Any one on SS renovates for profit?

[Hodge]

Keen to hear from any one on Somersoft that renovates for profit either part time or full time basis.

By this I mean purchasing a dump of a property that has potential, complete renovation (bit more than just installing a new kitchen) and putting it on the market to sell say within 4 - 6 months.

Is this possible?? I understand the profit is in the buying but buying / selling costs kills most of the profit. Can't make my calculations work.

I've also been told this strategy works much better with $1m dollar properties. Is this true?

Thanks in advance.

 

[TMNT]

especially after everyone watches a season of the block,

we are all millionaire renovators !! didnt you know

we spend a couple of weekends, slapping on a coat of paint, getting it right the first time, and making things look like a breeze,

and then we all sleep in our bathtub full of $100 bills!!

 

[citystar]

I focus on buying neglected properties so the reno after purchase is to prepare it for rent and also increase the rental amount above what it was achieving before. Plus to increase the value of the property for reval and access of equity for the next purchase.

 

[Hodge]

Thanks for the replies guys.
Tmnt- the block is a joke! In real life they would be facing major losses.

Citystar- i currently do the same but thinking of selling instead of renting. Do your figures stack up if you were to sell once finished? Also do you stick to a particular area or wherever you can find something cheap with potential?

 

[Jess Peletier]

The theory behind the million dollar properties is that reno costs can be similar (a new kitchen is a new kitchen regardless of the property) and the end value can be much higher from a similar spend.

Problems are that (other than in Sydney, maybe) the million dollar markets don't usually move fast. There's just not as many buyers.

Any reno to sell strategy relies on a fast rising market, due to the entry/exit costs as you've mentioned. If it doesn't sell fast, you've got holding costs which also eat up your profit, so area is just as important as the property - which makes life difficult if you're doing the work yourself.

 

[Hodge]

That's good information Jess thanks for that. I think sticking to the $500 -$700k market range will attract a larger market compared to the $1m+ market.

My biggest profit after selling is $80k. Property cost me $265k and market is steady with perhaps a very slight rise.

 

[MRO]

I have found the transaction costs generally kill the renovation profit. My plan is to renovate to get a better rental return.

 

[Hodge]

I have found the transaction costs generally kill the renovation profit. My plan is to renovate to get a better rental return.

Bloody stamp duty kills my calcs!

 

[bob shovel]

Bloody stamp duty kills my calcs!

Yeah it puts a dampener on things! Unless you get a big market increase during your reno period like Jess said it's not a huge money spinner like you hear on the tele - which never lies of course!

We did a reno during a jump in the market and we doubled or money on the reno, plus the market added another ~40k. Selling would have donated that 40 to the tax man!

Look at holding instead unless you need to offload the property

 

[perthguy]

I have found the transaction costs generally kill the renovation profit. My plan is to renovate to get a better rental return.

This is my strategy too. Example: Cloverdale. Rent prior to reno was $360 pw. Rent after reno was $440 pw. Makes a difference. Cost of materials/labour for the reno was ~$10,000. Myself and my investment partner did most of the work ourselves.

 

[citystar]

Thanks for the replies guys.
Tmnt- the block is a joke! In real life they would be facing major losses.

Citystar- i currently do the same but thinking of selling instead of renting. Do your figures stack up if you were to sell once finished? Also do you stick to a particular area or wherever you can find something cheap with potential?

The renovation cost and quality of the finish would differ if I was planning on selling compared to renting so the figures stacking up would not be consistent to comment on. I would still make a profit however that would be from purchasing well below market value as the properties needed a lot of work and scare away a lot of investors or people looking for a PPOR.

Early in my investment journey I focused on Southport because it fit my budget (cheap apartments) and I knew the area well however now with equity behind me and good cash flow I have been branching out closer to Brisbane, in particular Sunnybank after finding a few good deals.

 

[Hodge]

So how does the renovation guru cherie barber make her numbers stack up? She uses tradies for everything and still claims to make a profit?

Purchasing under market value is hard these days as every man and their dog has the same idea.

