Buying a old dump(that is structurally sound of course) like for example in the west of sydney for 250K' ish in a nice sort of suburb, but is in need of alot of work but as I said before has no problems what so ever with structure so no bowed roofs or stumps breaking(or whatever, walls falling down??). So the renoking sort of idea is that they buy this house and do it up over say a month, a month max, then they get out and rent it out and use the increased equtiy to buy another lump of crap and do it again and keep doing this, while gaining lots of properties and grabbing up lots of equity and some +ve cashflow.
Can I have some discussion on this topic, I heard of this recently and it seems like a good idea but i'm sure i'm missing some details because I think it sounds to good to be true(and i know some things can sound to good and be true).
So the finance and equity???, Cashflow(+ve/-ve what would it be).
Little things like living in reno while you are renoing it.
Also there is another thread going on at the moment and i'll extend to it(would you live in a house to reno it if there had been a double murder, like a fortnight ago??)Thanks guys, go at it .
Christopher Fife.I can't offer much in the way of figures or specifics, but I just came back from two months in Canada, where they have about 3 shows (2 Canadian, 1 American) on flipping, which in American terms is what you're referring to, except selling the property ASAP.
Of course, they probably beat the figures up, and they didnt mention anything about capital gains tax, but it certainly got my thinking about this sort of strategy.
To be fair, they did show some people who lost money.
I posted in another thread about the misconception about reno equity.
also, living in a reno has good & bad points. you often spend hours cleaning up so its liveable, but you can wake up @ 7am and be workin by 7.30. I also like being there cos tools & materials are sometimes not secure.
The RenoKings have certainly found their niche. I haven't been to a seminar but I got some great ideas from their book. It helps that they were both in the building trade and would be able to make very quick assesments of a project before calling a professional to look at it. They are quite open about the ammount of property they now have and the strategy has certainly worked for them.
I would think this strategy would get easier as you went along and got bit of a reputation for completed projects. The book by CathyJayne Pearse is worth reading. She is able to borrow money based on the expected value after renovation, which covers the whole project, but she has done a lot of these after starting with one apartment. The book is "Real Estate Cash from Treasure and Trash"
Hope this helps
The buy, reno, sell or use the increased equity idea works well in a boom. You'll find most of the proponents of this strategy made their money during either the last boom or the one before. The reno kings made most of their dough in the early nineties boom when QLD houses were cheap. You need to take this into account as you follow their strategies. The world has changed.
If there is no boom you will struggle in the short term to see any significant increase in equity above the cost of the renos, unless you can buy the property a long way under the market price to begin with.
Don't forget; the increased equity is not all usable. The banks will usually only let you use 80% of the property value, less any outstanding loans. The remainder is the USABLE equity .
Some lenders will let you borrow more than 80%, which can accelerate your investing plans, but if you keep on starting new products with this strategy you will become very exposed and this can be dangerous if things go wrong.
Living in a reno while you do it is a double edged sword; close to work, security for the project and you don't pay cap gains tax as it is your PPoR. The negative is you are living in a construction zone – paint smells, dust, noise, drafts, disruption to utilities such as elec and water, the time to complete can be months.
Don't be fooled by the reno king's 12 hour renos; they don't exist in the real world unless you hire a team to do the work and the cost will cut out much of the gain.
I've done 3 renos, and the shortest and cheapest one was 6 weeks. Granted, it wasn't full-time work, but even if it was, it would have been at least 2-3 weeks at a guess.
Having said all the bad stuff, I found the experience to be fun and eventually financially profitable and I plan to do it again, but don't expect the overnight riches from one or even 2 projects.
Thanks everyone, that gave me lots of perspectives, I didn't know reno kings had a book, maybe i'll look into it.
Thank you everyone
Also feel free to continue this thread.
