Buying & Selling Quickly - Is The Worth The Effort To Make Money?

[Watermelon Man]

Hello,

Tried to search for other threads relating to this but couldn't find any - only on flipping through Put & Call options.

The Buy, Renovate/Refurbish a little, Sell option - do you think it's worth the effort to make money this way in the rising market we have now?

Does anyone have any quick calculators or schedules that you'd like to share in order to calculate setup & closing costs, etc.

Say I buy a property for $160k, but it's worth $200k; do you think it's worth selling immediately after settlement & making a quick tidy profit, & then repeating this method 2-3 times a year to make say $15,000 net tax gain each property sale?? What are the capital gains percentages for this?

Much appreciated.

 

[steveadl]

How are you buying the property $40k under market value?

I've never done the reno thing as I don't have the time or skills but even if I did, I'm a little sceptical of how much profit you actually make in the end, especially when you take your own time into consideration. What little spare time I have, I value quite highly, and would'nt want to spend it ripping up carpets, painting etc.

You also have to work out how much of the increased sale price is actually coming from your reno's, and how much is just coming from the market increase in the area during your holding period. ie. if you make a gain of $70k in 3 months after spending $20k on reno's - but all the other houses have gone up $40k without reno's - is it really worth it?

I've read numerous articles about people doing reno's and making money etc., but these articles conveniently never mention that during the reno's the property was held for 6-12 months, during which time the surrounding area was increasing anyway.

 

[WillG]

Good question but there are no clear answers.

'Property Trading' has risks. If you can minimise the risks and are happy to spend several months to make a guaranteed $15k then you should go for it.

What are the risks ?
1. Not being able to sell the property for the required amount
2. The rising market turns into a 'Flat' market and ytou are forced to hold the property or sell at a loss
3. Your rennovation budget blows out and eats your profit
4. You run out of $$'s during your renno
5. You have a family crisis and don't have the time to complete the renno or sell the property
6. What if the only buyer wants a long settlement ?
7. Can't get the tradesmen in the required time
8. Tradesman does a dody job

What are the costs ?
1. Stamp duty
2. CGT
3. Selling agents fees
4. Renno costs (materials, tradesmen, your time)
5. Buying and selling conveyancing costs
6. Holding costs while rennovating (interest, rates, power, water, heating)

I am sure there are more risks and costs

How do you manage the risks and costs ?
Lots & lots of forward planning and number crunching to work out your worst position

 

[Watermelon Man]

How are you buying the property $40k under market value?

Because I have a decent amount of market knowledge over 11 years in the same area.

 

[The Y-man]

I must say I find it a lot easier to do flips with shares than property Much less overhead....



Cheers,

The Y-man

 

[Watermelon Man]

I must say I find it a lot easier to do flips with shares than property Much less overhead....



Cheers,

The Y-man

Thanks Y-Man. I don't know ANYTHING about investing in shares, so before I take that plunge; I'd like to have done my research. Interesting though - thanks for sharing. Lots to learn here.

 

[alexlee]

Because I have a decent amount of market knowledge over 11 years in the same area.

Do you mean you have lived in an area for 11 years? Or that you have analysed the market, know the sales price of every house that has sold in the area, how long homes are on the market for, whether there is new infrastructure planned, whether there are new developments, etc?
Alex

 

[GoAnna!]

If you can buy undermarket why not get it revalued and then borrow against the equity to hold the property pain free? This would allow you to hold it longer and spread the buying and selling costs over a longer period making the likelihood of a profit that much greater.

 

[alexlee]

Interesting point. For your example above, WM, if you can buy a $200k property for $160k (and take out a loan of, say, $128k), after settlement simply refinance back up to the 80% (of market value) LVR of $160k. That means you can hold the property at a 100% LVR on your purchase price. i.e. it costs you only the stamp duty and costs to acquire, and probably -ve cashflow. If you're in the accumulation phase (and I'm assuming you are based on your other posts) would this be a much better way to bulk up your assets and increase future growth?
Alex

 

[Watermelon Man]

Do you mean you have lived in an area for 11 years? Or that you have analysed the market, know the sales price of every house that has sold in the area, how long homes are on the market for, whether there is new infrastructure planned, whether there are new developments, etc?
Alex

I think 11 years of experience in the real estate industry; having personally visited around 3000-4000 properties for sale & sold in a number of areas including having access to RP Data & other research information justifies my knowledge.

