Buy Renovate Revalue

[WASP]

How does it all work

Looking at a recent magazine they had a story of recently purchasing a property at $270,000 renovating it and revaluing it at $330,000 to $340,000 giving total equity of $92,629 available if financed at 90%

They have worked out the available equity by valuation at 90% minus the debt

Assuming they purchased using equity from other properties and also got 90% finance what is the real costs going in and real equity available

Would it be correct to assume they went in using equity from other property as the deposit of $27,000 and financed at $243,000

The renovation was a few dollars shy of $10,000 and stamp duty, transfers, mortgage costs would have been around $8,500 then you would have loss of rent but mortgage interest over the renovation period of possibly 4 weeks (5% io loan) of $1,013

That works out to be an additional $19,000 and doesn't include Buyers Agents fees (which they used) pest and building inspections and conveyencing,legal costs. Could you add another $6,000 to round up to $25,000 purchasing costs?

Renovations consisted of reconfiguring the living space, repairs and maintenance, improving the kitchen and bathroom, new flooring throughout, new blinds and new paint job.

The actual equity if the property is valued at $330,000 is now approximately $62,000

Rent after the renovation is now $350 per week

Are these figures correct or close?

Is that enough to look at purchasing again?

 

[Erica]

I would take with a grain of salt the profit figures quoted in a magazine article they tend to be exaggerated.

I think most renovations you aim to get back $3 for every $1 you invest. I find it hard to believe a $10k reno will result in a $60k-$70 value increase, but for the sake of this analysis lets say it actually did create this result...

So a REALISTIC cost/profit break down in this scenario would be:

$270,000 purchase price
$13,500 purchasing costs (stamp duty/ title registration/conveyance/loan fees,
$1000 holding costs (3 mths water usage, insurance, council rates, electricity)
$10,000 renovation
$3666 interest for 3 mths (lets say a quick and professional flip only took 1 mth to reno and 1 mth to market, 1mth settlement on sale contract)
$10,000 marketing and agent fees


$308,166 TOTAL INVESTED

$340,00 sale contract = $31,834 CASH BACK OUT OF THIS DEAL
(taxed at you full income tax rate as no concession for holding less than 12 mths)

Now, this is good income for 3mths work and if you could do 4 a year and enjoy doing it, then nice earning job.

But goodness only knows where they got the figure of $92k equity release out of this project....?

 

[techie]

Looking at a recent magazine they had a story of recently purchasing a property at $270,000 renovating it and revaluing it at $330,000 to $340,000 giving total equity of $92,629 available if financed at 90%

Basic maths would suggest that $340,000-$270,000=$70,000

I agree with Erica. You have to crunch the figures yourself to understand the real deal. It's evident that the total equity they've listed also includes the original amount of equity that the person had before the project which in this case would be over $50,000. With a price point of $270,000, its unlikely that the house sold within a month.

 

[vaughan]

It'snot like banks just lend the extra money. You need to have the income/cash flow to meet the affordability requirements of the lenders. So everybody will reach a point where they just cannot borrow any more, no matter how much equity there is, because their income is not enough to cover the repayments.

 

[redwing]

$3666 interest for 3 mths (lets say a quick and professional flip only took 1 mth to reno and 1 mth to market, 1mth settlement on sale contract)
$10,000 marketing and agent fees

One of Smart Investment Properties portfolio (I have the issue as recently picked it up at the Airport). I don't think they are flipping it