Hello,

You need to do your own homework but, as I have just finished building two units in Tassie (so inflate everything for the over-priced mainland!), here are my thoughts.   Only you know what you can sell your development for so what you need to subtract from that figure (and I wouldn't be banking on any capital growth right now)  is:

Land cost: What ever it is plus your closing costs.

Architect: $4 to 6k for a 100SQM dwelling.  Bit of advice: use a building designer (or a builder's off the shelf design) and not an architect for anything straight forward as they are half the price for 95% the same end product.

Engineer and soil tests: $2-3k

Your holding costs: I reckon if you are in (from when the designer starts) and out  (to when the sale closes) in a year, you are doing remarkably well.  Factor in at least 18 months to be safe in a slow market.  And don't forget that toward the end you are holding rather more than just land (eg: finishedand paid for but unlet or sold property)

Development costs: Speak to your local council to find out what fees relate to subdivisions, stratas and the costs associated with obtaining a DA and the relevant building and plumbing permits.

Block clearing: Depends but normally $3kish for an easy block with a bit of demolition work and digging.

Surveyor: Again depends on what is happening but $4k is what I paid for two strata titled units.

Builder: I paid $110k for two 90SQM units.

White goods: $3k for a cooker, extractor etc…

Heating – cooling: $2kish
 
External plumbing: $5k per unit

Telecoms: $3k per unit – included laying conduit and all connections etc….

External electrics: $2-3k per unit – includes laying underground cable in trench (same trench for storm water, telecoms and elec to save cost) and connecting to mains supply.  Handy hint: Get your power supplier geared up as soon as you are even close to lock up as they are lazy bastards.

Concreting: $15k per unit!  And that was in Tassie. Tip: Make sure you get your designer to design your development with as little concrete as possible.  It is incredibly expensive.

Clearing up the builder's crap: $2k

Landscaping: $10k per unit for a tidy but not flash end product. Included a bit of new fencing, top soil, gravels etc…  I did a fair amount of the labouring myself.  So, say $15k for you.

Carpets and blinds: $3k for a very basic finish – builder's carpet and venetians.

Sales costs: Whatever an estate agent charges and your solicitor's, bank's costs etc…

And add at least a 10% contigency.

If it all adds up for you, best of luck.

I found it took too long and the next time I do it, I'm going to "borrow" a builder's licence and sub contract all the work myself.  Having a fixed price contract was great but it took a long time to get finished.  Then again, I didn't have to doan awful lot and made a few bucks at the end of the day so definitely no regrets.

All the best

Andy

Hello,

When is the right time to buy property?  The answer is "Now".  It's an old saying but one that is almost 100% correct.  The only time I would not buy is in a dramatic downtun – like in the UK in the late 80's when owners encountered negative equity (where you owe more than the property is worth due to devaluation).  The probability of that happening in the near fure in NZ or Oz is truely minimal. 

If I were you, I'd be thinking about some other factors: 

Firstly, you need to buy well and at undervalue.  How do you do that?  You start looking and keeping going until you are convinced that you have found a bargain.  It will take time and effort and it will not be delivered to you by an estate agent or buyer's agent. 

Secondly, if you're going to buy a property which is undervalued it will invariably need to be renovated.  When you do all the sums (eg: excatly what is it going to cost to purchase, renovate, hold and sell the property – and over what period of time) do not add into that equation what you are planning to gain through capital appreciaition.  The reason for not doing so, is that your assumptions for capital growth may be sadly lacking.  After all, economists get it wrong half the time so why will you be able to guage a market any better?  As a rule of thumb, I don't buy a property unless I can make at least 20% over all outgoings and before any capital appreciaition.  Better to be pleasantly surprised than sadly disappointed.

You also mention that you are concerned about looking outside your own area.  I wouldn't on your first outing.  Too easy to make a mistake with regard to neighbourhoods, prices etc…. and too costly to reno (as you will have to employ more labour, travel further etc…).  I very rarely venture out of Tassie (I'm not allowed to without a special pass).  I probably should now but I have a few years of experience under my belt.

Finally, in my opinion, you are far better with your money in property than in a cash account so long as you don't need liquidity – (and even then you can get that if you have equity through refinancing).   You can't leverage off a cash account.  You can off property.  For example, say you have $20k on deposit, you'll get $1600 per annum –  of which a fair old chunk will go to the taxman as it is taxable income.  On the other hand, use the $20k as a 10% deposit on a house, and you immediately have an asset worth $200k – which will most likely be appreciating at a similar rate – giving you $16,000 (of which the taxman gets bugger all until you realise your gain) less your holding costs which will be nil if the property is cashflow positive or neutral.  You'll have a tenant in place paying your mortgage, tax deductibles, the opportunity to improve your property through renovations etc…  Its a much better deal than a cash account.

Go on, buy something.  It really does make a lot of sense.