 

[Watermelon Man]

If you can buy undermarket why not get it revalued and then borrow against the equity to hold the property pain free? This would allow you to hold it longer and spread the buying and selling costs over a longer period making the likelihood of a profit that much greater.

Why I personally started this thread was to see whether it would be worth buying & selling to make money as I wanted to try to pay off my PPOR debt of around $150k quicker to the tune of 3 years. I thought I would ask this question of the thread as I don't know anything about shares (yet) as others have recommended shares to reduce their PPOR debt faster.

EDIT: I personally GoAnna would like to keep buying properties; but I think I'd like to try to get my PPOR debt down a bit now.

 

[oc1]

Though I wouldn't do it for $15k, its definately worth it. If you are in this game full time you need to in order to fund your expenses. Plus you can then spread your profits from 1 deal into 4-5 deals with the proceeds. I know you will miss out on future capital growth but it may enable you to a) buy more assets thus make more money b) buy you more time thus more opportunity to make more money c) get you out of someone elses system so you can do your own thing.

After you pay agents fees, interest, company tax, GST stamp duty etc etc you need enough meat in it to work. Pesonally the longer it takes to complete the deal the more $$$ I would require.

Here's a current example thats nearly completed.

Bought Sept 2006
1 Acre industrial land
$285,000 plus GST
We had a 6 month settlement. During this time we lodged plans to subdivide into 2 lots. Though most of the work wasn't completed during this time, we managed to find a buyer for Lot 1 (2500 m2). Sale price $300,000 plus GST. Valuation was $465,000 at settlement so not much was needed to tip into the deal at settlement. The work to satisfy planning permit (compliance an certification and titles) should be completed withing 2-3 months. Free block of land left or sell for $200k.

Now pay tax on the profits/redaw equity and spread the funds over a few more deals. This i'm told by my partner was an easy one (wasn't that easy ) To answer your question its DEFINTELY worth flipping. If i was to divide the profit by the number of hours spent on the deal (whatever it is) I could never find a job to pay the same rate.

Cheers

Oscar

 

[GoAnna!]

Why I personally started this thread was to see whether it would be worth buying & selling to make money as I wanted to try to pay off my PPOR debt of around $150k quicker to the tune of 3 years. I thought I would ask this question of the thread as I don't know anything about shares (yet) as others have recommended shares to reduce their PPOR debt faster.

EDIT: I personally GoAnna would like to keep buying properties; but I think I'd like to try to get my PPOR debt down a bit now.

Exactly. I was not referring to holding onto the properties but rather a way of holding onto them for say 3 years (without pain) giving you a far better chance of good profit as you will have 3 years of growth under your belt as well as the equity from buying undermarket.

If you buy and sell within the same year your capital gains bill is higher and you have to absorb the buying and selling costs.

3 years later if you got say 5 - 10% growth per year the buying and selling costs would have less impact on your profit and the captial gain calculation is more in your favour. In and out so quickly woudl be hard to do even with a reno in my mind and may not be worth your while.

 

[Watermelon Man]

Bought Sept 2006
1 Acre industrial land
$285,000 plus GST
We had a 6 month settlement. During this time we lodged plans to subdivide into 2 lots. Though most of the work wasn't completed during this time, we managed to find a buyer for Lot 1 (2500 m2). Sale price $300,000 plus GST. Valuation was $465,000 at settlement so not much was needed to tip into the deal at settlement. The work to satisfy planning permit (compliance an certification and titles) should be completed withing 2-3 months. Free block of land left or sell for $200k.

WOW - Now that's some deal! So much profit. Did you think from the outset prior to buying it, that it would've been worth so much - I mean $465k is a huge increase for around 2/3 of the site that you bought for just $285k. CONGRATULATIONS! Seeing how much you made of that deal; you probably laughed at my measly 15% discount!! HAHA

 

[alexlee]

WM, I'd still like to know on what basis you are saying you can buy (or have bought) properties at a 15% discount. The only true proof is a settled sale (i.e. you find someone to buy it from you for more than you just bought it for). Second best is a bank valuation.

You may not want to hear this, but since this is an open forum I'll write it and you can ignore it if you wish.

I realise you have experience in the industry, but you haven't actually owned property for very long. I'm not trying to to be negative but I really think you're flying in too many directions. In some cases, I think you're asking the wrong questions: all you're doing is accumulating a lot of info, but is that info useful to you?