 

[coastal]

Taxes ...CG tax is just part of the game...if you can clear 20 -50 k after tax that is mighty impressive for 3 months work if you paying others to do the work.

 

[travelbug]

So how does the renovation guru cherie barber make her numbers stack up? She uses tradies for everything and still claims to make a profit?

Purchasing under market value is hard these days as every man and their dog has the same idea.

Cherie Barber doesn't just do simple reno's she often doubles the size of the house. Whole new kettle of fish than simpler renovating. She also has great purchasing power due to the amount of stuff she and all her students buy.

We have done more than a couple of full reno's. We buy run down properties, do a complete reno (kitchen, bathroom, laundry, paint, carpet, floor boards etc in 5 weeks. Our aim is to increase equity by at least 3X what we spend (which is usually $15K) and increase the rent so that it's at least CF neutral. Only the first one was CF neutral. The others are CF+ from day one with 105% lend.
If we sold straight away the profit would not be wonderful due to paying full CGT. But these are cheap properties (low $200K). Well they were at the time 2008-2010. Now worth $400K each.

Once Sydney gets back to normal I'll look again. But we may buy/reno then sell one of the others instead to take advantage of the 50% CGT discount. Or just keep it? Depending on our finances. I'll be retired.

 

[benofbrisbane]

with renos do you just calculate your ROI on the amount you spend on the reno rather than the house? Say you buy a $600k house - spend $50 on the reno and sell for $700, would you say you made 100% ROI on the reno costs or would you say you made a return of about 8% ($50k on 650K investment). What % of return do people generally want to achieve as a minimum?

thanks

Ben

 

[fernfurn]

The Cherie Barber renos always make me laugh. The agent walks in and quotes a figure as they always do to get a sale, way over what it would actually get, and everyone congratulates her. If the renos are anywhere else but Victoria, the sales tax is way less, but they never go into the buying/selling/holding costs. I would love to see a follow up show quoting what the property actually sells for

 

[travelbug]

The renos you see on TV are small fry compared to what she actually renovates. Thats just TV fluff. Her business is renovating multi million $ properties. Plus of course her courses.

 

[scha9799]

The number has to work before get into a deal.

Buying cost includes stamp duty, solicitor, financing cost.....etc... which is about 5% of the property cost.

Selling cost includes agent fee, solicitor, ...etc which is around 3%- 4% of the end selling price.

So buying and selling cost is roughly about 8% - 10% of the property price.

Plus the renovation cost and holding cost, says around 15% - 20% of the property price.

hence, for the number to work, a property before and after reno should be increased by around 30% just to breakeven.

Example:
Property purchase @ $500,000
Closing cost around 5% including stamp duty, legal, financing( loan application fee), building&pest @ $25,000
Reno cost & interest repayment while renovating 15% @ $75,000
500,000 + 25,000 +75,000 = 600,000
Selling cost is around 4% (600,000*4%) @ 24,000
Hence the breakeven point is around $625,000.
ie, the property should sell for more than $625,000, otherwise it's likely to be in the lost position.

This is just a rough figure, obviously, it depend on numbers of factors such as length of reno, cost of reno, also quality of reno.....

I found buy reno sell is for people with trade background, or extension, addition another level.
Simple cosmetic reno is hard to make profit due to high level of transaction cost involved.

 

[Truly Exotic]

^^ good summary

also, its important to understand, (not many do) that if the market is rising, then essentially a chunk of your CG is through the market and not your actual reno skills,

also, if you've caught the wave of CG, why not hold on to it and maximise your potential gains unless you want to reinvest those profits into something else,

Ive kept all of my reno projects, and most of the clients who buy reno projects, usually hold on to them

 

[Hodge]

^^ good summary

also, its important to understand, (not many do) that if the market is rising, then essentially a chunk of your CG is through the market and not your actual reno skills,

also, if you've caught the wave of CG, why not hold on to it and maximise your potential gains unless you want to reinvest those profits into something else,

Ive kept all of my reno projects, and most of the clients who buy reno projects, usually hold on to them

Hi Truly Exotic,

Are you a buyers agent? and if so do you specialise in Melbourne?