Renovating - Profits

Hi all
for the experienced renovators out there, what is the % you expect to make on a reno? Do you have a target and stick to it?
My thoughts are that you would need to make at least 20% profit in the hand after all expenses including stamp duty, sale costs etc.

Would be interesting to find out what you are actually achieving if you would like to share.

Cheers, MTR
 
Im not sure there is a golden %, however I believe there are some 'golden' conditions that make renos very profitable.

1. Young couple - no kids

2. No emotional attachment to property

3. Semi-skilled and ability to learn

4. Purchase of underpriced property in overpriced location.

5. Solid knowledge of local market, no point making a $1million dollar property in an area where the average is $300,000.

6. Sell when the profit is there after 12 months of occupancy. Make your $$$ and move onto next property. KISS.

In other words if you can reno a house whilst living in it, and then do that every year or so for 4/5 years then you can build your self up a very tidy little fighting fund - tax free.

Or something like that anyway........
 
Hi Painter
I wont be personally doing any renovations, I will be farming out the work.

I have completed 1 profitable reno but some time ago.

I am finding it difficult to find suitable property, lower entry level (units) seems difficult to achieve 20%, possibly 15% maybe?? in areas that I have started researching.

My g/friend is doing $1M+ renos, period homes but this involves extension, she completes all the design work and farms it out.

Her latest project should make her a tidy $650,000 in 18 month period. I dont say this to boast but merely to compare how profits are huge when you go to higher level, problem is they take so long and finance is getting so much tighter.

I have only started researching so I may hit the jackpot soon, but I would continue using other strategies.

Cheers, MTR
 
4. Purchase of underpriced property in overpriced location.

6. Sell when the profit is there after 12 months of occupancy. Make your $$$ and move onto next property. KISS.

We've kind of done this, but far slower than once a year and it seems we're just keeping the last house as a rental. Not profit so much as really high yield that way, and no rent while we're fixing the place up.
 
Probably the best reno you can do is to marry that girlfriend of yours :D

Hi Painter
I wont be personally doing any renovations, I will be farming out the work.

I have completed 1 profitable reno but some time ago.

I am finding it difficult to find suitable property, lower entry level (units) seems difficult to achieve 20%, possibly 15% maybe?? in areas that I have started researching.

My g/friend is doing $1M+ renos, period homes but this involves extension, she completes all the design work and farms it out.

Her latest project should make her a tidy $650,000 in 18 month period. I dont say this to boast but merely to compare how profits are huge when you go to higher level, problem is they take so long and finance is getting so much tighter.

I have only started researching so I may hit the jackpot soon, but I would continue using other strategies.

Cheers, MTR
 
Hi MTR,

Just bumping this thread. As it is sometimes difficult to get finance for large projects atm, how is your gf funding the reno for these large projects? Does she purchase and have the banks fund on the finished product value so she has the funds to complete a large reno?

Thanks :)
 
The project was purely funded by investors.

She provides a comprehensive feasibility study with projections on profits etc. She is able to tap into a network of interested investors who do not have her skills but can see a great opportunity.

She also manages the project and her fees are included in feasibility study. Its put together with solicitor's involvement and % are worked out, ie if 2 investors involved 50/50% split of profits, its a win/win.

The down side I see to her projects as a money partner is the length of time from start to completion about 18 months, too long for me. I would like to turn around deals alot quicker, but then the margins for high end stuff is far greater.

Cheers, MTR
 
Thanks. Would it be better for you to be involved in the high end projects, as it may be more passive e.g you wouldn't have to turnover so many projects to get the same amount of profit? Just a thought. Sounds like your gf is onto a good thing! You said she does the designing and outsources - is she an architect?
 
HI Tarah
she has her own interior design business and was actually doing this stuff for clients who were reaping the rewards while she was paid a set fee to project manage and do the designs. She was also involved in getting projects rezoned from resi to commercial, which is somehthing else she is looking at. I guess the penny dropped and she realised it is a niche market with plenty of opportunities. She also did study architecture, and is currently studying Master Builders course in Perth.

Its alot of money to tie up for 18 months though, when you could be missing out on other opportunities, as I also like to jump into markets that are rising which can easily make $100K in 1 year just sitting on it.

Cheers, MTR
 
True about money being tied up. I once looked into building and selling but I realised it would be 12-18mths from plans to completion and would probably make the same profit as I would have just holding a property for that time. I figured in a rising market I'd be better off just buying and holding with a few renos thrown in! It depends though. Atm probably a smart thing to create equity/income rather than wait for it or as you said buy in growing areas to make a quick profit.
 
Hi Painter
I wont be personally doing any renovations, I will be farming out the work.

I have completed 1 profitable reno but some time ago.

I am finding it difficult to find suitable property, lower entry level (units) seems difficult to achieve 20%, possibly 15% maybe?? in areas that I have started researching.

My g/friend is doing $1M+ renos, period homes but this involves extension, she completes all the design work and farms it out.

Her latest project should make her a tidy $650,000 in 18 month period. I dont say this to boast but merely to compare how profits are huge when you go to higher level, problem is they take so long and finance is getting so much tighter.

I have only started researching so I may hit the jackpot soon, but I would continue using other strategies.

Cheers, MTR

whereabouts is this if i may ask? i'm a renovator too but only in selected areas in melbourne.
 
I tend to prefer to think of it in dollar figures - how much actual return rather than % because 20% of $300,000 is very different to 20% of $800,000 for example.

Have a think about how much in $ you would like to make from you your reno, over what time frame and with what budget. I always break down our profit figure by the time it will take too so that I can see a per month profit figure to help me compare deals..

Wishing you every success, Ana
 
Personally I work it out on an annualised captial ROI. For me personally, I find this is the best way to compare deals. The profit I work on for my buy/reno/flip is about an 8% gross margin on the deal.

So an example is as follows:
Purchase Price: 440k
Sale Price: 535k
Reno Costs: 25k
Buy/sell Costs: 18k
Holding Costs: 8.5k (include own capital)
12 weeks hold
capital used: ~100k

Profit = 535-440-25-18-8.5 = $43.5k

gross margin = 43.5/535=8.13%

annualised captial ROI = [(43.5/100)/12]*52*100 = 188.50% AROI

This way you can compare time, LVR and profit.
 
Think Tank - I use a similar type of 'formula' though mine is not so mathmatical.
Generally when looking I am aiming for 25% minimum increase in value.
However this depends on time frame also.
Like Ana - For quick flips I look less at the % and look more at hard numbers. Ie if I can make $50k in 3 months, even if the yeld is only at say 5% I will probably still go for it. This is a high risk strategy though, however, also opens up more opportunities to buy.

We did one flip which was a 4.5% return, however, was under 2 weeks between settlements and netted about $20k. Addmitedly that was a couple of years ago, and I doubt if I will ever be able to repeat that performance.

Sometimes I think it is possible to over annylise the numbers, forgetting about the big picture. Quick flips can be a great sourse of cashflow if done properly (quickly).

Take a read of the other thread in the adding value section. Lizzie did a reno and made $95k in 18months tax free! Yield was probably just over 10%. If she had annalysed that too much, she could well have missed out on a $95k profit!

Good luck to you!
 
i recently did two renos to stay and to rent out however got offered crazy prices for them and i netted 120K profit with 17K reno in 6 months and another 70K in 4 months. but most likely was fueled by the boom in melbourne over the last 12 months. I would say it is a bit of luck, timing and relaxation of FIRB back then. There were units though.
 
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