Cosmetic renovation for quick profit, is it possible?

[Perp]

In which case your profit is not from value added by the renovation, but by the difference between purchase and market price of unrenovated product.

No its from the combination, if Nathan tried to sell one of his burnt out properties without fixing the problems in many cases he wouldn't find a buyer. The big money is from fixing a problem other people cant or wont fix

I agree that Nathan seeks (and finds) both - bless him! And that's awesome, nothing wrong with having both! I was simply making the point that if you spend $20K on a renovation to get $20K more, then you shouldn't bother renovating. If it adds substantially more than $20K, then do it. And take the profit you gain from buying under market, and shifts in the market, on top.

And, of course, the "elephant in the room" that no flippers have ever answered satisfactorily for me is how they get around this dilemma: if you have a builder, it's even harder to squeeze a profit out of the project. If you don't use a builder (or have an owner-builder's licence, which is only good for one reno every several years anyway) your renovations are illegal.

Thanks for mentioning Nathan and reminding me to correct myself, as he is the only flipper who's ever answered this satisfactorily, so my statement above is incorrect. (Apologies, Nathan!) Nathan uses a licenced builder for his work, who works inexpensively. Wish we could clone those!

This is only an issue if you need a building permit with a value over $5k, then you need a builder or owner builder status, otherwise you can repair and install anything you like.

This is not true in QLD, and I suspect not anywhere in Australia if you really look into it. Most people in QLD will say something similar, even though I know definitively that it's not true, because I've received written advice from the Queensland Building Services Authority.

In QLD, you must use a builder or have an owner-builder's licence "if you wish to perform or coordinate domestic building work on your property for a single project of a value of $11,000 or more" (my bolding). The project's value is calculated using the retail cost of all works necessary, including work that you do yourself. So even if you do all the work yourself, if it would have cost $11K or more to get qualified trades to do it all, you're in breach. So in Pa1nter's example, where the homeowner had a quote for $20K for the bathroom, doing that bathroom yourself (or Pa1nter doing it, if he didn't hold a builder's licence - but I believe he does) would put you in breach, because the QBSA would argue that the value of that project has been set at or near $20K. Whether it's structural or not, whether you need a permit or not, are irrelevant; the only thing relevant to whether you need a licence or not is the retail cost of getting the project completed by qualified trades.

I even put to them this scenario: what if you get new carpets installed for $11K, and then you do the work of putting in new skirting boards? The answer was that you need a builder's or owner-builder licence, because the cost of getting a qualified carpenter to put in the skirting boards for you would take the project's value over $11K. I'm not saying it's sensible or even desirable, but that is how things stand in QLD. Even the person at QBSA admitted that would be ridiculous, but as legislation stands, that's the situation.

I do think it's possible to make a profit from a renovation, but the profit has to be there even when using a qualified builder, and buying and selling at market price in a level market, otherwise it's not the renovation that's made you a profit.

I dont think the simple arithmetic of 1+1=2 applies here. If you pull apart a deal that includes a reno and you say well the final value was 200k, the reno cost 20k, the house was bought for 150k, that doesn't mean the house could've been resold unrenovated for 180k. Its the combination that adds value, which is why i agree with you when you say it's not as easy as it looks, you have to be able to see in multiple dimensions

That means that the $20K reno has added $50K of value (if the market's level), and that is a renovation that is probably worth doing. You've given a perfect example of when you could justify renovating.

 

[Pa1nter]

I've received written advice from the Queensland Building Services Authority.

In QLD, you must use a builder or have an owner-builder's licence "if you wish to perform or coordinate domestic building work on your property for a single project of a value of $11,000 or more" (my bolding). The project's value is calculated using the retail cost of all works necessary, including work that you do yourself. So even if you do all the work yourself, if it would have cost $11K or more to get qualified trades to do it all, you're in breach. So in Pa1nter's example, where the homeowner had a quote for $20K for the bathroom, doing that bathroom yourself (or Pa1nter doing it, if he didn't hold a builder's licence - but I believe he does) would put you in breach, because the QBSA would argue that the value of that project has been set at or near $20K. Whether it's structural or not, whether you need a permit or not, are irrelevant; the only thing relevant to whether you need a licence or not is the retail cost of getting the project completed by qualified trades.

