"House: BV, 3 bed, 1 bath, 1toilet, BIRs, new kitchen, pretty new bathroom, big deck with spa.
Purchase Price: mid $200k's
Reno Cost: $25k
Total Cash in: $56,624.00
Expected Profit: $15,726.00
Project length: 4months"Hi Jase and Flic,
My in-laws live in Noble Park; I think long term it will a good option as it is near the Monash Freeway and undervalued; a bit of a low-socio-economic area in the past, hence the cheaper price ranges. It definitely needs a revamp to get rid of all those horrible orange and brown brick cookie cutter houses from the 60's-70's.
But I have a few questions:
Is this the estimated gross or nett profit?
what are fully renovated similar properties selling for in the immediate area?
is your estimated sell price likely to be the same as the others?
what are brand new similar houses selling for in the immediate area?Don't forget that the profit will be liable for tax on 100% of the cap gain if you sell within 12 months. You could lose half the profit to tax.
Have the buying and selling costs, plus all other costs such as loan interest and fees for 6 months (or more if sale takes a while), legals etc been factored into the gross profit?
With an estimated profit of $15,726.00 (I'm assuming it is gross profit here) there won't be a lot left over. If it is gross, and you have to then factor in all the associated costs and tax, the nett result might be less than leaving the $56k in a high interest bearing deposit account.Mon 11th June
-Itemised the tasks to be done and estimated time needed for each- Total estimate 53.5days work for 1 person, not counting the hired trades eg electrician.
-arranged the list of jobs into an approximate order
-Did some detailed costings on certain jobs to see which way is cheaper.Hi Marc, good questions.
"Is this the estimated gross or nett profit? – Gross, ie before tax
"what are fully renovated similar properties selling for in the immediate area?" – Nicely done properties, inside and out $325-$335k, only inside renovated High $200s
"is your estimated sell price likely to be the same as the others?" -our estimated sale price is $308k, which I think is very conservative, perhaps too conservative, but as we are new to renos, I don't want too expect too much. I think our final product will be- Inside, very good. Outside Excellent. Our main drawback may be that we probly cannot afford a carport, though we are getting a quote, so maybe.
"what are brand new similar houses selling for in the immediate area?" – I have not actually seen any new ones
"Don't forget that the profit will be liable for tax on 100% of the cap gain if you sell within 12 months" – yes, all of the profit is taxable
"Have the buying and selling costs, plus…been factored into the gross profit?" – Yes, we did an expected scenario, then a best and worst case, and then looked at what happened if we had to hold for 12-18months and rent it out. This is not what we want, but would still not lose money, just not make too much
"With an estimated profit of $15,726.00 … the nett result might be less than leaving the $56k in a high interest bearing deposit account" –
$15k profit for $56k down is 26.8% over 4-6 months. If we do 2 in a year that is 53.6% gross return on investment.
If I earn profit from a term deposit or similar, the entire profit will be taxable, so no different in regards to tax.
