G'day guys,
My friend and I are currently looking to buy an investment property. We are going to go 50/50 on all costs.
We are currently looking at a 2 bedroom house which we are looking to buy, renovate and sell within
6 months – 1 year.
Are there extra tax's for selling a property within a year of purchasing it? or any other curve balls we need to look out for? The house also needs re stumping. Is this a major problem or can it be re stumped for around $5k (as stated by the real estate agent) It is only a small 2 bedroom house but I'm not sure if the agent is pulling our leg?If we buy the property together do we need to take out a loan together or is it alright if we have two different loans (one each)? Is there anything hints or pointer we can look out for? Any advice would be great.
Thank you in advance.
Hi maternic,
Good to see you getting going. A couple of things:
1) Talk to an accountant who is experienced with property investment before you start. I think you will lose a 50% CGT discount if you sell within a year, so yes – bigger tax bill.
2) Don’t listen to a real estate agent when it comes to anything which could cost you money. As a generalisation, their primary (and often only) motivation is to sell the property and make their commission and will tell you what you want to hear to close the deal. Talk to a builder or similar to get a cost.
3) Read posts on forums about mixing friendship & business. It can kill a good friendship if you don’t get good advice up front (and sometimes even if you do). For example, if you go 50/50 on all costs, but one of you does all the running around to get renos done you will have friction.
4) Make sure you know what your selling price is likely to be and all your costs in between – it is pretty hard to make money on buy/renovate/sell as your transaction costs (stamp duty, bank fees, legals, agent fees, capital gains tax etc) chew away at the profit margins. Even it it all looks good on paper, a cost blowout on a small part of the reno (eg changing electric oven, electrician says wiring not up to it and refuses to certify until circuit is rewired and boards upgraded) can kill any profits.Hope this gives you a few pointers.
Cheers
For the restumping:
Allow at least $500 per stump to replace when using a professional… that was the quote price I had 2 months ago in QLD (ipswich). But you could possibly encounter higher depending on who you use to do it.
Full restumping for my 2 bedroom queenslander was quoted at around 15k, with 30 odd stumps, which matches up with that $500/stump estimate.
But if this is a place you're intending to sell on or rent out, and you don't really care whether the stumps 'look' perfect, then see if you can get away with just replacing the stumps that are rotten or have sunk more than 3 inches, and just re-packing the rest.
Repacking/Relevelling is where you identify the highest point of all the stumps, and go around one by one to each ot the other stumps, jacking up the beams to level and packing the gaps with hardwood.
In my situation, we had the whole place re-levelled for under $2500. We budgeted 5k initially, estimating 3 needed replacement and allowing for 1k overrun, but turned out all were OK….. Came out on top, which means more profit : )
As above plus-
Make sure of your price both for purchase and reno and selling price? Add in extra for the reno (both time and money). Don't forget there is stamp duty, loan costs, solicitor costs (for both buying and selling), agent fees to sell. This adds at least $10,000. No use doing it unless there's a good margin in it.
Is there a good demand for small 2 bedroom houses?If you sell AFTER 12 months you get 50% off the CGT.
Make sure you discuss ALL scenarios. Eg what if it doesn't sell? How will you fund the reno? How will you fund the shortfall (if you rent it out)? WHO is doing the reno? eg who does what, how much time? What experience do you have with renovations?
The more you plan the more likely you are to make it work.
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