You are correct however unless a complaint has been made,they will not enforce this.They will not even investigate a complaint if you are an hour or so travel away from their office

In my renovation case I had a written quote and contract to the householder for 11K for painting internal,external and roof,thus leaving heaps under the threshold for the owners renovations.

Off the BSA website

http://www.bsa.qld.gov.au/SiteColle...ns/Facts for Home Builders and Renovators.pdf


(OWNER BUILDING
You must obtain an Owner Builder Permit if you want to perform or coordinate building work on your own
property where the value of the work (i.e. the cost of a licensed builder's labour, materials and GST) is $11,000
or more. The permit is only available from BSA.
An Owner Builder Permit cannot be issued for a multiple dwelling building. The permit must be for building work
for domestic purposes only. You cannot obtain an Owner Builder Permit to perform building work on commercial
premises including, but not limited to, boarding houses, shops or industrial buildings.
If you want to perform work on a farm building, please contact BSA. In some circumstances this may be exempt
from requiring a licence or permit.
By becoming an Owner Builder you forfeit your right to the insurance protection provided by the Queenlsand
Home Warranty Scheme. BSA insurance protects homeowners who have a contract with an appropriately
licensed contractor to perform residential building work.
As an Owner Builder, your role is that of head or principal contractor and you will be personally responsible
for dealing with individual subcontractors if there are any problems with workmanship. By contrast, if you were
to engage an appropriately licensed contractor to perform the whole job, you would only have to deal with
that contractor.
When you are issued an Owner Builder Permit a notification is entered onto the property title for a minimum of
seven years. This is detailed more fully in your permit, however, in some instances it can affect the sale of your
property.)

 

[yadreamin]

I was quoting a paint job a last year and the customer told me she was quoted nearly 20K just for a bathroom reno and was going to accept the quote ,

I happened to have a few weeks free and decided to use her 20K to see how much work I could do to her house while still making money.

1:It had just been re stumped so needed plaster joints through out.(I was the plasterer)
2:It had cladding on the outside so pulled that off and nice repaint on the timber weatherboards.
3:Gernied and painted the roof so it looked new.
4ainted all inside with feutre walls where needed
5:Rebuilt bathroom with new spa ($700),shower rose,vanity,taps/spanish tiles to ceiling,waterproofing/drain
6:laundry with new tub,taps,remove cupboard/waterproof/drain
7:New toilet with full waterproof / drain and tiles
8:Front and back verandahs,new posts,timber decks,custom made balastrading,new steps and gates.
9:New tiles in kitchen to match
10:Electrical included new fans in house as well as new powerpoints/lights in bath/laundry/toilet as well as wiring spa.
She still had around 3K left after I finished

You dont feel like a trip to the West do you?
Ive got a kitchen a laundry and a bathroom all ready for you

 

[boods99]

Can anyone here please define what exactly constitutes "building" and "building works"?
Does painting the interior of your house constitute building?
Does re-landscaping your backyard (non structural only ie no retaining walls, pools etc)?
When renovating, can you break down every individual activity seperatlely, or do you have to calculate the total cost, even though the job was spread out over several months...
I used to lay timber floors a while back, and the vast majority of those floors cost over $15k to supply and lay. Is this classed as "building works"
I have just spent the last 4 months, and the best part of $45k personally renovating my PPOR...I didn't get a building licence...

As always, the wording of these regulations are clouded in a haze of ambiguity, in my opinion, to try to sap a little more money out of Joe public in the form of fees...

Boods

 

[Minx]

Can anyone here please define what exactly constitutes "building" and "building works"?
Does painting the interior of your house constitute building?
Does re-landscaping your backyard (non structural only ie no retaining walls, pools etc)?
When renovating, can you break down every individual activity seperatlely, or do you have to calculate the total cost, even though the job was spread out over several months...
I used to lay timber floors a while back, and the vast majority of those floors cost over $15k to supply and lay. Is this classed as "building works"
I have just spent the last 4 months, and the best part of $45k personally renovating my PPOR...I didn't get a building licence...