I have not seen any "high interest bearing deposit accounts" that earn anything like 53.6%p/a. Some share funds probly do, but right now I am concentrating on learning about property investing. Maybe I'll look at shares later.Keep those replies coming everyone
Jase and Flic wrote:"what are brand new similar houses selling for in the immediate area?" – I have not actually seen any new onesIt still pays to assess your projected sale price against others in that price range. Ultimately, your house will be competing for buyers against properties such as these:
Houses:
http://www.realestate.com.au/cgi-bin/rsearch?a=o&id=104002398
http://www.realestate.com.au/cgi-bin/rsearch?a=o&id=103984190
http://www.realestate.com.au/cgi-bin/rsearch?a=o&id=103966164Townhouses:
http://www.realestate.com.au/cgi-bin/rsearch?a=o&id=103878775
http://www.realestate.com.au/cgi-bin/rsearch?a=o&id=103978494Teus 12th June
-called insurance company to iron out some problems with the policy they sent us
-called an agent to ask about some other properties in the area
-started jotting ideas for writing a business plan (not directly related to this property I know, but still part of the journey I am on)
-went to a gathering of property investors, heard some great ideas. Thanks to Troy n Bec for organizing a top night.foundation wrote:Jase and Flic wrote:It still pays to assess your projected sale price against others in that price range. Ultimately, your house will be competing for buyers against properties such as these:Houses:
http://www.realestate.com.au/cgi-bin/rsearch?a=o&id=104002398
http://www.realestate.com.au/cgi-bin/rsearch?a=o&id=103984190
http://www.realestate.com.au/cgi-bin/rsearch?a=o&id=103966164Townhouses:
http://www.realestate.com.au/cgi-bin/rsearch?a=o&id=103878775
http://www.realestate.com.au/cgi-bin/rsearch?a=o&id=103978494Hi Foundation
Thanks for finding those for me. I reckon our final product will be equal or better than all the above houses, and the townhouses are probably better than our product, but they are for a slightly different target market, so really I am just pleased to see asking prices of over $300k in the area. It means our product should also have a great chance of being in that over $300k range.oops. sort of messed up that whole "quoting the other person thing" didn't I?
sorry
Hi Jase & Flic,
First i want to say, i am greatful that u have started this thread as i am also in the process of buying a house and renovating it but intend to keep it for rental… while renovation will give me equity to use that money for my next IP purchase…
Your diary reminds me of all the things i should be getting ready to do. and i may start a thread of my own to get assistence..I must say i was a little concerend for u when i work out the profit for u just as Marc above if u sell the property in 2 months, and i according to property value guide on different online calculators Noble Park may take a little time to jump back see below graph from Commbank… may be a good idea for u to wait till the freeway starts…
Cheers..
SaimaMedian Property Values: Houses
In the last 3 months, median property values for postcode 3174, VIC (Noble Park North / Noble Park / Noble Park East) have decreased by 4%.
Capital Growth in postcode 3174, VIC Period Change ($) Change (%) 3 Months-$10,000 -4% 6 Months$10,000 4% 12 Months$10,000 4% This table offers a guide to how prices have changed in your area over the past 3, 6 and 12 months. It uses 3-month medians to determine price changes. For example, the three month figure calculated for December 2003 would compare the median price in your area between October and December, 2003 with the median price for the same area between July and September 2003. Three month medians are used to smooth out the large jumps and falls in property prices.
The last 12 months' median property values are displayed below. This includes property values for all loan purposes (includes purchase of property, renovation, equity and refinancing loans).
Month 3174 Jun 06$263,000Jul 06$250,000Aug 06$260,000Sep 06$250,000Oct 06$250,000Nov 06$257,500Dec 06$260,000Jan 07$270,000Feb 07$280,000Mar 07$265,000Apr 07$255,000May 07Wed 13th June
-called the mortgage broker to touch base
-Chased up some more docs for the loan application
– called a solicitor to ask some questionsNot much done today. Work all day, work function at night. Work is such a big barrier to being able to focus on investing……
Saima, thanks for comments. We have considered holding for 12-18months, and if we cannot achieve our required sale price then that is probly what we will do. But a quick sale is our preferred outcome, so we will work hard toward that goal.
I have 2 more questions;
what is your plan with the money after you sell the property?
You said you were aiming to do 2 reno projects per year; does this mean you will be aiming to become professional renovators and live off the cashflow of the sale proceeds?Thurs 7th June
-called conveyancer to to ask some questions and inform them of some details
-continued some detailed costings and comparisons
-had another inspection of the house to get a quote for a carport and to measure all the internal rooms for our estimating purposes.
-asked the agent for his opinion on what we have planned etc.Hi Marc
With the profits I intend to put aside what I need for tax, and to re-invest the rest into another deal, as quickly as I can.
