100% cash on cash 3 weeks

Hi all,

I would like input from anyone that has done similar or just thoughts regarding risk etc.

I have been looking at a property that has some problems. Fundamentally the property is good in all aspects except appearance and it needs could do with a few minor adjustments to the floor plan.

The problem with the property is that it has been on the market for some time now with very little interest, mainly due to presentation I believe, and the owner is getting desperate.

Its a 5 bedroom house with pool/spa 1 garage and large entertaining areas in a good area. If I could afford to buy and hold I would. At present the internals are painted blue and yellow and the internals in general are pretty tired, hideous really.

Scope of works would include. Internal paint. Clean up grounds and some minor landscaping, render and paint the front (only) of house. New timber boundary fence approx 30m. Roof resprayed. Reconfigure existing kitchen + new post formed bench top. Reconfigure bathrooms x 2, not extensive. Block up a couple of doorways, new floor coverings, remove cubby house and crap from yards and a good gurney all over.
I believe the owner would settle for approx 420k but my analysis suggests the property to be in the 455-470k region.

Now what I am proposing is this. The property is stale, take it off the market for 4 weeks. I’ll project manage and bankroll the cosmetic reno’s in exchange for the difference is in vendors agreed price (say 420k) remarket the property post reno and I pocket the difference.

Reno time 3 weeks, Figures would look like this:
Reno: 15k
Expected sale: 460K
Agents comm.: 10K
Settlement to vendor: 420k
Profit 100% CoCR: 15k (3weeks)
My main concern is that CMA’s indicate that there is not a lot selling in the area but all comparable sales are in the 460-470 region.

Welcome your thoughts and if you think its a hair-brain scheme, be gentle, I’m just testing the water.

Thanks
Slingshot
 
Hi Slingshot,
While I believe it is good to think outside the square, I think you would need to put yourself in the vendor's position for a second and ask yourself, "what is in it for me?"

If the vendor is only going to get $420k anyway, why would they go through all of this renovation work ?(while they are probably still living there). From their perspective, it would probably be just as easy to lower their price to $420k and have a clean sale...afterall, it will be the same result for them without the disruption.

Also, you will be carrying too much risk in my opinion as you will be increasing the value of an asset that you have no control over, and should things turn pear shaped (and they do regularly!), you will be left out of pocket. What happens if the vendor, after your cosmetic reno, decides that the house is too nice to sell now? Not saying they would go back on their agreement (obviously it will be all documented in writing) but people are strange beings when it comes to money and may not be worth the small profit you could make.

Not trying to p**s on your cornflakes, but think there are certain issues that need to be thought out long and hard.

Boods
 
Hi Boods,

Thanks for reply and you're not "p**sin on my cornflakes at all (lol) although I am having trouble erasing that image from my mind, thanks for that:). Thankfully I am a weetbix kid or I would be scarred for life.

Yeh I tend to agree regarding risk and for a potential 15k its not worth it. I am just tossing ideas around and this forum is the place to do it.

The property is vacant which is sort of got me thinking about the possibilities and there are a few. I went to the both open houses Sat and Sun last weekend. By the Sunday the poor old agent was sitting there by herself reading a book looking like a beaten woman. She hadn't had a single person through over the 2 days except for myself. As I mentioned the property has been on the market for a few months now and I believe the banks are getting a bit edgy. I will keep an eye on it anyway.

I appreciate your response and I am one of those that believe there is no such thing as a stupid question (within reason of course). I am looking for renovators and am trying to look at as many properties as possible. I sometimes find it difficult keeping my emotions out of the equation as I am somewhat excitable at times. I sometimes find it difficult when you find a good one but the numbers just don't stack up....I am working on that and trying make it purely a business decision. I'll get there.

I'll keep looking
Thanks
Slingshot
 
Why not buy, reno and then hold? You would be able to sell later or access equity as capital gain increase - and you would already have a good head start.
 
Hey rugrat,

Would like to but can't do it right now. The reason, cashflow! Thats why I am lookin at trading a few renos to ease cashflow issues. I'll keep an eye on it but right now I have 2 too many -geared properties.

Sling
 
A 10 k reno on a 420k property for a 15k profit (then full CGT?) is a bit out of proportion. Also if you're trying for a no money down deal you may have to sweeten it for the vendor. Are you taking into account entry/exit costs?