Andy

Hi,

I haven't got a lot of time to reply to your post Jase (as I have a pressing engagement with a ceiling through which a sparky fell yesterday!) but you are of, of course, correct to say that you bank cash not percentages.  What I personally do is this (which I didn't really explain in full): I do look for a 20% profit margin but I then also take into account time available, cash/finance available and actual cash return.  I guess I look at my year and say is this a good project to fit in.  Is it going to give me a good return on all my outlays.  I'm not not a big one for going through a hundred tests to see if a project ticks all the boxes.  Many good projects just don't pass all the "guru" tests.  I tend to be a bit more of a free thinker.  If I'm comfortable putting my portfolio on line, then I get on with it.

And just one other thing.  Unless your boss is totally non partisan (which I doubt is the case – guess what, he probably wants you back to the grindstone) do not put too much store in what he says.  I used to earn over $250k a year as GM of a large employment law training company in the USofA.  I gave it all up to become a full time investor.  Guess what?  I earn a great deal less.  In fact, we live on my wife's salary – nothing flash – she's a nurse.  However, we now have more assets that we ever did when I had to turn up to work everyday to a job that I didn't particulalrly enjoy for a boss I disliked.  When I left, I had more time to do the things I wanted to with my family (4 kids, the wifey and the dogs), I have never had to beg for a day off or feel bad at taking off to go fishing at two o'clock, and I am certainly a lot healthier and happier.  So, don't put too much store in what boss's tell you.  And treat all the stats that people come up with a bit sceptiscism.  At the end of the day, be happy with what you want – not with what someone else wants you to be happy with. 

Have a great day.

Andy

I'd accept a toblerone for helping but it'd have to be one of those really big ones that you get at Christmas from your big brother (when he was eight – he doesn't get me anything now he's 43).

I think you did pretty well for your first outing.  Okay, so you went ahead aiming for a small profit and you ended up making a fair bit more.  The main thing is that you actually did something.  So many people sit back, procrastinate and then fail to take action.  Forget all the nonsense that Crashy comes up. 

So, what are you going to do next now you have a little experience?  I've down a few renos in my time and, if you have a minute, here is my advice.  Don't buy another straightforward reno.  By straightforward, I mean an undercapitalised house that just requires an update.  Look for a property which needs a vanilla reno (as that obviously adds value) but which also has a "hidden" source of untapped value.  I have found that vanilla renos yield about 10% to 20% in actual before tax profit.  There are a number of reasons for this cap in profitability.  The two main factors are that prices are almost always going to be comparitively high as everyone and their dog wants to buy nice little doer uppers and make a quick buck.  You're competing not only with other investors but also with the general buying public.   Secondly, you can only ever raise the value up to that of the best comparable house in the surrounding streets.  Properties with "hidden" value tend to yield a lot more.  So, what is a property with hidden value.  Well, there isn't one type but the following are things to look for: a property (not necessarily a house) on land that can be developed, subdivided or strata titled; a large house that can be made into flats; a house that can be extended either outwards or upwards; or one where more rooms can be created by division of larger rooms or use of under utilised space; residential to commercial conversions and v.versa; flats back to house and v.v; unfinished projects; what I call "shell developments" – eg: old industrial buildings or agricultural or public sector or church buildings or old shops that can be converted to residential or commercial.  There are quite a few more.  The main thing is that such opportunities are not even seen by the general investing public (negative equity buyers and safe positive buyers).  They're not seen by most agents either.  Such properties are therefore often woefully undervalued.  And even if they do get spotted most people crap themselves at the work involved.  You do have to use your imagination and have a bit of flair but the risks are certainly worth the extra work. 

The other thing I would suggest you start doing is measuring profitability as a percentage.  You mention that you would be happy with $25k to $30k profit but off what?  That's not a bad outcome if you've only outed $150k but that's a nightmare if you outed $500k!  I normally look for a minimum of 20% return on outlay.  This confuses real estate agents as when they ask me what price range I'm interested in, I always reply that the price doesn't matter so long as I can get a margin.  The problem then is that they just can't get their head around a client who might buy a $115k outhouse or a $750k mansion (I live in Tassie were $750,000 still does get you a mansion) – but I will so long as I can see 20%+.

And my final comment is that I totally disagree with Crashy's comment that "Its easy to become complacent after an early success. much harder to reproduce success time after time.".  Of course, the complacent will fail but you don't strike me as being complacent.  And with experience, you gain knowledge so obviously things become easier.  Your next outing will be even better than this one.  So, the very best of luck to you.

Andy

Hello,

I am a full time renovator and I'm not a tradie – and this is my first meeting of "Renovators Who Are Not Tradies Anonymous".  Maybe Crashy could be my mentor.  Christ, I'm dying for a drink… maybe I'm at the wrong meeting?

Anyway, I think, before Crashy and Chumpy decided to lay into each other in the pub carpark which is http://www.propertyinvesting.com, that the initial question was "is it possible to make a decent living doing renos full time?"  The answer is absolutely.  I'm living proof.  And you don't have to be a tradesman (you do need to be able to know when to employ them though – as well as other professionals). 