As always, the wording of these regulations are clouded in a haze of ambiguity, in my opinion, to try to sap a little more money out of Joe public in the form of fees...

Boods

Yes you would need a building license to coordinate the works.
As I mentioned in another thread about renos, unless you engage a registered building practitioner you are liable for the warranty.
So if you were to sell your PPOR and let's just hypothetically say that the standard of the paint job is poor and a few years later the paint peels off, or in a bathroom reno
the tiles pop off the wall etc you are liable even after you have sold to repair the damage.

 

[.toe]

This from Owner-Builder Application Kit from the Building Commission website in Victoria.

Tradespeople carrying out the following domestic
building work as a single trade only do not need to
offer you a major Domestic Building Contract for
work over $5,000:
• Attaching external fixtures (including awnings, security
screens, insect screens and balustrades)
• Draining and plumbing work3
• Electrical work
• Glazing
• Installation of floor coverings
• Insulating
• Painting
• Plastering
• Tiling (wall and floor)
• Erecting a chain wire fence to enclose a tennis court
• Erecting a mast, pole, antenna or similar structure.
However, if more than one trade is carried out by
the same tradesperson for more than $5,000
(for example, the plasterer also does the painting),
they will be required to be registered and enter into
a major Domestic Building Contract. For work valued
over $12,000, they must also provide domestic
building insurance.

So I can hire individual contractors to do any work upto $5000 ($3300 in QLD), and more than $5k for work on that list, without a builder or domestic building insurance (not sure if QLD have similar exeptions).


Also this is from Queenslands BSA website, (my emphasis added).

It is a requirement under the Queensland Building Services Authority Act 1991 (QBSA Act) that if you wish to perform or coordinate domestic building work on your property for a single project of a value of $11,000 or more you must hold an owner builder permit. An owner builder permit is only issued by BSA.

So I can co-ordinate multiple contractors on any "single project" upto a value of $11k in QLD ($12k in Victoria), so long as individual contracts are not more than $3300QLD ($5kVic).

So for example the errection of a picket fence externally and the repair and painting of plaster internally would be seen as two individual projects if the work was performed concurrently or by separate contractors. In this case it appears to me that it would be nice and safe and legal to proceed even without a builder contract, so long as the contract values were appropriate for a non builder.

 

[Perp]

Can anyone here please define what exactly constitutes "building" and "building works"?
Does painting the interior of your house constitute building?

In Queensland, yes. In Queensland, any work for which there's a QBSA licence class - so painting, plastering, tiling, electrical, plumbing, etc - forms part of "building works".

Does re-landscaping your backyard (non structural only ie no retaining walls, pools etc)?

In Queensland, yes.

When renovating, can you break down every individual activity seperatlely, or do you have to calculate the total cost, even though the job was spread out over several months...

It comes down to how one defines a "project", and there is definitely ambiguity. If you strip a bathroom back and replace tiles, light fittings, shower cubicle etc, then all of that is one project. If you don't strip it, though, and instead do it bit by bit, eg re-tile it, then wait a while, then replace light fittings, then wait a while, then replace the cubicle, wait a while, then replace the vanity, then you could argue that they were all separate projects, because you had a "complete" bathroom in-between. But basically, any works completed between an area being "complete and usable" and being restored to that condition, would be considered a single project.

I used to lay timber floors a while back, and the vast majority of those floors cost over $15k to supply and lay. Is this classed as "building works"

If there are no other trades involved, you only need a BSA licence appropriate to the class of work (ie trade). It's only if there are multiple classes of licence involved - eg if you had the planks laid by a chippie but used a painter for sealing - that you'd need a builders' licence. The contractor would need a builders' licence if they're providing both of these trades; if the homeowner used your company to lay the timber, and then did the sealing themselves, or got a third party to do it, then the homeowner needs a builders' licence.

