Buy, reno, hold, get some money out - can someone put some real life $s on this.

[LeeJ]

I saw in another thread/s somewhere yesterday that someone said (Propentuity maybe - sorry for the spelling) the buy/reno/sell model is very hard to make money with but the buy/reno/hold/get some money out model is good.

Can someone with experience using this technique show some figures please.

Ta

 

[Rob Williams]

I bought a small Villa last year.
Contract value $250,000
Spent a month (pre settlement) renovating it.
Reno cost: < $10,000
LVR 80%, so loan was $200,000.
Soon after the reno, it's rented at $260 per week.
Revalued by the bank a few months later at $320,000.
SO, retaining the 80% LVR, I got a loan top up of $56,000 ($320k @ 80% = $256,000. $256,000 less original loan of $200,000 = Cash Take Out of $56,000).
Is this what you were looking for by way of example?
The reno included a new kitchen, paint, carpet, window treatments, new vanity and a good cleanup.
There are some before and after pics in the April issue of Your Investment Property magazine, which should hit the shelves later this week, it you're interested.

 

[LeeJ]

Thanks Rob

Did the same bank value it at $250k (that did the $320k) in order to purchase it?

What i am getting at is - is it possible the original val was too low as no val is above the purchase price, only possibly below.

Also how can one be reasonably sure that a reno will lift the val?

 

[Rob Williams]

It was the same bank. The property was sold below market, but it would have been difficult to achieve much more than the $250k price without a lot of work.
I've been following this formula for a few years now.
My "profit" is a combo of buying well (and low) and adding value through a very systematic, cookie cutter reno.
I don't think you can buy at full market price and achieve the same outcome.

 

[JIT]

Thanks for posting some real life numbers Rob. Much appreciated.


If I may do some calculations based on your numbers ;


Purchase Price.............250 K
Stamp Duty....................9 K (RevenueSA says it's $ 8,955.00)
Everything else...............5 K (I presume not much for all else)
Reno.............................9 K (Based on your less than 10 K figure)

Total cash needed........273 K

Loan from Bank............200 K

Input cash from Rob.......73 K

Cash extract after reno...56 K

Aggregate cash left in.....17 K


Even though your deal is commendable, and a fine example of value adding, there appears to be still a nett $ 17,000.00 of your cash left in the deal, and nothing left for LeeJ, if he were to replicate your deal, to spend.


By my numbers, the place would have to be valued at 341 K before you break even and are able to "get some money out" for values above 341 K.


Perhaps I have mis-interpretated LeeJ's question, or mis-understood your deal...or both.

Thanks for those numbers.

When you look at it like that, it's not such a fruitful exercise??

 

[Rob Williams]

Fair point, Dazz. I don't disagree, but we all look at things from our own point of view.
From my perspective, I had no money in the deal in that the deposit and the $12,500 in stamp duty and fees etc. were funded from equity released from other similar deals.
The real payoff for me isn't the fact that I have $56k in the bank for other opportunities, but that I own (or control) the asset and all future growth is mine.
Similar properties are being sold, now, in the same area for $350k. I'm not a seller, though.
What is interesting in this example is that I got the same valuation for the one I own next door. I paid the same for it. Spent only a few thousand tidying it up, yet got the same value.
You would have to question the value in doing the reno at all, on that basis. Just buy and let time do it's thing.
This property game is just that. A game. You just got to learn what the rules are and make the most of them.

 

[Dazz]

Fair enough Rob, you've raised another +/- 6 separate points there which I will leave for LeeJ to ponder / discuss if he so wishes. Cheers mate.

 

[Rob Williams]

Fair enough Rob, you've raised another +/- 6 separate points there which I will leave for LeeJ to ponder / discuss if he so wishes. Cheers mate.

I guess I don't have much of a future as a spruiker selling "renovate your way to profit" seminars and mentoring programs.
I could have spun the numbers any way I liked to get the results I wanted to show my "students".
Might have to settle for just telling it how it is. For free.

 

[LeeJ]

$12,500 in stamp duty and fees etc. were funded from equity released from other similar deals.
The real payoff for me isn't the fact that I have $56k in the bank for other opportunities, but that I own (or control) the asset and all future growth is mine.

Yes exactly - control of asset plus time is absolutely everything.

Thanks all.

 

[Rob Williams]

Carly Crutchfileld's tips include:

1. Tell everyone to bring their credit card
2. Tell everyone there aren't enough places in the program for them all and some will miss out on this "once only" opportuity.
3. Don't invite Dazz

Then watch them run to form a not so orderly queue waving their credit cards at the overwhelmed cashiers.

 

[LeeJ]

OK I'll bite.

Who is Carly Crutchfileld.

 

[Rob Williams]

OK I'll bite.

Who is Carly Crutchfileld.

