Buy, renovate then sell? Does it work?

[Waverlybay]

CRC . Yes, i am "admitting" that the profit is in the purchase.

But i also admit that without the renos that cheap purchase is well - - just a very cheap purchase. So that if you sell this cheap purchase immediately after owning it - you will get ..... a cheap price. Didley squidly profit.

Ask any expert like the reno kings - and they will tell you: Buy well and reno well go together in this game.

 

[wanty]

Surely the bulk of any profit in this area is made on day 1, by puting in a scabby bid and it getting excepted.

 

[PrimeCommercial]

Surely the bulk of any profit in this area is made on day 1, by puting in a scabby bid and it getting excepted.

I wouldn't say the 'bulk' of profit but somewhere in the 10%-25%. Thats in the dozen or so cases that I have seen.

 

[knightm]

For me one reason to consider this path is that if you think you can buy well - if you put in really scabby bids or back your negotiating ability. Then the more deals you do turnover does increase profit. Buying well, cheap cosmetic renno to bring in most purchasers (all the ones who didnt want it before it was rennod which is why you got it cheap) can work. Buying well, renno and refi to keep obviously brings in cg for longer term but you reduce the number of deals you can do.

 

[evand]

You lose about 10% just in the buy and sell costs. So if you negotiate a 10% discount on buying, its gone there.

Can we see some numbers guys? Or percentages?

 

[dash11]

Hi Evand

You're right in saying 10% is gone on in and out costs. Having said that, I think if you are only buying 10% under value in any situation, thats still not enough, even if you are a buy and hold investor.
The trick we have found is to get early access and a delayed settlement, get in and do the reno and have it sold before our settlenet so that we can achieve a simultaneous settlement which reduces your in and out costs dramatically. This of course doesn't happen all the time.
The figures on our last one which has now a unconditional sale running are:

Purchase Price $205,000
In/Out Costs $15,840
Reno Costs $13,500
Sale Price $280,000

Reno time was 3.5 weeks which included new kitchen, new bathroom, full internal paint, carpet, light fittings, doors, switches & power points, some landscaping and a deck rejuvination. There were no holding costs or loan costs and we only exchanged on $3,000. This would of been a property we usually keep but you can't keep everything.

 

[evand]

I have found it very, very difficult to obtain access pre settlement and have rarely seen it happen. Especially finding a vendor who will agree to the risk of access/reno with a delayed settlement long enough to do the reno and then sell!! Unbelievable, Very rare indeed.

You must have some very tricky clauses in your contract. How you get vendors to agree to them as well as buying substantially undermarket i don't know.

 

[dash11]

Its not that hard to find them actually. We just ask. It also helps to have the agents to select properties that they know the vendor will have no problems with the access. We usually offer to pay rent whilst in the property.
The contracts are really no different from the standard contract. We just let the vendors solicitor that we can move in "under licence" and have all insurances in place.

 

[evand]

The problem is (up until settlement) you are essentially renovating someone else's house!

I find it hard to believe you don't have a written agreement with them of some sort if its not in the contract.

And of course, you have to add the your rent to your costs.

Couple of questions:

How deos the agent know who will allow access?

What type of 'licence' are you referring to?

I have never seen it done like this before. I'm sceptical but good Luck with it.

 

[knightm]

I have heard of the pre settlment renno working but not my style, for me the risk that "something" could crop up and effect settlement after I have just spent 20k on it is too scary. I am happier with compromise, get a pre access clause in the contract for quotes from tradies only, then get them all through and booked in for the weeks just after settlement, settle the property (if I was rennoing and trading I would be looking to pay cash anyway to get the best price and reduce risk and hold costs) the renno like mad, get it all done in a few weeks, then sell asap. Take the small profits and either live on them or use for more investing.

Alongside that I would want as many LT hold ip's as I can safely hold onto with maximum leverage for CG and future CF.

 

[knightm]

Not sure about the structure of the two tho, probably need to keep them separate to ensure you dont lose CGT reduction 50% if you were to sell any of the LT IPs. (I am grappling with this atm, see this thread)

 

[evand]

Not to mention the risk from the vendors side. Imagine someone pulling out of a sale before settlement and they have half renovated your house. Too risky.

I think its one of those things you hear about in theory but not knowing anyone thats actually pulled it off.

If theres anyone reading this thread that has done it i'd love to hear how you mitigate your risk and find a buyer who will accept the risk and sell at under market price and accept delayed settlement. They'd have to have rocks in their head if you ask me.

I have heard of the pre settlment renno working but not my style, for me the risk that "something" could crop up and effect settlement after I have just spent 20k on it is too scary. .

