Renos - not so hot as you think!

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From: Colin Mills


WARNING WARNING!!! This is a negative post! If you belong to the "Just do it" (don't ever consider thinking about it first) super positive, all fired up group that seem to love this site then kindly move on to the next post.
The other day I read a post by some guy, Sam I think, who reckoned he picked up a lazy 30 grand doing a reno. Hmmmm - not bad you think. Sounds good to me........
About 15 years or so back I was doing a similar exercise. As the sweat was pouring off me and the sun blazing I suddenly realized what a mug I truly was. I could be luxuriating in an air-conditioned office with my feet up (it was a Saturday) doing overtime. Back in the mid 80s $40 an hour (double time) was a reasonable amount of money. It dawned on me I could hire somebody to carry out the donkey work (which was all I could do) for a lot less than the $40 an hour I could score doing OT. Plus I got to sit in the AC.
My point? Once you start to factor in the cost of your own labour then its surprising just how poorly a lot of renos stack up.
Of course at this point everybody turns around and claims that they have no skills and they value their time at no cost. Obviously thats not so. Even the most basic labour (donkey work) would carry a cost of at least $20 per hour. (I'm excluding OAPs and Uni students who seem to want a 50 minute smoko every hour!!!) And to this day I've never met anyone who will regularly work Sundays without being paid extra.
Lets go back to our friend Sam. According to him he and his g/friend spent 6 months of hard work doing it up. Thats 26 w/ends or 52 days times two or 104 days @ $160 equals $16,640.
Take off the FHOG (I missed out by just 18 years) and selling costs and Sam is left with a couple of grand should he sell. Far cry from that 30 grand.
Of course many will argue he still keeps the $16k. Yeah thats right - but its "sweat money" and certainly not a profit from doing the reno.
I have no problem with renos providing you factor in your own labour costs. If you are not prepared to do that then you are simply deluding yourself as to the true cost and anticipated profit of the exercise.
These days OT for me is unavailable. However I still value my time to the point where I'd rather be out and about looking for my next acquisition than tarting up an old dump, especially when I can pay somebody else to do it for me.
 
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Reply: 1
From: Glenn Mott


Colin,

I could not agree with you more on some of the points you have raised, especially the one about you getting more value from doing overtime in your regular job and getting a tradesman to perform the renovations for you.

In my very limited experience as a renovator (1 prop), I quickly learnt that as a handyman I am a real shocker but have organisational, budgeting and negotiating skills that allow me to find tradesman to do the job at a reasonable rate.

The only parts of reno work that I dont farm out now are the brick paving (because my Dad is pretty good at it, we get to work together and get to talk about blokey things for a few days) and the architecture/interior design as my wife works in that field and does good CAD work for hugs.

So my finding are, why do something yourself and do a poor job of it when you can pay someone to do a good job of it, get some design ideas from them and keep your mind focused on the big picture. The big picture for me is getting the reno done in a particular time, for a particular price, to a particular standard and having each dollar produce AT LEAST 1 dollar of extra capital value in your property. The extra rent is nice, but the capital gain is what you are after as it is not taxable until the prop is sold.

Glenn
 
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Renos - a glass half empty!

Reply: 2
From: Michael Croft


Oh I do like you Colin, really I do.

There are three basic types of builders/reno people and of course they all overlap to a certain degree.

#1 is the 'nail bag builder' or hands on reno person. The one you describe who gets her hands dirty and creates 'sweat equity'.

#2 is the 'builder manager' or reno manger, she gets her hands dirty occasionally but co-ordinates and supervises the tradespeople on site. This is smarter sweat equity.

#3 is the remote developer/financier/builder or remote reno manager, she 'lets her fingers do the walking' and will often pay someone to be on site to supervise the reno.

The point being they all require different and overlapping skills and all can be profitable if done right (even taking into account opportunity cost). Dumping on Sam and partner for their achievement is really uncalled for and quite beneath you.