She is, according to her, THE ultimate property developer.
For $5,000 or so, you can get her DVD course AND attend the Boot Camp.
If you're one of the chosen one's, you will be invited to fork out $20,000 or so to join the "Elite" group and learn the secrets of property development.
Very slick seminars. Lots of music, emotion, pics of little African kids who will be fed and clothed from the profits earned from her business.
Interestingly, the "students" are not encouraged to visit sites like this one as any advice you get for free must, by definition, be worthless.

 

[mooloolah]

Hi Rob


If you have a loan of 200k @ 7% IO plus running costs I work out your about $80 a week short after the end of the FY assuming 30% tax.

How do you fund this difference?
Do you use the equity (56k) you withdrew?

I find the challenge is not aquiring some equity but being able to service the debt with cashflow on these -ve properties.

Cheers
Rick

 

[LeeJ]

Ah I googled "Carly Crutchfileld" and nothing came up so I though it was an in joke.

I see it's misspelt - but a name like Carly Crutchfield must be a joke anyway - must be a Spike Milligan creation from the Goons show surely.

 

[dissin]

I bought a small Villa last year.
Contract value $250,000
Spent a month (pre settlement) renovating it.
Reno cost: < $10,000
LVR 80%, so loan was $200,000.
Soon after the reno, it's rented at $260 per week.
Revalued by the bank a few months later at $320,000.
SO, retaining the 80% LVR, I got a loan top up of $56,000 ($320k @ 80% = $256,000. $256,000 less original loan of $200,000 = Cash Take Out of $56,000).
Is this what you were looking for by way of example?
The reno included a new kitchen, paint, carpet, window treatments, new vanity and a good cleanup.
There are some before and after pics in the April issue of Your Investment Property magazine, which should hit the shelves later this week, it you're interested.

Hi Rob, by doing this though also your repayments go up too yeh? ie 6% of 200k, vs 6% of 256K is about $280 extra per month as an example?

 

[Rob Williams]

Hi Rob


If you have a loan of 200k @ 7% IO plus running costs I work out your about $80 a week short after the end of the FY assuming 30% tax.

How do you fund this difference?
Do you use the equity (56k) you withdrew?

I find the challenge is not aquiring some equity but being able to service the debt with cashflow on these -ve properties.

Cheers
Rick

OK, more numbers required, I think.

Assuming all funds in the deal are borrowed in some shape or form and a current rate of 6.31%.

Contract value $250,000
Stamps etc $12,000
Reno Costs $10,000

Interest on $272,000 @ 6.31% = $17,163 pa
Other expenses inc Strata, rates etc = $ 2,300 pa

Total Expenses $19,463

less Total Rent income $13,520

Total Annual Shortfall = $5943 or $114 pw or $80 pw after tax

This would be the property with the largest shortfall in my portfolio.
My total monthly shortfall is around $2,000 (following some recent rate rises and rate reductions from re-financing).
I think around half of the shortfall is funded by tax breaks, which I get per pay via the ITWV I have in place, so I'm really only forking out about $1,000 from my own pocket.
I live cheap and have no consumer debt. I'm hoping some short term sacrifice will pay off in the long run and I can start to enjoy the fruits of my investment strategy.
You are quite correct, though, serviceability is the real challenge. People make negative comments about me having a J.O.B. but with out that, I'd not have a bucket load of equity in my P.O.R.T.F.O.L.I.O.
We each run our own race and play our own game.

 

[Rob Williams]

Hi Rob, by doing this though also your repayments go up too yeh? ie 6% of 200k, vs 6% of 256K is about $280 extra per month as an example?

For the moment, the $56k take out is in an offset account, so I'm not paying anything for it.
When it comes out of the box to play, it will be going into another deal, so there will be another rent or dividend income stream to offset the interest cost on the $56k.

 

[mooloolah]

Thanks Rob

I too have no consumer debt, live on the cheap and have a significant amound of equity but cashflow still seems to severely limit my ability to acquire new IP's.

Cashflow is King!!

Cheers
Rick

 

[dissin]

Thanks Rob

I too have no consumer debt, live on the cheap and have a significant amound of equity but cashflow still seems to severely limit my ability to acquire new IP's.

Cashflow is King!!

Cheers
Rick

Hi Rick - if you have a few IP's, can you sell one that had good capitol growth, and reduce some debt/expenses ie giving you some cash? or is that the mistake that some people make by selling for the quick buck and not holding on longer? a relative of mine bought and sold about 15 properties in his life, and said the mistake he made was not holding them!

sorry for newbie question

 

[mooloolah]

Hey Dissin

sorry mate I am not selling any they are too hard to get in the first place.
I did sell one to pay off my PPOR so I have no non deductable debt but that is the first and only one I will be selling for now.

Cheers
Rick