I have just spent the last 4 months, and the best part of $45k personally renovating my PPOR...I didn't get a building licence...

As always, the wording of these regulations are clouded in a haze of ambiguity, in my opinion, to try to sap a little more money out of Joe public in the form of fees...

In QLD, the fees for the licences aren't significant, and I don't think it's about fee collection as much as about consumer protection and ensuring the quality of the works. As Minx suggested, it's more about ensuring that there is insurance cover for any potential future warranty claims.

So I can hire individual contractors to do any work upto $5000 ($3300 in QLD), and more than $5k for work on that list, without a builder or insurence.

If it's only one contractor, you never need a builder's licence or insurance yourself; it's up to the contractor to have the appropriate licences and insurances.

It's only when you're coordinating multiple contractors (including yourself as one of the parties, if you're doing work), and the total project value is over the threshold ($11K in QLD), that you need a builders' licence and insurances.

The information you quoted was about whether the licensed tradesperson has to give you a building contract, not about whether you needed a builder's licence to coordinate the work. (ie The info you gave is not relevant to the issue we're discussing. )

So I can co-ordinate multiple contractors on any "single project" upto a value of $11k in QLD ($12k in Victoria), so long as individual contracts are not more than $3300.

The $3300 threshold is only about whether the contractor has to be a) licensed and b) provide a contract (rather than a quote); it's not relevant as to whether you, as coordinator, require a building licence.

The aims of the $3300 threshold are:

1) to stop people without tradie qualifications from taking on large jobs. So it's OK, for example, for a handyman without a licence to do a bit of plaster patching, but if they want to plaster a whole house, they need a plasterers' ticket.

2) ensure that significant works are performed under a building works contract of a specified format, not as a "quote and accept"-type arrangement, to ensure that insurances and warranties are in place for larger jobs.

But you could have an electrician do $5K of work, and a plasterer $2K of work, without needing a builders' licence.

So for example the errection of a picket fence externally and the repair and painting of plaster internally would be seen as two individual projects if the work was performed concurrently or by separate contractors.

Yes, unless these were part of a larger renovation project. So if you're renovating the whole house, even if everything else is being done with your labour, then you'd still need a licence.

When all is said and done, there are plenty of loopholes, and plenty of people - home owners and tradies - who are non-compliant, I'm sure. In fact, I've just recalled that an electrician did $4,700 worth of work on my PPOR last year, and he just gave me a bill at the end when he should have done it under a building contract. For most honest people, there's not going to be a problem with situations such as the carpet laying and skirting board example that I gave, or with getting a pool company to install a pool, and a different company to install the fence.

But the specific intent of these laws is to crack down on "renovators for profit" who operate without building licences, and QBSA would definitely come down hard on people who are found to be illegally renovating for a living. So if you go to a Reno Kings seminar and get all fired up about renovating for a living, be aware that without a builders' licence, you're breaking the law.

Has anybody here done a seminar by one of the "renovating for profit" educators? Do they address the issue of licencing? If not - and I suspect they'll say something like "we just teach them how to do it, it's up to them to ensure they're operating within the law" - then I don't understand how they operate. Legally, it's the same as instructing people on how to sell illegal drugs for a living, and then when "outed", saying "well, we're just telling them how it's done, not telling them that they should do it!"

If these educators do address licensing, then I'll happily retract my criticism.

I am most familiar with Queensland laws, but suffice to say that talking to others interstate, similar laws operate everywhere in Australia, even if you're not aware of them. Whilst thresholds and details may vary, I feel quite confident in saying that renovating a whole house without a builders' licence is not legal anywhere in Australia.

 

[.toe]

If it's only one contractor, you never need a builder's licence or insurance yourself; it's up to the contractor to have the appropriate licences and insurances.

I think thats pretty much exactly what I said, exept that I added you only need a contract over $3300

It's only when you're coordinating multiple contractors (including yourself as one of the parties, if you're doing work), and the total project value is over the threshold ($11K in QLD), that you need a builders' licence and insurances.