I hope that I would do more than 2 projects like this in a year. I would like to become a professional property investor, and I think I can get started through renovations, though I would like to begin some small developments as soon as possible also.
Within 1-2 years I would like to use renovations only as part of bigger deals, but to focus on developments for lump-sum gains, and then to build a positive cashflow portfolio with some of those lump-sum amounts.Oops. Just realised I put the wrong date on the last post. Should have been 14th June.
Fri 15th June (got it right this time)
-chased up more papers for mortgage broker. He says our loan application has landed in the hands of a very inexperienced loan analyst at the lenders end. This will slow things down – hopefully not too much.
-told my boss about the upcoming reno and asked if I could cut work backto 3 days per week to get the reno done. He said no. He was nice about it and all that. Said I can stay as long as I need to, wished me luck when I go, said he was hoping I would be around for longer; but no, it would cause too many problems for me to go part time.
-also talked to the carport quote guy. He will give me the quote on Monday, but it looks like around $5,500. I was hoping for $3,500.
-went to a discount plumbing store to check some prices.Sat 16th June
-went to 5 house inspections to keep my head in the market. Learned some helpful things about the area. Still confident on our end value.Mon 18th June
-got quote for carport – $4702- but I think I can do better.
-called 2 agents to ask about sold properties nearby
-Mortgage broker said loan application will take another week so I asked our solicitor to send a request for an extension of the finance clause.
-asked my boss if I could take 4 weeks leave without pay, then come back to work. He said probably not, but he would think about it.Just found this thread and enjoyed reading it. I'm still looking around for my first property buy, so these kinds of discussions are gold to me.
Teus 19th June
-talked to Mortgage broker and RE agent all about getting the loan approved. Jumping through hoops for lender. Having a junior loan assessor working on our case is a very large nuisance.Not much else to do for now except wait for loan and keep managing application process.
I have just completed a $100k reno. However, I did all the work myself and only spent $27k in materials. Thats just as well since I only added $100k value.
Point is, dont spend $1 unless you know it will add $2 value. Im not sure spending $5k on a carport will add $10k value.
People think you can just throw $50k at a property and it will automaticly go up by $100k. In many cases it goes up by $30 or $40k.
Be VERY careful what you spend $$$ on. The perfect reno is a myth. Dont try and fix everything. The most profitable renos are the cosmetic ones.
crashy wrote:People think you can just throw $50k at a property and it will automaticly go up by $100k.Hi Crashy, with this in mind, I wonder if your experience might provide insight to some questions I have about this particular project:
- What about the array of improvements Jase & Flic have detailed above – would you expect these $25k of improvements to add $75k to the sale price?
- Because with a margin of $16,000, if they only got $2 back for every $1 spent, they’d be well upside down.
- I notice that the $16,000 expected profit is before paying CGT on the expected $50k (?) capital gain. Is this likely to be problematic? They’re planning to hold for less than 12 months…
- When you do much of the reno work (labour) yourself, surely that means you can’t include it as a capital cost for calculating CGT? In other words, you’re adding value that will be taxed, whereas bills from a regular tradesman could be added to the capital cost base and the resulting gains would be CGT free. How cost effective is it therefore to provide much of your own labour?
Thanks in advance for any insight.
Good luck Flic & Jase, this is really interesting to see you in action. Almost worthy of your own blog!
Cheers, F. [cowboy2]
Hi F
my experience is not extensive. I only do renos on my PPOR so tax is not an issue. I do however watch every stinkin real estate show on the lifestyle channel which helps a lot.
Repainting is the most efficient improvement you can make. Better still if you do it all yourself. Would rate this as a 4:1 return.
new door handles – 2:1 – Bunnings does em for $15
also consider new doors – they only cost $42 and make a BIG difference.
downlights – 2:1 – easy moderisation
switches / points – depends how grotty / old fashioned they are. Nothing says “we need a $7k rewire here” quite like 1960’s bakelite. Spending $1k here may stop people pulling $5k off the price.