And Colin because your glass is always half empty you forgot that there are some poor twisted and demented people - like me, who actually enjoy doing renos. The fun/satisfaction/creativity factors seems to be lost on you.

warm regards,

Michael Croft
 
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Reply: 3
From: Jacque Parker


Well Colin,
I have to agree with you about the a/c. It sure sounds like the better alternative to me! However, I feel that you are forgetting a couple of points here.

Firstly, there are many renovators out there who actually enjoy the dust, dirt, paint and enormous self-satisfaction they receive from doing it all themselves (not to mention their increased level of fitness. Think of the money saved in gym fees!). The renovation also gets completed to their budget and timeframe. No waiting around for tradesmen to show up...

Secondly, not everyone has an alternative job lined up where they can be paid whilst they employ others to do the reno. Eg; mums at home, unemployed, people between jobs, students etc. For these people, surely it's better ( if they're skilled) to do the reno themselves, saving money and learning at the same time. I actually enjoy painting, for example, and prefer to do it myself, if I'm able, as I'm in the position of having the time available and I save money here as well.

I agree wholeheartedly that you should factor in your own labour, but at what cost? It's not actually money that's leaving your pocket, is it? I suppose it's how highly you value your time. Staying at home with children earns me nothing, yet it's a very difficult job at times! Painting, however, I generally find stress-free and enjoyable. Go figure!

Cheers, Jacque :)
 
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Reply: 3.1
From: Frank Shead


Colin
100% agree with you.
Why have dog and bark yourself?
Frank Shead
 
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Reply: 3.1.1
From: Michael Croft


Your assumption Frank is that we all own dogs; do you think this is so?

Michael Croft
 
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Reply: 3.1.1.1
From: G V


Doing overtime on a weekend in an A/C office surely gives you extra income but it has cost attached to it. firstly you have to pay tax immediately (so you are down immediately by 49.5% added to this is 15% surcharge to your super if you income exceeds certain limit)whereas the equity in property can be used immediately to increase you portfolio.
Also i think you need experience of some sort so that you can overview the work of a handy person properly. so why not use some of your spare time to know the tricks of the trade.
 
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Reply: 3.1.1.1.1
From: Alan Hill


I can see both sides of this argument.....

At the risk of being just a little sexist..... those Backyard Blitz, Home Renovator etc. type shows have a lot to answer for when it comes to your poor old average bloke!!!

In my case my wife started by simply wanting a few garden beds thrown in......(you know where this is going don't you!)...."oh and since your doing that why don't you put in a retaining wall there...there and there......about a metre high each should do it....along the entire backyard....of course if your doing that...just level that area and ...ahhhh....can you do something with that drainage stuff to get rid of the water....we'll now need steps there....there, and there.....since it backs onto a creek, of cause you'll then have to clean all that up....and then maybe we can start with some real planting!". It grew from a simple garden bed to a total landscaping job of every square cm of the backyard in about 30 minutes! True story.

"WHAT DO YOU MEAN YOU CAN'T HAVE IT ALL FINISHED THIS WEEKEND!!! THEY DO ON THOSE TV SHOWS YOU KNOW!"......I slink off to a corner......totally convinced I am the only male in Australia that couldn't have this entire job totally finished single handed by Sunday afternoon....

So I start....yes I could have paid someone else to do a lot of it....I know that would be more practical....yes it would probably cost less an hour than what I make...etc..etc ...I doubted my own sanity for even starting this stupid job about twice every day for the last 2 months......but do you know why I keep doing it?

It is incredibly satisfying!!

At the end of the day, I sit on an old crate and have a beer that I swear must have been brewed in heaven it self.....the perfect beer....just the right temperature and for the life of me I can never get it to taste as good unless I've done a good hard days work on a property that I own.

Can't possibly make sense financially can it....but then I suspect half the pleasure of renovating yourself has nothing to do with finances........even if I don't have that backyard air conditioned.