The information you quoted was about whether the licensed tradesperson has to give you a building contract, not about whether you needed a builder's licence to coordinate the work. (ie The info you gave is not relevant to the issue we're discussing. )

Sorry but I beg to differ. I am specifically arguing that you dont need a contracted builder in certain circumstances and until my post it hadn't been recognised that you dont need a builder for a single contractor project. The quoted text points out that you dont even need a Domestic Building Contract for that work which means you dont need a contract with any type of contractor including a builder.

But you could have an electrician do $5K of work, and a plasterer $2K of work, without needing a builders' licence.

THIS IS IT. Right here you have recognised what I'm saying.

In fact, I've just recalled that an electrician did $4,700 worth of work on my PPOR last year, and he just gave me a bill at the end when he should have done it under a building contract.

I dont know about QLD but in vic electricians work is exempt from the $5k limit as mentioned above.

But the specific intent of these laws is to crack down on "renovators for profit" who operate without building licences

Yet clearly and necessarily lower limits have been set which allow some leaway inside bounderies which has been considered as safe

I am most familiar with Queensland laws, but suffice to say that talking to others interstate, similar laws operate everywhere in Australia, even if you're not aware of them. Whilst thresholds and details may vary, I feel quite confident in saying that renovating a whole house without a builders' licence is not legal anywhere in Australia.

I dont see how a whole house is relevant given the title of the tread

Here's some extra free text

 

[Perp]

I think thats pretty much exactly what I said, exept that I added you only need a contract over $3300

Then I misunderstood; I thought we had been talking about whether buillders' licences were required by owners of property, and I thought you were talking about whether a building contract was required, which are two separate issues. But OK.

The information you quoted was about whether the licensed tradesperson has to give you a building contract, not about whether you needed a builder's licence to coordinate the work. (ie The info you gave is not relevant to the issue we're discussing.)

I am specifically arguing that you dont need a contracted builder in certain circumstances and until my post it hadn't been recognised that you dont need a builder for a single contractor project.

Oh, OK. I knew that and I didn't see anybody say anything contrary to that.

I feel quite confident in saying that renovating a whole house without a builders' licence is not legal anywhere in Australia.

I dont see how a whole house is relevant given the title of the tread

Um, I thought the whole thread was about doing a cosmetic renovation for profit. Suraj specifically mentioned a $15K figure, which would be a cost for a weekend warrior to do it, and the retail value of the scope of works he outlined, using a licensed builder, would substantially exceed $15K, therefore a licensed builder is required. I'm agreeing with him that it's very hard to achieve what he outlines.

 

[Deltaberry]

Maybe to buy a more expensive place...

Eg if you buy a 300sqm house in a crap suburb for 300k and you spend 60k renovating, can you really sell it for more than 400k? It's a crap suburb and there're limits to where prices are going to go (because poorer demographics are targetting the area). From 300k to 400k requires a 33% gain - unlikely

If you buy a 300sqm house in a good suburb for 1.2m and spend 60k renovating doing the exact same fit-out, you'd think it's more likely you can sell for 1.35m. From 1.2 to 1.35 it's a 13% gain - more likely?

 

[MCS_80]

You make your profits when you buy, not when you sell

Meaning, no matter how good your reno is, if you dont get a good deal to start with, you're probably behind the eight ball from the get go.

Cheers

Mick

 

[Paul Do]

I have always been successful in adding value by simple cosmetic renovations.
However you are so right, in this market I believe it could be a squeeze to turn it into actual profit.

In past days,no problems,In future days,probably no problems either.

However I believe there is an exception to this, if the property is undermarket when you purchase it.

In other words, the way to make money is from a rising market (or under market purchase), and not from the renovation itself.

 

[charyn]

Cosmetic renovations make money

I have been making money from cosmetic renovations for 5 years for myself and now also for my clients.