It ain't easy, you have to be prepared to work probably harder that you do now, take some hopefully informed risks, make a fair few mistakes, learn as you go and be very self disciplined… oh, and be able to pick yourself up (as you now have no colleagues or manager to make you all better again when you find out you've just really cocked up!)  Apart from that its a breeze.  Far better than working for someone else.  Buy an ipod though as it will be your sole companion for much of the time!

By the way, although I don't agree with everything said by Crashy, his last post does highlight many of the common mistakes made by the foolhardy.  You do make the lions share of your profit when you buy.  Learn to love the dead, defaulters, drug addicted, incontinent pet lovers and smelly property owners of this world.  For they shall pay your way.  Also, be friends with agents as they sometimes will throw you a bone (not very often it has to be said).  But also remember, always work to a minmum of 25% actual profit before tax (and that means factoring in all your costs – like what those nasty real estate agents will charge you when they sell your property etc…).  Don't overcapitalise.  If you spend $100, expect it to add at least another $100 to the end price.  Work like a dog.  And work quickly as nothing eats profit like interest charged (and it goes amazingly unnoticed at times).  Do a good job, and employ people when you need time, skills or knowledge.  Do not be scared of negotiating or hectoring those who fail to provide you with a good level of service.  Never pay until 100% satisfied.  And always get a discount.  Don't try and achieve this by rolling over PPORs as the tax man is an evil force to be reckoned with.  Oh, I could go on for ages but to be honest, the only way you'll learn whether its right for you is to give it a go.

Oh, and don't expect to be doing 5 houses a year (without a large amount of cash and a great deal of subcontracting).  You'll be dead from overwork or bankrupt through bad management by the end of the third month.  To do 3+ a year, you move up the ladder from jobbing renovator to full on project manager/property developer.  But you need some experience first.

By the way, I hear the car park behind the Thieving Hounds in Lewisham is always a good place for a pitched battle if you two ever decide to meet up.  We could sell tickets and take bets?  My money is on Crashy as he's a tradie – particularly if he's a bricky.

Very best regards from the peace loving,

Andy

I do the same thing as you are thinking of doing.  I buy lemons (specialising in the dead,drunk, demented or drug addicted!) and do very well.  However, being good with your hands isn't the main part.  It helps but if doing everything delays the sale by more than the mortgage then you are adding less than zero.  Cost everything with someone else doing the job and if you still make money you are on a winner.  And don't forget all the hidden costs – the big items are stamp, real estate agents on sale, interest on the mortgage, kitchens, baths, plaster and wood houses. Oh, and while I'm on a roll, don't forget that you make your profit at the beginning so buy well.  Look for a 20% plus profit margin.  And, use your imagination (eg: if its knee deep in dog cack you will make money if you can bear shovelling it all up.  Most people take one look at anything hideous and think "leave it alone".)

All the best

Almor

Okay, my first question is can you actually do anything in the future with the land (can you strata or subdivide or enlarge the property, what about the access, plot layout, planning scheme etc…)?  If you can't develop the land in the future, it has little to add to the deal (even if it's an acre!).  If you can develop, consider the house more favorably. 

Then, second question is can you add value to the house?  If you can, and you will make a 20% profit within six months (from close to sale) then, again, consider the house more favorably. 

Third question is what are capital gains likely to be in your area on both the unit and the house?  Are they going to be high enough to make either deal a winner?

Fourth question is are you buying to hold as +ve geared deal or -ve geared, or selling after developing or whatever.  The deal has to fit your "method" of making money.  Does it? 

Once you can answer all of the above then you can start to decide which way to go. 

However, from what you are saying, neither deal really jumps off the page profit wise.  Are you sure you should be buying either?  There are plenty of better deals out there. 

Almor

For what it’s worth, my advice is to go for a relatively cheap kitchen that looks the part if you’re house isn’t aimed at the upper end of the rental market . Tenants will treat your kitchen pretty harshly so after a few years you’ll regret the outlay on the exxy kitchen.

I use flat pack kitchens from Bunnings. Not the very basic one but the next step up – I think they are called Flatpax. They look pretty good, have excellent carcasses, and are relatively long lasting. I spent about $3k on the last one I put in. The good thing about them is that if you do get crappy tenants, you can keep the carcasses and just replace doors and the post form tops.

The only downside of the Bunning Flatpax kitchens is that you have to get the corners (if you have any) of the preformed tops cut at a joiners. Make sure you get him to biscuit join it so that it lines up well. And make sure you put a line of silicon in the join before squeezing it togethr – otherwise the top will swell within weeks.

To save yourself money, avoid corners, isle benches, wall units (unless kitchen is tiny), too many draws and expensive white goods (I scour the locals for a good clean white upright stove if the house didin’t come with one). Also don’t go mad with splashbacks – a single line of bumpy whites (or something similar) is fine. Three high over the cooker though. Also, sinks can be very exxy – stick to Bunnings stock sinks. They look fine. Do paint your kitchens in high quality washable paint too. And keep some as well to touch up between tenants.

Hey that was a bit of an essay!

Hope that helps.

Almor