What about trying for a cheaper regeonal deal. Pay 160k (a lot lower entry/exit costs). 10k reno for 40k profit would sound better. Also if the market is slow you might find vendors more motivated to allow reno during settlement. If you cant sell straight away get a tenant paying 8% yield on your outlay, and wait for CGT to halve. Retail investor buyers can then walk straight into your deal yielding 5-6% to them :)
 
Hi all,

I would like input from anyone that has done similar or just thoughts regarding risk etc.

I have been looking at a property that has some problems. Fundamentally the property is good in all aspects except appearance and it needs could do with a few minor adjustments to the floor plan.

The problem with the property is that it has been on the market for some time now with very little interest, mainly due to presentation I believe, and the owner is getting desperate.

Its a 5 bedroom house with pool/spa 1 garage and large entertaining areas in a good area. If I could afford to buy and hold I would. At present the internals are painted blue and yellow and the internals in general are pretty tired, hideous really.

Scope of works would include. Internal paint. Clean up grounds and some minor landscaping, render and paint the front (only) of house. New timber boundary fence approx 30m. Roof resprayed. Reconfigure existing kitchen + new post formed bench top. Reconfigure bathrooms x 2, not extensive. Block up a couple of doorways, new floor coverings, remove cubby house and crap from yards and a good gurney all over.
I believe the owner would settle for approx 420k but my analysis suggests the property to be in the 455-470k region.

Now what I am proposing is this. The property is stale, take it off the market for 4 weeks. I’ll project manage and bankroll the cosmetic reno’s in exchange for the difference is in vendors agreed price (say 420k) remarket the property post reno and I pocket the difference.

Reno time 3 weeks, Figures would look like this:
Reno: 15k
Expected sale: 460K
Agents comm.: 10K
Settlement to vendor: 420k
Profit 100% CoCR: 15k (3weeks)
My main concern is that CMA’s indicate that there is not a lot selling in the area but all comparable sales are in the 460-470 region.

Welcome your thoughts and if you think its a hair-brain scheme, be gentle, I’m just testing the water.

Thanks
Slingshot


LOL. :D

no offense.

I've done 5 renos now, and I can promise you it will take longer than you think, and more money than you think. There is always a hiddeen obstacle or three to deal with.

In my last reno we had to re-route a storm water drain which was right under where a new deck post was to go. Another $500 gone, and create a false wall to accommodate a bigger shower base. Another $500 gone. and so on.

When you start talking kitchens and bathrooms; anything can happen.

Don't forget to compute in the CGT and all legal costs. You will be paying tax on 100% of the gain, at your marginal tax rate for your day job.

$15k maybe for all that?

I would be running away.
 
Hi Slingshot

Do you happen to know the "story" about the current owners and what they're trying to achieve?

If it was an IP there may be away to sell the property, at a premium price, provided they're in a position to get some money upfront and the remainder, in instalments, over a few years? Or possibly, most of their money now and a bit of it in a few years time? Once you know the sellers situation, you may be able to work out something that works for both you and them.

Cheers, Paul
 
Hi all,

Sorry for the delay getting back to you all.

Bayview, you are welcome to LOL and no offence taken at all. I believe this forum is a fantastic resource that we all benifit from greatly. Generally one can post honest querries and questions and find great advice. It would be a shame if some became reluctant to post bought through fear of ridicule.

I am completing my sixth reno as we speak so I have a fair idea whats involved. Believe me this one is purley cosmetic hence my interest.

Currently as an excersise I am analysing quick/ high turnover reno's as a potential cashflow business. Im giving up my old line of work but I've still have to pay the bills.
This deal is just one of many I have been looking at. Admittedly, on this particular deal, the potential profit is small compared risk. Having said that if you did 10 a year thats still 150k income which is more than my old day job, not that I've actually had one for 15 years, and more than most earn. I have found another just this week, a lot more work to be done, potential 50k profit i'd reckon, approx 3 months. Haven't finished crunchin the numbers as yet.

Lofty, the thought had crossed my mind but I have had no experience with VF bar what I've read. Not really my bag.

I know of 2 deals on the market right now which "may be" worth investigating in regards to VF. I dont by any means know the full story. The RE agents 'story' is: The Banks are closing in fast on both deals. PM me if you wanna chat. I can easily find out more, doing that without the agent is a little trickier especially as one is a friend. PM me if you'd like to chat.

Thanks
Slingshot
 
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