New floor coverings is a must. People assume it costs 2x the actual amount.
New taps – depends. they would have to be pretty bad.
new oven – same story
timber venetians – not sure. I put in PVC cos they are way cheaper.
render – probly 3:1. 100:1 if done yourself
respray roof – I resprayed a roof with $20 of fence paint. some people spend $4k. Probly a 2:1 here, at worst a 1:1 but anything that helps with street appeal will sell a place faster.
respray drive – probly 0.5:1 but I could be wrong.
gut front garden and re-do, trim and revive back yard – this costs almost nothing and can easy add $15k. mad not to do it.
foundation wrote:would you expect these $25k of improvements to add $75k to the sale price?no. more likely $30k – $50k
Old property addage – you make money when you buy, not when you sell. You have to buy below market value. The reno’s purpose is to increase appeal and value. Run-down houses are hard to sell which means they go stale and vendors are more likely to be motivated. Only ever deal with motivated sellers.
Renovated houses tend to sell quickly, and with less discount to asking price.
So its not just about modernising. You cant just buy a house for $100k, spend $20k on it by paying a heap of tradesmen, and hope its worth $140k at the end. You have to add value somewhere. This happens by either saving money by doing the work yourself, or by buying below market value, or ideally, both.
examples:
1. I bought hardwood decking at auction for $2k and employed 2 labourers to help me build the deck. Total cost $4k, added value $10k (which I asked agents about before auction)
profit for me – $6k
2. quoted $7.5k for new driveway. asked agent how much value it would add, $7k. got 8m3 concrete blend delivered, bought 40 bags of cement, total cost $1200. took me & the mrs 1 week.
profit for me – $5800
3. quoted $14k for new kitchen. bought stuff from Ikea returns dept, resprayed doors. put in granite tile benchtop & splashback. total spend – $1500.
profit for me – $12.5k
4. quoted $18k for new bathroom. bought massage shower from auctions for $800. bought pallet of tiles from auction for $4/m. bought flatpack vanity from Bunnings for $139. bought mixer on ebay for $20. bought cabinet & mirror from Ikea returns for $70. toilet from auctions for $130. total spend $1200.
profit for me – $16.8k
I told a friend I just spent $27k on a reno. He coughed and said he spent $27k just on a kitchen.
There is NO profit in paying market value for a house, then paying market value for renovations. People who do this usually make money from a rising market, not from thrifty spending.
The public these days know what a reno costs and have seen one too many shows on TV showing how easy it is (rofl).
Thanks for the detailed reply, very informative.
crashy wrote:Hi F my experience is not extensive. I only do renos on my PPOR so tax is not an issue. I do however watch every stinkin real estate show on the lifestyle channel which helps a lot.I have to reluctantly (embarassment factor) agree with you there. Watching how the professionals tackle tasks can be pretty helpful, particularly for carpentry – so much time can be saved by using tradie's shortcuts and helpers.
For any bigger jobs, I recommend Allan Stains books The Australian House Building Manual and The Australian Renovators Manual. Decks and Pergolas Construction Manual is good too if that's what you're after. Brilliantly simple with detailed illustrations showing how to tackle almost any task.
Cheers, F. [cowboy2]
Ive just discovered a show on the Biography channel called “flip this house”. No idea why its there and not on lifestyle.
Also a confessed addict of Property Ladder. Sarah Beeny is my idle
I watch a bit of “real reno’s” which is more about builder / client relations, not much useful tips.
“Holmes on Homes” tells me how to do a job properly, and shows what happens when dodgy tradesmen take shortcuts.
I hadn't heard of those shows. Just thought I'd chime in and mention that you can find clips of them on youtube.
http://www.youtube.com/results?search_query=property+ladder&search=
http://www.youtube.com/results?search_query=flip+this+house&search=
and i may start a thread of my own to get assistence..
3 Months
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