 

[dash11]

Truely, It's not that hard. As i said, we organise to move in under contract with a list of works to be carried out. The solicitors acting for both parties then communicate and work out the finer detail. Most people are happy if no major structual work is carried out. MAJOR being the operative word. If we pay rent, then so be it. It's a small price to pay for early access and a hell of alot less than repayments. Remember we also have full insurances such as liabilities (at least 10 mil) and so on.
I'd say out of the 14 or so we did last year, and the 5 so far this year, 7 or 8 of them have had early access. It's not that hard. Having said that, we probably look at 20 or more properties every week (for ourselves) and make offers on half of them, so our chances are higher than the norm I guess.
To the vendor there is little risk. Most of the time, their property is already in a state of disrepair and even if we stop work after say the gut out stage (befre any real money is spent or if we went broke) the property is more than likely worth more with just the clean up and paint.
The agents where we operate know what we look for and therefore know our criteria. They simply ask the vendor if they are interested, simple as that. I'm not saying that every house we do we get early access, it's more like every 3rd or 4th that we achieve this.

 

[knightm]

well its great to see someone doing something outside the box, I am impressed dash.

You must be ft to be looking at and making this many offers each week? I aim to be ft one day, currently still have the job tho.

Do you outsource all the work or do any yourself? How many in your operation?

 

[Waverlybay]

I agree that its not that hard to do a buy-renovate and sell on simultaneous settlement. I find that getting a vendor to agree to extended settlement terms with early access for renovation is common, particularly if the house is vacant and run down. Settlement periods could be up to 6 mths which is plenty of time to renovate and onsell to a buyer.

H/ever, i've had some bad experiences with this strategy and no longer implement it. After one renovation, the vendor refused to settle and told me to "take her to court to make me settle." During the renovation prior to settlement she came in a few times crying alleging that the agent had ripped her off - and that she was going to sue him. Their lawyer was threatening us with injunctions to stop the settlement. The whole thing was a major headache - to save what ... some transaction costs and holding costs? In the end i had to increase my purchase price to get settlement over the line. I was better off buying it outright, wearing the transaction costs, renovating and onselling the std way.

WB

 

[Harriet]

Hi Evand


The trick we have found is to get early access and a delayed settlement, get in and do the reno and have it sold before our settlenet so that we can achieve a simultaneous settlement which reduces your in and out costs dramatically. This of course doesn't happen all the time.

Sorry to resurrect this old post, but it is of huge interest to me at the moment.

Are the "in and out" savings mentioned above holding costs? Are there any other savings to be made from getting in and out quickly.

I am in the very fortunate position that I may be able to buy a reno project without finance. So would there be any need for me to get in and out quickly, as described above?

Also . . . Dash, if you are reading this (original poster), I am wondering if you do all your reno's yourself. If so, are you a tradie? I am trying to gauge how vital it is to have some kind of trade when doing these reno projects. My husband and I are reasonably handy, and I am frugal to a fault. But will this be enough, me thinks?

Thanks.

Harriet

 

[jcwc888]

it will also increase rent... so yes I agree with improving existing IP's, but the selling part is no good!

it really depends on your financial situation.

i just reno 1 property and refinanced to buy another one. I didn't want to sell as i had sold 2 in the last financial year.

i normally add a bedroom with Built in wardrobe or a bathroom, the price more or less covers the stamp duty, reno costs etc plus a reasonable level of profit. renovating is more about doing things that gets additional value.

 

[Fudge]

I agree that its not that hard to do a buy-renovate and sell on simultaneous settlement. I find that getting a vendor to agree to extended settlement terms with early access for renovation is common, particularly if the house is vacant and run down. Settlement periods could be up to 6 mths which is plenty of time to renovate and onsell to a buyer.

H/ever, i've had some bad experiences with this strategy and no longer implement it. After one renovation, the vendor refused to settle and told me to "take her to court to make me settle." During the renovation prior to settlement she came in a few times crying alleging that the agent had ripped her off - and that she was going to sue him. Their lawyer was threatening us with injunctions to stop the settlement. The whole thing was a major headache - to save what ... some transaction costs and holding costs? In the end i had to increase my purchase price to get settlement over the line. I was better off buying it outright, wearing the transaction costs, renovating and onselling the std way.

WB

Bump on topic!!

Has anyone else been burnt when negotiating long settlements (and getting earliy access) in order to on sell prior to settlement?

I was led to believe, that even though you might have a signed contract, stating that you can get early possession and do some renovations on a long settlement, that problems can arise and the deal could still fall over.

Would Landlord Insurance cover this (considering you have an interest in the property (by signing a contract of sale)?

I would be too worried of outlaying costs to a property prior to settlement, knowing that something could happen which enables the deal to fall through.

I know Evan was actively involved in this thread........Have you become wiser on this topic since Evan

Cheers,

F

 

[jcwc888]

buy renovate sell (if some crazy buyer comes along) - i always tell my agent if you want to bring prospective clients (china ones) be my guest.

Otherwise just refinance and hold to reduce tax.

Or buy renovate stay in to enjoy (and sell) after 6-7 months.. no tax. (again suit singles with a certain lifestyle)

again try avoid cosmetic renovations but like adding bathrooms and rooms always does a good value added.

 

[D Money]

FYI - My Brother in Law is recently awaiting settlement on a property and had asked for early access prior to settlement to do some painting. The agent and vendor agreed but for some reason restricted the access to only on the weekend. The Lawyers were not involved, nothing was writted into the contract and it was just a verbal agreement.

cheers