Hi
I understand conceptually that buy and hold is better in the long run for residential investing, however I'm struggling to come to grips with how this can be applied in my current situation, or rather if this is the better option short term as I'm rather taken with renovate and sell for 2, 3 or 4 deals to build up a wad of cash.
I'll use simplified figures: for example if I were to buy for $370k, renovate and sell I'd hypothetically make a $100k equity gain or $47k cash after selling expenses in 12 months. If I cashed out I could then plug that into another property as either a) a larger deposit or b) to cover the renovation expenses. If I were to buy and hold I would have added $100k to the value of the house and that would basically be it for the short term. I'm getting a loan at 98% LVR so I would only be able to access $14k of the equity after renovating as I doubt they would refinance beyond 80% which is basically as useful as tits on a bull.
So the numbers would look like this:
Reno and hold
Purchase value: $370k
Borrowed funds: -$363k
Reno: -$30k
Add value: $100k
Renovated value: $470k
Net result: $77k equity
1 year further growth at 5%: $493k
1 year on net result: $100k
2 years further growth at 5%: $518k
2 years on net result: $125
3 year average retrun is $125/3=$42k
Reno and sell
Purchase value: $370k
Borrowed funds: -$363k
Reno: -$30k
Add value: $100k
Sale price: $470k
Selling and holding costs: -$30k
Net result: $47k
Rinse and repeat: $47k pa
The problems I guess come about when a reno doesn't go to plan: out of budget, out of time etc I just feel I'd rather be building up the cash at this point (the beginning) of my investing career rather than equity that I presently can't access. The goal is to eventually get to the first reno and hold property and have a second reno and sell or maybe at this point reno and hold, move onto a third reno and sell/hold and in this way build up my portfolio.
Any thoughts on the above brain spill lol?
Cheers,
Tom.
I buy/reno/hold because I don't need the cash. Glad I didn't sell as my portfolio has had some lovely growth in the last 2 years. I buy under market and reno which makes the properties CF neutral or positive from day 1. The banks will have no problems lending you money to go again when you have built in equity and are CF+. So your idea makes sense. After you sell the first one or two to get a good deposit there is no reason why you can't buy/reno/reval and go again.
Unless you need the money to live on that is. But you won't get ahead that way.
Ok just a question on your figures. How did you borrow $363K on a $370K property?
Sell price $470K – ( $370K buy price + $30K reno + $30K holding etc) = $40K You had the $7K already so can't count as profit.
Does your $30K include stamp duty, solicitors costs (in and out), holding and sellers fees, AND CG tax?
Are you experienced in reno's? Most people blow their reno budget. This can't happen if you want to sell. You wouldn't believe how many properties I've seen on the market from buy/reno/sell people that are making no money.
Also are you assuming you'll sell it straight away and at the asking price. Nice but doesn't always happen. Your profit can soon erode. Then again there may be a boom and you make more.
Good luck. You are on your way!!!
Yeah I’m stoked with the loan. It’s through investec who specialise in doctors and accountants so they are a bit more comfortable with lending higher LVRs.
I’m living in the house so I’m not factoring in any holding costs as I’ll literally be paying $200 a month more, and given I’m paying under market value rent $50 extra a week would likely come my way at the next rent revision.
No CG tax as I’ll be owner occupying and $15-20k selling agent and $10k just for giggles.
I have no doubt the reno budget will go over. I’ve factored in 20% contingency to bring it up to $22k but I’m quietly confident as my father in law has been a building supervisor for 30 years and he reckons $10k will be plenty. So I’m not experienced but I have experience on my side
I think if I get to the point where I’ll be making no money from selling I’ll sit tight. It’s a reasonable place to live so the mrs won’t complain. Once we’ve settled I’ll start a weblog on here with photos and expenses etc
Cheers.
|No CG tax as I'll be owner occupying
Are you planning to continue to buy and sell your PPOR? You may want to check with your accountant whether or not you are going to be tax as a property investor or property speculator. There can be costly tax fee's if you get it wrong.
As for your original question. I would buy and sell until your not making a good profit. You can get your funds up quicker that way and move into another strategy later.
Hi, When i initially started property investing, i was only interested in quick turn around renovation properties that were making me cash, other people thought i was crazy due to CGT etc but as long as i had thoroughly done my research i was happy with my strategy and i guess you need to be comfortable with whatever strategy you feel is right for you.
There are a lot of factors to consider when choosing a quick flip renovation for profit. The main ones being:
1/ Your figures are accurate around what you can sell the property for. This is probably the most important thing, if you have done all of the research in regards to this and your figures still stack up then it looks promising
2/ You have included Stamp Duty, holding costs and buying and selling costs in your calculations
3/ You have calculated your renovation costs accurately (sounds like you have a secret weapon for this)
4/ You know the area you are buying and selling in as far as how long it takes to sell properties and what the buyer is looking for so you can calculate that into your calculations
5/ And you stay on track with the renovation itself. If you are really organised you can have a renovation done in a few weeks. To give you an idea, on of my recent 2 BR unit renovations only took 2.5 week and from settlement to settlement i only held it for 8.5 weeks. So, this strategy can be very rewarding when you plan correctly.
Usually the calculations you work on are if you buy something you want to sell if for 133% of what you purchased it for. So in your example, you purchase for $370K you need to be selling around $499K (so you're not far off – may need to tweak a few costs though if you can).
Let me know if you need any other information.
You must be logged in to reply to this topic. If you don't have an account, you can register here.
