Hi all,
I am looking at buying a rundown deceased estate using 100% finance and 14k first home buyers grant. i know Its just unfortunate I dont have any savings but reasonable pay check every week.
So can someone please help me understand if i can make some profit if i renovate and sell in six months.
Asking price 185K (may get it for 150 – 160K)
Reno needs 20K
can sell it between 200K- 220K
Hoping to sell in six months.I am finding hard to put the figures together and work out how this investment will turn out. I mean a simple format with all costs to buy, during reno and cost during the sale including any capital gain tax involved.
Greatly appreciate your help here.
Krishna
Krishna,
Whilst its good to hear you are planned to improve yourself, it's hard give a direct yes or no, since we have not seen the place or know exactly the location or even the street.
No need to tell us the street.Assuming all the good. How are you going to get a loan for the improvements? The bank will not loan you the money on the home loan?
Are you going to do all the work yourself or pay someone else, this will make a lot of difference to the outcome.
You won't have to worry about CGT if its your first home and you get the FHOG and live in it.
if you have no savings, how are you going to spend $20k on a reno?
I am hoping to use my low intrest 9% credit card for the reno expense. I know this is just insane and may be silly in most ways and hence i want to be very sure i will make profit in six month for such a risk. That where i need your help.
As for the not knowing what street and etc, i have done some researcha and sure of the sale price of 200k after the 20k reno.
there is only ONE certainty in the market:
CHANGE
in 6 months we could be in a recession, then how much would the house be worth, and how much poo would you be in?
If you get it for $160,000
no stamp duty etc,
say $1000 for legals
$20,000 for reno
total cost base is about $181,000 – forgot LMI, that will be up to 3% (maybe less) = $4800
total cost base of $185,500Add to this holding costs of interest on all loans, rates, insurance
Then sell for say $200,000.
You will have agents fees of about 2.5% = $5,000
Legals $600
discharge fee about $300
loan exit fee about $700
total Selling fees = $6,700So profit is selling price less costs = $193,300
Less purchase price and costs of $185,500
= profit of $7800this is before holding costs are taken into account and before FHOG.
So it may work for you, if you can sell quick. If you can't sell you can always keep and rent out after 6 months – so make sure you can afford this if you proceed
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
$7800….
thats assuming:
– you dont pay more to buy it
– your reno budget doesnt go over (they always do)
– your reno doesnt take longer (they always do) causing you to lose more in repayments
– the market doesnt fall 3.9% or more by completion
– it sells quickly and you dont lose a few grand in extra repaymentsand if you have a shred of confidence left, ask yourself:
IS $7800 ENOUGH PROFIT FOR 6 MONTHS HARD WORK & LOTS OF STRESS?
Here's the outcome I would expect:
1. you end up buying it for $5k more than you thought.
2. your reno costs $30k
3. your reno takes 9 months
4. the market falls 10% over that time
5. it takes you 6 months to sellin that scenario, you would lose around $40 – $50k, excluding the interest on the credit card. weight this up against your possible $7800 profit.
then ask: how much better off would I be if I had gone to work all those days?Crashy,
so are you saying i do nothing but sit tight and not buy a property?
The way I am look at it is, if i dont do anything, I get nothing. if I do something, i may get something positive or burn and learn my mistake. Got nothing to loose you see. Worst case, may end up with a 5 to 10k debt.
Is that reasonable or can you suggest a better idea to make 10k from nothing in 6months.
Terry,
thats just what i wanted to know. Greaty appreciate your analytical skills. Can i please ask what is LMI ( is that lenders mortgage insurance bcoz its 100% loan). And why do you say no stamp duty…its tasmania, i dont know of any no stamp duty fees deals unless you do on buy option deal. May be there is something i dont know.Krishna
krishna
"Worst case, may end up with a 5 to 10k debt"
as I already explained, you could easily lose 40-50k NOT 5-10k.
you clearly aren't interested in listening to someone who is an expert in that area (Ive done 3 reno's in the last 2 years, averaging 90k profit on each) and are hellbent on doing a reno regardless of market conditions, inexperience, lack of planning and completely inadequate funding.
burn away………….
Hey Kkrishna
Just read this post for the first time.
Have done a lot of pricing for renos in my area (SW Sydney) in last 6 months.
And haven't done one. (Have done a successful one several years ago.)Reason being, I am NOT going to get into a deal that may end up losing me money!
You start by saying you do not have any money for deposit "unfortunately" There is nothing unfortunate about it.
Fact is, you spend what you earn, therefore you do not have any savings….If that is your starting point, that is quite OK. Many of us start eaxctly there!
However, this should be your wake-up call..
Time to get your finances under your control!
If you can't manage your personal finances, do you believe you can manage the finances for a reno as a novice, and with no mentioned skills eg are you a tradie/handyman?Your holding costs are a BIG issue, (re-read Terry's post). Based on $185,000 total loan, at 8% interest in 6 months that is
$7,400. IF you can sell the minute you put it on the market (in today's poor market). However, if you sell within 12 months of buying, you will have to pay Capital Gains tax on 100% of your profit, assessed on your total income for the year. eg 30% of your profit to Aussie Tax Office.So there is NO PROFIT for you in this deal. Just a lot of hard work, and a possible loss at the end.
My advice.
1. start saving
2. try investing in your education (way cheaper than making a loss!) Steve McKnight's latest book is a great starting point.
3. try to find people doing what you'd like to do, and help them ( with a bit of hard work) in exchange for a bit of experience..Quickchick.
then ask: how much better off would I be if I had gone to work all those days?
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