Our first reno project

Hi corhig – Pabs Rental: 1800 201 020

Hi chpropdev
Those are some absolutely ripper ideas. You have got my head churning all over the place. Thanks a million (maybe 2!!)
Re: using percentages
I agree with this too a point. Before doing this deal we worked out all the % returns, did the 3 tests in Steve's book etc. I will keep doing this with all deals.
But, if I had a $1M deal that would return 10% in 12 months, or a $150k deal that would return 20% in the same time period, I would do the big deal, small %, big $profit. Obviously some risk assessment involved there too.
I have heard Martin Ayles say "you bank dollars, not percentages".
That is why I said I would probably not do something that would make less than about $30k. The effort of getting finance, managing deal etc is too much. I would waste too much time on the small deal, and not be able to take advantage of a better deal.
Of course, this opinion is based on 1 reno project, a labor intensive type of deal, so if I found a way to only spend a few hours on something, and there was a low buy in price, I might change my opinion.

For the sake of some more stats, here is the % of our reno.
Total cash that we put in was $40k each partner =total $80k
Profit of $41500 =51.9% Return On Investment
Contract date to settlement date is 152days =0.416years
So Annualised %ROI =51.9% divided by 0.416 = 124.8%ROI

For Steve's 3 tests (see 0-260 book):

Net Profit Percentage =51.9%
Required =23.2%
PASS

2x Interest Paid =$11,122
Cash Back = $41,500
PASS

Risk free return ($80k @ 5%, for 152days)= $1665.75
Danger Money Multiple = 24.91
Required =12
PASS

Wasn't that fun??

Jase

Thanks Andy
Good stuff.
Good luck with the ceiling.
Jase

Beeuda full. And quick too. I like it. I like it a lot.

Hi all. Sorry to take so long to answer the question "what are we up to now?".
A bit of a saga to tell you…. I will give you the short version.

It all started with that lovely 30 day, cash, unconditional offer we were so glad to receive back in Sep '07. The purchaser did not actually pay any deposit when signing the contract, saying that he would pay a 10% deposit within 2 days. This was the start of a string of excuses and apologies and promises that never resulted in any actual money being paid as a deposit. The settlement date arrived and we were promised and assured that the whole amount would be paid in cash on that date. Then some more apologies, excuses, "we couldn't get the money out of the bank. They are taking ages to release our money. Sorry……"
The buyers happily agreed to pay penalty interest of 14%p/a on the full purchase price, so we thought we might make a little more than first thought.
Settlement was re-booked, and re-booked over and over. After about another month we issued them a "notice of rescindment" which means that they had 14 days to pay up or the contract is void. However, we really wanted them to pay up because they still had not paid any deposit so we had nothing to pay our extra costs with. We wanted them to settle so we got the original price PLUS all the penalty interest – about $7,000 by that stage.
Then the story emerged that they had inherited the money, and not realised at the time of making the offer how long it would take to actually get the money in their hands. A plausible excuse perhaps, so when the buyer (now in direct contact with myself, not through agent or solicitor anymore) assured me that the money was now in his account, we gave him another chance to settle.
This time he told me 2 hours before settlement that everything was under control, and his father was on the way to the settlement officer with the bank cheques in hand. Yet still no money showed up.
This time he told me that there had been a major medical emergency in the family, which turned out to be him (the buyer) being diagnosed with terminal cancer, and not going to be around for long anyway. But he still wanted the house, so we tried again to settle a couple more times. I tried to meet him – and got stood up. And then finally (yes, I know I let it drag on too long) I said forget it, I will sell the house again.
Within 4 hours of making that decision we had another offer of $345k, 30 day unconditional. We accepted due to the short settlement, and the fact that it was almost Christmas and we didn't want to wait, and then after we had all signed the contract, the new buyer tried to re-negotiate an extra 2 weeks on the settlement.
We said no, but agreed to an extra 2 days. They asked for a letter stating we would give another 2 days, so we wrote it for them. Then on Christmas eve they pulled out of the contract on the last day of their cooling off period.
After Christmas they asked for their $1000 deposit back, and got quite upset when we kept the 0.2% ($690) stated in the contract as the penalty for cooling off.
We had a few more offers after Christmas, but all too low to consider.
So then in early Jan '08 we ordered more furniture, got the house pretty again, re-advertised, started an auction campaign (just to do something different and try not to let the house appear "stale") and basically started the sale process all over again.
It took about a week after furnishing the house for us to get another good offer -$350k on Fri 11 Jan. It was a 45 day offer, subject to valuation. We said we would think about it for the weekend.
Then the next day (Sat) buyer number 1 sent me a message asking if I would give him one more chance if he took a bank cheque for the full puchase price plus costs to my solicitor's office on the Monday morning. I told him if he was there by 11am then I would still sell to him. He didn't show (surprise).
The new buyer (number 3) meanwhile called the agent on the Monday morning and said they would make the offer unconditional. So at 12pm I got the agent to call them back and explain that we really wanted about $360k, so after a couple more hours of negotiating they raised the offer to $355k, 45 days, unconditional.
We agreed and got the papers signed that night. They paid a 10% deposit by bank cheque the next day. Their cooling off period has ended, and we are once again looking forward to settlement -this time on 25 Feb.

So there is the fairly short version of the saga of selling our first reno project. Moral of the story is that the house isn't sold till the money is in the bank.

Now, what are up to from here?
After looking hard for a couple of months, making several offers, and being beaten on price numerous times, we finally bought a home in Chadstone which is due to settle on Feb 15th. It is a 4 bed, 3 bathroom Weatherboard home on 1013m of land. Our intention is to get plans drawn and a permit approved for 4 new townhouses. We will then aim to sell the property with the Planning Permit (DA) and make a profit of about $80-$100k. Our other option is to appoint a builder to construct the dwellings for us, and sell them individually when complete. This would have an expected profit of over $400k, but this is not our preference as it would be a much longer project, it would expose us to more risk, and it would take more cash than we have. Also, we would rather have a quick profit in our bank as our company is still quite young.

So far we have appointed an architect who has made good progress on preparing the permit application, drawing plans etc. We are still finalizing the loan, and are trying to keep the architect and others moving as fast as possible.

Apart from that deal we are looking lookin looking for more, and have some exciting prospects currently under investigation.