Any investments this year have to be made very diligently as there’s a huge property crash on the way. There is plenty of historical data to prove this and it will be worse than the US! What appears to be an economy slowly coming our of a slump may just be an illusion. Interest rates are bound to go up, first home owners grant will be phased out and foreclosures and unemployment is still on the increase. Having said that there are still bargains out there and profits to be made. I just sold one of my properties that was valued at $325k after renovating it over 5 weeks spending $25K, I had two offers on it the first open day of $415k+. Not mega dollars but $65k for 5 weeks work is not too bad! And that was purely Renos. The reno kings made a lot of mistakes when they started out but as property was booming they couldn’t go wrong! Now they are very experienced and can still make a reasonable profit during downtimes. If you have any doubts be very careful as times are tricky. Personally if I find another bargain this year, I would still do it. But it would need to be sold this year. Understand your market really well and I’m sure you can do alright. Pick a suburb you understand. Good Luck!!!
p.s After the RE crash, imagine the bargains and profits that will be there to be had!
Some friends of mine were profiled in a Reno King magazine article not so long ago. While they made a profit doing what they did, during the editing of the article, all buying costs, holding costs and selling costs and taxes were removed from their figures so the profit shown in the article was FAR higher to the actual profit.
I recently bought a property for $250,000, subdivided a block and spent $30,000 on the house and sold the vacant land for $145,000 and the house for $310,000. On those figures I made a profit of $175,000 over a 6 month period. However, after all costs, my profit is around the $90,000 mark, which is still very decent, but nowhere near the figures that are often quoted in these magazines.
I think that there is still money to be made but it is certainly not as easy in this market as it was a few years ago. Bank lending has tightened up and unless you buy a property undervalued it is very difficult to add more in value than the actual cost of the reno. The property above was at least $30,000 undervalued because the REA didn't realise that the block could be subdivided. Also, it is an entry level house where the market hasn't really been affected and is in a reasonably tightly held area. I have an excellent relationship with my bank and am able to do asset lending rather than servicability lending and I have a very decent cashflow so was able to pay all the subdivision and reno costs myself rather than having to lend this money. Lots of reasons for still making a good profit in the current market, but all the stars really have to align for this to happen at the moment.
If I was you I would start out by buying one property that you think you has potential and one that you would be prepared to hold on to for the next few years. Do the reno (but bear in mind when you do it that you will have to do all the maintenance on it while you own it, so make sure the reno is a decent one. Some of the Reno Kings' practices look really nice but don't last long (eg, painting grout on floor grouting) so they are only really of any use if you are going to sell the property and don't care what happens after you have sold it.). Then approach the bank and see whether you can access more equity. If you can, then you can repeat the process. If you can't then you have at least gotten yourself a decent property with hopefully a neutralish cash flow and will be well positioned for the next boom.
Cheers
K
Linar
"Some of the Reno Kings' practices look really nice but don't last long (eg, painting grout on floor grouting) so they are only really of any use if you are going to sell the property and don't care what happens after you have sold it.). "
Good point
I have a bit of a moral issue with some of the "slap it together and sell it quick method". I know its a buyer beware market but it wont be long before some of these "Reno Kings" are poping up on A Current Affair alongside used car sales men, due to dodgy practices.
Just read this after it turned up in a random google search. I love reflecting on past predictions;
The property crash never happened in Australia as mentioned by one poster. If I had listened to him, I would have missed out on a few hundred 1000's equity growth.
Reno Kings keep on charging. I just listened to a podcast of some of the developments they have been doing. So much for only making their money during boom times.
Oh, and they certainly haven't ended up on A Current Affair as someone predicted.
For those that posted these comments. Please come back and share your thoughts. I would love to hear how the past 4-5 years have treated you in property investing.
Nobody knows for certain if there will or will not be a property crash. If there is such a person then they must also know the numbers that will be coming up in this Saturday's tattslotto.
Jacqui Middleton | Middleton Buyers Advocates
http://www.middletonbuyersadvocates.com.au
Email Me | Phone MeVIC Buyers' Agents for investors, home buyers & SMSFs.
I love it when people that can't make a particular strategy work say it can't be done.
Well move out of the way while those that can do it do it.
This is my strategy ATM and it's working nicely for me thanks. My portfolio is CF+ and my LVR has not increased with my last 4 purchases as I buy under market, reno then reval.
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