Take a deep breath, get the basics right, and build up your empire one property at a time. Learn / plan to do the big deals by all means, but don't mistaken experience in the industry for actual expertise. I work in a bank where my whole day is spent watching and analysing traders trade shares and FX. Doesn't mean I'm a good trader or even a stock-picker. It just means I know how to read and analyse trades.
Alex

 

[oc1]

WOW - Now that's some deal! So much profit. Did you think from the outset prior to buying it, that it would've been worth so much - I mean $465k is a huge increase for around 2/3 of the site that you bought for just $285k. CONGRATULATIONS! Seeing how much you made of that deal; you probably laughed at my measly 15% discount!! HAHA

Cheers mate. A 15% disount is fantastic! We paid full price fo the block with a $500 deposit and got all other terms we wanted. Plenty of ways to make money flipping. Just dont restrict yourself to discount buying.

Oscar

 

[Watermelon Man]

The only true proof is a settled sale (i.e. you find someone to buy it from you for more than you just bought it for). Alex

I totally disagree with this statement. I've seen hundreds of properties in my 11-year tenure where I would have bought them if I had had the money or the knowledge to get finance to buy the property, but I didn't all those years ago because I didn't have the income to do. I only bought my first PPOR around 4 years ago. I know (& I'm sure there's a lot of other investors who also know) a "good buy" or bargain undermarket property when I see it; & I only know this because I've had the experience behind me. The 2nd IP I bought for $160k is almost identical to my own PPOR which was previously bank valued only 3 months ago at $200k; so I think that's a pretty clear idea that the IP at $160k is worth $200k - apples compared with apples.

I realise you have experience in the industry, but you haven't actually owned property for very long. Alex

I find that statement condescending, but I'm developing a thick skin & like you said it may not be what you want to hear. The above statement is unfounded; so if a real estate valuer has 20 years experience in valuing property but has only owned a property for 2 years, then they don't know values. C'mon - what a load of crap!

I'm not trying to to be negative but I really think you're flying in too many directions. In some cases, I think you're asking the wrong questions: all you're doing is accumulating a lot of info, but is that info useful to you? Alex

What's wrong with seeking answers to questions I may have. I may ask or post threads, etc in a short space of time, then nothing for a while - time dictates that.

 

[redwing]

All the best WM

I'm sure there's a few people on this Forum that trade property, or even use that in combination with a Buy and Hold strategy to boost income

Not being an excel guru and presuming I'm missing something here's my basic calc's (for interest sake as some of the more experienced members may point out flaws).

Starting Funds $80000 (could be from equity)
Goal to buy IP at $160000
rents at $150 p/wk
20% deposit $32000
Bank Lend $128000

From Initial amount of $80000
Deposit Required $32000
Reno Funds $36000 (though 10% may be a good guide)
Legal and Transactions $4000
Left Over Cash $8000

Buy IP at $160000
Actual worth $180000 (buying at discount to Market Val)
Post Reno increase rent 20% $180 p/wk
Post Reno Value $240000

Refinance @ 80% $192000
repay original loan $128000
Funds remaining $64000
Add Cash Left over $8000
total remaining $72000

Either keep the property OR

sell at $240000
profit $40000
add to starting capital $80000
total $120000

In my mind however, buy, renovate, refinance may be better as you dont pay CGT and can still benefit from future Growth

A good Goal: add enough value to get initial cash back out, leaving little of your own money in each deal and move onto the next


Synapse had a great post Here not sure where he's gone to though , I even visited his forum

 

[Sunfish]

I must say I find it a lot easier to do flips with shares than property Much less overhead....



Cheers,

The Y-man

I've been thinking about how to respond here because I doubt that the concept, as outlined, is repeatable. Every C grade golfer has hit some screamers but they remain C grade because they can't repeat them often enough.

So what concept is more repeatable? Y-man may be correct about shares. He is certainly correct about costs but my observation is that traders have trouble there too. WatermelonMan sees himself as a trader so why not deal in Commodores? There are always distressed sellers, or just people pissed off with their trade-in offer and buyers with stars in their eyes.

Look for the easy option. LOL

 

[The Y-man]

I've been thinking about how to respond here because I doubt that the concept, as outlined, is repeatable. Every C grade golfer has hit some screamers but they remain C grade because they can't repeat them often enough.

Excellent point. No only repeatable, but to be able to absorb (hopefully!!) a few that don't work out, and still come out in front over time.

Cheers,

The Y-man