The secret to always making a profit is in crunching the numbers before your purchase the property. Two key factors are to:-

1. always buy a property that is under market value and
2. always know what your selling price will be before you sign on the dotted line

Research, research, research!!! When you do the right research on buying property to renovate, you will find that you make your money when you buy. Renovating for profit is a simple process once you understand the numbers. You can not rely on guesswork. You need to know you will make money from the deal before you sign the contract otherwise you risk making no money.

I successfully use a combination of cosmetic renovation and home staging to achieve maximum profits.

Charyn Youngson
www.housestoimpress.com.au

 

[Paul Do]

I have been making money from cosmetic renovations for 5 years for myself and now also for my clients.

The secret to always making a profit is in crunching the numbers before your purchase the property. Two key factors are to:-

1. always buy a property that is under market value and
2. always know what your selling price will be before you sign on the dotted line

Research, research, research!!! When you do the right research on buying property to renovate, you will find that you make your money when you buy. Renovating for profit is a simple process once you understand the numbers. You can not rely on guesswork. You need to know you will make money from the deal before you sign the contract otherwise you risk making no money.

I successfully use a combination of cosmetic renovation and home staging to achieve maximum profits.

Charyn Youngson
www.housestoimpress.com.au

Have you ever compared the "profit" from renovating taking into account the transaction costs (and maybe also CGT) and your fees with the just hold situation?

 

[Rob Williams]

Have you ever compared the "profit" from renovating taking into account the transaction costs (and maybe also CGT) and your fees with the just hold situation?

I'm actually in the process of writing an article on just that topic, using a worked example.
It's easy for spruikers and the like to select specific examples and present the figures in such a way that they appear to look like awesome results.
When you do, as you suggest, and account for the holding costs, CGT etc etc, the results look a lot less glamorous and enticing.

 

[.toe]

Suraj specifically mentioned a $15K figure, which would be a cost for a weekend warrior to do it, and the retail value of the scope of works he outlined, using a licensed builder, would substantially exceed $15K, therefore a licensed builder is required. I'm agreeing with him that it's very hard to achieve what he outlines.

Yes I see you are right, Suraj did mention a $15k figure. And obviously a conversation must sometimes go outside the original scope, so you're right a 'whole house' reno is relevant here.

Also I agree it's not all that easy to achieve. However I think that being difficult to achieve is offset by the ability to know whether the project will make a profit from the reno portion alone, before you make an offer on the property.

In advance of signing a contract to purchase, we should know the buy price and the actual value of the property, the likely revaluation, buy/sell costs, the reno cost. Then we will know in advance whether the reno alone will make money. So all the hard work happens before signing the contract.

 

[Pa1nter]

In other words, the way to make money is from a rising market (or under market purchase), and not from the renovation itself.

That's not true,many times over the years I have been involved with renovations with a reasonably flat market and had a valuation before and after and an easy 60K -100K was produced with a 30K reno.

Today it is harder because the property wont sell quick enough,eating up a lot of the profit with the holding costs,

 

[J Martin]

That's not true,many times over the years I have been involved with renovations with a reasonably flat market and had a valuation before and after and an easy 60K -100K was produced with a 30K reno.

Today it is harder because the property wont sell quick enough,eating up a lot of the profit with the holding costs,

These days, a fair chunk of the 60-100k valuation increase would be lost in buy and sell costs, interest and opportunity cost on your invested capital and labour.

I can see how people make profit, but it ain't glamorous, and it's only those who a buy significantly below market, reno themselves(remove the labour component), and sell in a rising market that do well..

 

[Perp]

I have been making money from cosmetic renovations for 5 years for myself and now also for my clients.

Are you a licensed builder? If not, do you renovate illegally, or are you finding deals with enough profit in them to include the additional costs associated with having a builder involved? (As Nathan does.)

 

[Suraj]

HI Rob

Hi Rob I read your article about how you built up ur property portfolio, you mostly focused on buying units than houses and doing some renovations to increase the value. Revalue and use the equity to buy more properties. I appreciate your success in property. Could you please give some more tips how actually you buy and what sort of renovation you do at what cost and how much value increase with the sort of work on the property. If real life example would be best. If you donot mind.
Thank you very much.
Suraj