Hi everyone,
I'm doing a bit of research into a business model for buying and renovating properties.
I've been looking around the internet for stats on the average percentage gain that a renovation would normally add to a property. I know that it sound a bit vague but assume the following:
3 bedroom terrace house:
New bathroom
New kitchen
Floor boards sanded and oiled throughout
Paint inside and out
Misc cosmetic repairs such as switches, lights fittings etc…
Small garden landscaping – areas 5 x 8mAssume the house cost 700,000 at current market in its currnet unrenovated condition.
Area is eastern suburbs and is a sought after area.
Also:
Assume the same with a 1-2 bedroom flat in the same area.
New bathroom
New kitchen
Floor boards sanded and oiled throughout
Paint
Misc cosmetic repairs such as switches, lights fittings etc…Any ideas or feedback welcome.
Thanks.
B.
Billy, how much are you looking at making?
House $700k
SD/Legals +/- 4% $30k
Agent selling comm 2.2% say $18k (on $800k sale price)
Legals etc on Sale $2kYou have $50k of costs before you have touched the building.
Basic kitchen/bath say $20k
Painting say $10k
Cosmetic + gardens say $10kWhat do you expect to be your sales price? Are people prepared to pay an extra $100k for work that they could have organised themselves for $30k less than a projected sale at $800k?
Thanks Scott,
Appreciate your feedback.
I would be looking at at least 10% profit but it depends on what the market will pay. So I guess your saying that this amount of work could add about that to the property.
Ideally I'd like to get the property under market value, either because of seller circumstance or the poor condition of the property. I would then not actually want to purchase the property, but take an option on it and then do my work then resell it once complete. This would then remove any agent fees, legal and finance costs, thus removing your mentioned 50K out of the transaction.
Renovations would would cost me between 20-30K if done handyman style. I've renovated before and and currently on my 4th, so do realise the mark up that is added by professional labour. In my estimate it's about 70% of the cost.What are your thoughts? Do you have experience with property renovation? What industry are you in?
Look forward to any further comments that you may have mate.
Welcome feedback and comments from anyone.
Thanks.
Billy
Billy,
Recommend you look at purchasing the product from this site "Renovation Toolbox" to help fill in the gaps with your strategy.
You need to work backwards from the sale price for renovated homes/units in your target area. A rule of thumb calculation generally used by expert renovators is dividing the end sale price by 1.35 to confirm your preferred purchase price….ie $800K divide by 1.35 would equate to $592K purchase price. This will allow funds for purchase costs, reno, selling costs, tax and profit of 10% (10% of sell price).
You may decide to do deals for less profit but that is a basic rule of thumb that can be used to vet deals quickly. Please note you must be an EXPERT on the selling price first to ensure you get the fit out and reno cost estimated correctly. Sometimes you may find you can spend less on the renovation for the same sell result therefore pay more for the home initially…… lots of different scenarios and variations can be played out.
We are now heavily involved in developments and haven't done reno's for a while…….. I dont have any interest in the sale of that product but I can recommend it….. especially in your early days…..plenty of detail and info to fast track you..
Good Luck
Cheers
BC
Thanks Cullsport,
Definitely worth looking into. I have been hunting the net for freebies and excel spreadsheets to try piece together a package. I'll take a look into it, by researching forum threads and other users feedback on the benefits of the package.
Thanks for your feedback and helpful suggestions.
Billy
Also… Assume the possibility of having no purchase costs such as Stamp Duty, Loans and Financing costs and minimal Legals. This would reduce the 1.35 ratio somewhat and allow for more gain and purchasing negotiation.
Any thoughts on how this may be achievable?
Billy
Brought the reno toolbox resently and the spread sheet is very good.Worth looking into and $500 well spent.Haven't done one yet but looking into areas now.
I am a plasterer by trade and have been looking at what i can do to change the property in my profession and can say that i probably add very little to it but make it more attractive to people looking.Can't see myself doing things like painting as it would be better for me to go to work and pay a painter,unless i was to do a very quike job.Carpentry work is the same,nail guns,compressers,drop saws,would eat into your profit.Think i would find a chippy [not a builder],painter,plumber and sparky out the local paper and go from their.
Cheersbillybman wrote:Renovations would would cost me between 20-30K if done handyman style. I've renovated before and and currently on my 4th, so do realise the mark up that is added by professional labour. In my estimate it's about 70% of the cost.Bear in mind that doing works of this scale yourself is illegal in many states; it certainly would be in QLD. It may be ridiculous, but any works whose retail value (ie what a professional would charge to do it) is greater than $11K requires a builder's licence. That includes painting, landscaping, everything. You can get an owner builder's licence to manage it yourself, but that can only be done once every 6 years, and also if you only have an option then you're not the owner and wouldn't qualify for an OB licence.
http://www.somersoft.com/forums/showthread.php?t=36542
I have asked a lady that I know who frequently renovates in QLD how she gets around these laws – or whether, as I suspect many others do, she just renovates illegally and hopes for the best – and I'll get back to you if/when I hear any good answer. Just be aware that if you are renovating illegally, you'll need to be very sure that you have the best asset protection and insurances for if anything goes wrong.
Cheers Trakka,
Very informative post. I came across something similar to this when I was selling my first property, it came up through my conveyancer, he mentioned the same concerns and the prospective buyers asked that I guarantee any faults in any renovations. A building inspection couldn't fault anything I'd done, and I didn't agree to their terms but they bought anyway.
You raised a good point and thanks for the feedback and suggestion. I'll definitely be looking into some asset protection structure.
Billy
I got a reply from the "serial renovator"
; her position is that she's not doing building work because she's not doing structural work. I believe that the QBSA (here in QLD) would disagree with this interpretation and consider that she's renovating illegally. And yes, in QLD I think you're obliged to provide a 6 1/2 year warranty on all works.Could you still insure to cover this warranty? If I was to get insurance for owner building what are the average costs? If I also to option the property, could the owner take the insurance to cover any requirements?
Hi billy
I can also vouch for the quality of "renovation toolbox". It also comes with DVD's on how to crunch numbers, case studies etc.
Good value. It helped me be able to confidently estimate my first reno, with little previous experience. If you are interested you can read about my reno here: https://www.propertyinvesting.com/forums/property-investing/value-adding/4320913Not sure what city you are in, but in Vic you would need to pay stamp duty even if you do purchase using an Option contract.
Insurance – you can't get builders warranty insurance unless you are a builder. And why would a vendor trust you to do work to his house, and then carry the insurance risk himself for 6.5 years, just hoping that you did the work well and there will not be a claim?
Also, I think there are other laws also, like an owner builder must use registered tradespeople to do the work. It might depend on the state, but bottom line is you cannot do numerous renovations without either being a registered builder, or moving into some very shady and uncertain legal areas.And like others have said, the key to success is being an absolute area expert in what you will be selling. You need to know to a very high level of certainty what you can sell for, and what features and quality you need to include to get that price.
Good luck.
; her position is that she's not doing building work because she's not doing structural work. I believe that the QBSA (here in QLD) would disagree with this interpretation and consider that she's renovating illegally. And yes, in QLD I think you're obliged to provide a 6 1/2 year warranty on all works.
You must be logged in to reply to this topic. If you don't have an account, you can register here.