PS. Just in case your wondering....should have it finished in another 6 months....that is if the beer holds out......


:)
 
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Reply: 3.1.1.1.1.1
From: Les .



G'day Colin,

I'm getting used to your "had burnt toast for breakfast, and now the whole day's stuffed" approach - I even somewhat enjoy reading your pessimistic posts. You do make sense, sometimes ....

But, I really couldn't let this one go unchallenged :-

"Of course many will argue he still keeps the $16k. Yeah thats right - but its "sweat money" and certainly not a profit from doing the reno."

Huh? What's that? Not a profit from doing the reno? So, what is it? Scotch Mist?

Does a "profit" have to be engineered out of thin air to be deemed profit? If he watched the cricket for 6 months, he wouldn't have had this money - but he bought, and renovated, a property (which has now grown in value) - so how is this NOT a profit? If he had planned to do this, has now done it, and succeeded in adding value, then this WAS A PROFITABLE venture.

Good luck to you Sam, keep it up - and even if you'd "never do it again", you've learned/grown immeasurably.

And Colin, just to show there's no hard feelings, can I buy you a new toaster, old son? ;^)

Regards,

Les


- "Eschew Obfuscation" - ;^)
 
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Reply: 4
From: Rolf Latham


Hi Colin

A normal every day refinance after a reno - partially exceptional but just to add to the string of posts.

Purchase run down but structurally ok house for 450 k. 5 % deposit, 95 % loan.

Borrow another 45 k from various unsecured sources. Spend every weekend for three months slaving your guts out - no aircon here !

Three months later reval at 700 k, refinanced at 85 %. Pay back 50 k for the 45 k borrowed.

Now simple numbers. 12 weekends 12 hours per day times 2 = 288 hours.

Gain of 700 - 450 = 250 k- 50 for costs and holding cost for 3 months, around 8000 inlc interest etc.

Lets not look at selling even, just the $ the refinance released then 595 - 50 -8 = 537
say 530 after all costs, a loose 102 000.

102 000 k on a total investment of around
$ 50 000 in three months.

Please bring me more of this "not so hot as you think"



Rolf
 
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Reply: 4.1
From: Mark Laszczuk


Colin,
Haven't seen that many of your posts, just two (but that's enough). First, you tell a fourteen year old kid, keen as to start investing, a straight out NO! when he asks if he can begin buying properties with nothing to back it up, and now this. Do yourself a favour, go far into the desert, dig a nice little hole and bury your head in it, then keep talking all the s**t you like. That way, no one else has to hear it. You truly are a wanker, mate. Seriously.

Mark
'no hat, some cattle'
 
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Reply: 4.2
From: Colin Mills


Rolf,
I never suggested you could not make a quid out of renovating. In fact I'm planning one right now in Brisbane. My point was that most renovators fail to factor in there own cost of labour thereby over estimating their profit. I've known people to take four weeks annual leave from their 9 to 5 job simply to complete a reno. Ask them to account for costs and they swear blind that the 3 to 4 thousand dollars in holiday pay they have used up doesn't come into the equation.
I still advocate renovation as a wealth creating strategy.
By the way, as suggested elsewhere, I was not picking on Sam, merely using Sams experience as an example. I wish him and his girlfriend all the best.
 
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Renos - a glass half empty!

Reply: 2.1
From: Colin Mills


Michael,
I like you too. Perhaps we should form a mutual admiration society? Looks like I fall into your category # 3. The only time I ended up in category #1 was that first (and last) reno back in the mid-80s. Never again.
As for the supposed fun and creativity well you have me stumped. I have found painting to be particularly boring, not to mention hard work.
Personally, I find it more challenging to play the role of armchair general. Moving my troops (tradesmen) and munitions (building materials) in a well orchestrated plan that results in overall victory (a nice big fat capital gain).
Thats what pumps me up!
PS See my reply to Rolf re Sam.
 
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