extremely well for both of us – we couldn’t have been happier with the outcome.” Paul and Cindy financed the renovation using a loan with an 80 per cent loan to value ratio (LVR), with the 20 per cent deposit plus stamp duty costs coming from a line of credit they already set up.

These real estate renovations for the home masters generally work on their own but admit this particular partnership worked out very well. “We liked the idea of walking away with almost $70,000, for turning up for half an hour at the start and half an hour at the end,” Paul laughts.

That, of course, is understating the Henderson’s involvement in the real estate project somewhat, as they kept a close eye on the most aspects of the deal. Through a local real estate agent, the Hendersons’ business partner identified a duplex at Bateman in perth as a potential real estate target for the renovate and sell strategy they had in mind.

“We looked at the statistics on what was selling down there and similar duplex pairs – in fact, ours was better we felt – were going for $300,000 each, back when we were being asked to pay $440,000 for the pair,” Cindy says. “So we could see where good dollars to be had, even though we did need to spend some money on the renovation.”

Paul says upmarket Bateman real estate is an attractive area for real estate investment, partly due to its easy access to both Fremantle and Perth, but also due to the strong reputation of a local school. “It’s zoned for what is in effect the high school with the best record in all of Australia for passing out the youngsters (in terms of) scholarships marks and so on,” he says.

Conditions Attached

The Hendersons discovered that the real estate vendors had had the same plans for the property home as they did – strata title the two units, renovate and sell. However, changed circumstances meant they were now looking to sell them as a pair. The real estate home owners already had conditional approval for separate titles and just had to complete some building works – such as raising the dividing wall up through the roof space – in order for it to go through.

The Hendersons and their real estate business partners were able to negotiate a contract whereby they paid the full asking price for the home units but the owners completed the process of moving the property homes onto two separate titles before the purchase. In addition, they arranged to have access to the duplex during the settlement period.

This saved them about $10,000 on the strata title costs and gave them the benefits of a long settlement period during which they could begin the renovation, saving thousands of dollars in holding costs for the real estate property homes.

“You do take a risk when you do that because if a deal falls through and you’ve spend money on renovations, you have to walk away, “cindy says. “It was a risk for us but we couldn’t really see anything going wrong. We knew that we’d get finance and that things would proceed on our side.” The risk paid off – the home vendors completed the division of titles during what turned out to be a smooth three month settlement.

Paul and Cindy say that while they were pretty much hands off during the settlement renovation process, the makeover did fit in with their general strategy, meaning it didn’t involve any structural changes to the homes.

“We’ve seen friends of ours get involved with that sort of thing and year laters they’re still trying to put the walls back up,” Paul explains. For the duplex, the real estate renovation included remodeling the bathroom, kitchen and laundry, rending the exterior, new plubming, new electrics, installing air-conditioning, and some landscaping.

Because Bateman is an upmarket real estate market area, the Hendersons and their business partners opted for a high-class finish targeting professionals. “We decided to put granite beach tops and things like that in, whereas if it was a lower socio-economic group, we wouldn’t do that,” Paul says.

Blowing the real estate budget

Going into the real estate purchase, the new partners drafted an agreement setting out the terms of the deal. Paul and Cindy say they opted not to get legal advice on the document but did run it past their property mentor.

They also drew up a more comprehensive budget than they would have if going it alone. “We did a budget, which got blown,” Cindy laughs. “We do up a general budget when we’re doing a reno anyway just to make sure you’re not going to pay too much for the rela estate property home but we probably did this one more detailed to ensure the profit was there before we finished the offer.”

Those budget over-runs, Cindy says, were the most disappointing aspect of the real estate project. “We ended up paying something like $8000 just to do up the front yard and that was the removing trees, clearing the land, putting grass down and a small retaining wall,” she says. “But thought was too much. We probably could have done better there.”

Paul adds, “One of the major errors that I feel we made was that we agreed to look after the finances and pay the bills and tradies and so on but because (our home real estate partners) were doing the work really without our intervention – they were simply ordering the trades and passing the bills our way. “With the benefits of hindsight, if we’d had a bit more involvement, there’s no way in this world we would ever agreed to spend $8000 on a front garden.”

Despite the expense, Cindy and Paul were ecstatic with the outcome of the real estate renovation project – both in terms of the final product and the financial reward. After a $60,000 spend on renovating the real estate home property, the units sold for $335,000 and $332,000. The Hendersons saved money by welling without an agent in real estate. Both units sold within a single weekend, thanks to Perth’s hot real estate market and some clever tactical thinking.

“We looked for some agents’ adverts ont eh internet and we found that there was an auction just down the road from our property real estate that was going on the Saturday after we were ready to sell,” Cindy says. “We waited the extra week and we put our open house in to overlap the time the auction was going to happen.

They then set up their signs so that anyone going to the real estate auction would know about their open house. “I think we got about 75 people through and about half of those were from the real estate auction, so that worked quite well for us,” Cindy says.

The decision to go upmarket real estate paid off, as both units sold to professional couples. Paul and Cindy split the $134,000 gross profit with their business partners 50:50.