Renovating then Selling

[Terry Lamb]

Not sure if this is the right forum for this?

I am thinking about buying houses, renovating them and then selling, hopefully for a decent profit.

I am looking at the Mackay Qld area where I have just recently moved to. At this stage the capital growth is at a very high level. I will be doing most of the renovations myself as I have completed a lot of renovations on my previous houses to save on labour costs.

This will be the first time I have undertaken such a project.

Does anyone have any advice or tips on doing this?

If this is not the right forum can somebody lead me in the right direction

Cheers Guys

[OBBob]

Hi Terry

I have often thought about this too. If you have done previous renovations you will know that it is a s***load of work! Just be careful that you are actually being rewarded for al that work, often if the capital growth is that good it can be enough to return a profit ... without the sweat.

My thoughts are, you need a really good budget and you need to know what potential buyer want (not what you want). Also, how much effort to put into various areas.

Cahsflow has always been the restrciting factor for me. You need a fair bit of capital to buy a house, hold it (loan repayments etc.) and pay for the reno. Also, don't forget capital gains tax (if that's applicable in your area), you may cop that for not living in the house.

Would it be a quick clean up or full Owner Builder extension etc.?

Very interesting subject, please keep us informed.

[echnidna]

I've done it a few times.

Generally the costs of buying and selling real estate are so high that the nett profit is not good enough to justify the cost.

But sometimes you can make megabucks.
These are the proprties you have to hunt down.

[Dirty Doogie]

Terry, I have been doing the renovation career for a while now- house # 18 nearly ready.

You dont always make money - especially on low end property. It is generally difficult to take a 200k property and reno it to sell for 400k within a short time frame all the time.

All around Qld there are provencial centres undergoing population growth. A distinctive proprty price pattern occurs when this happens. You will find brand new houses being built and sold on the outskirts of the town for much more than you could buy a property near the town centre. Mackay is one of those areas where this is happening. Warwick, Gladstone, Bundaberg and cairns are also under going the same price shift.

In all these areas the new house price on the fringes is approximately twice that for which you could buy a dilapidated inner town centre property. If you like renovating there are opportunities in these places, but you have to know how much it costs to do up or redevelop a dilapidated property.

It is also important to renovate for your target buyer - who are they? And why would they want to buy my renoed house which in all likihood is going to be at least 50% more expensive than a non renoed house.

Personally I have found renovating for the MuM Dad and small family buyer a complete waste of time cos they dont have the money to afford your work. Big city retirees, aspiring professionals and the status craving wealthy have been far more lucrative buyers in my experience.

Having said that most people starting a renovation career have to start with a modestly priced property and be very clever and / or do a fast cheap cover up reno. (YUK !) Doing work yourself can save you a bucket of money provided you dont have a killer mortgage. If you get a killer mortgage then you've got to turn the property over fast becuase every day costs big bucks ( speaking from the experience of someone who has a 700k mortgage).

Depending on your financial affairs you may want to investigate some of the new housing loan products like shared capital gain loans and mortgage ofset bonds. These get you discounted interest rates and even deferred interest as well as size able tax savings.

But the best way to start is to move into the house as your PPOR and begin bashing. I think everyones renovation journey is different and it takes a few goes to learn the lessons for yourself.

[Terry Lamb]

Thanks heaps for your info guys. Here is just a bit more info on my intentions.

I have recently moved into the Mackay area. I am living about 10mins out of the city. Three months ago I bought a 4 bedroom low set brick house with inground swimming pool, 6x9 shed. I bought the property for 385k. I have done the following renos on my own:

• Rendered and painted outside (what a difference)
• Painted shed and garden shed to suit house
• Cleaned up pool area (overgrown gardens and trees)
• Full paint job inside
• New counter tops and splash backs in kitchen
• Spilt systems in lounge and 4 bedrooms
• Tiling, new vanitys and tap fittings in bathroom and toilet
• Floating floor throughout kitchen, dining and hallway.

We have spent about 17000 on the renos. It was not anything major, but the house was just outdated with its lattice work and heritage greens and reds and wood trims. The renos took me about 2 months all up, this was while I was working 7 to 4 Mon to Fri.

One of the Real Estates in my area were doing Free evaluations and they said that I would get 450k to 460k no worries with the work that I have done to update the property. Well I was gob smacked considering that house prices have held pretty steady the last few months. So Here I am asking the experts on their ideas and hidden secrets and whether or not renovating then selling is a good idea. Just not sure of the hidden costs such as Cap Gains ect.

So I am looking at buying something similar to my current house in my current area, maybe something around 350k and then doing much the same thing as above depending on what the house is in need of. I may even sell my current house and move into nother reno job. Not sure what is the right decision yet.

It is truly amazing how some minor renovations can update a house so much and make it rise in price in such a short amount of time.This is what got me thinking!!!!!

Once again thanks heaps for your info guys keep it coming. It is great info for someone just starting in the reno game...maybe

[Brickie]

$58K profit, your time of 2240 hours =$26 per hour less, stamp duty, solicitors fees,etc.

You didnt do your sums did you..?

Get a real job....

[Ashore]

The renos took me about 2 months all up, this was while I was working 7 to 4 Mon to Fri.
So you did what 5 hours a night Mon to Fri and say 12 hours a day sat and sunday on the renos thats about 50 hours a week for 8 weeks = 400 hours with 58k = $ 145 per hour
I'de say you did your sums ok
As to what to do to sell, spending money in the bathroom and kitchen usuall give the best profit , but don,t be cheep in what you do there, otherwise getting the general apperance good and the a/c's are value as is putting in a decent opening and fold down ladder into the roof space , doesn't cost much but the thought of extra storage area sells well.

[Brickie]

The renos took me about 2 months all up, this was while I was working 7 to 4 Mon to Fri.

Not how it reads to me..

[Brickie]

Qld stamp duty to buy the place.
$15000
Agents fees to sell it
$10000
Look on your face.
Priceless

For everything else there is Mastercard.

[Terry Lamb]

Ashore

Good onya mate...At least some people can read properly. I actualy worked about 3 hours weekday afternoons and about 6 to 8 hrs Sat and Sun. Your right about spending the money on kitchen and bathroom. Everyone I have talked to about buying houses say that they look at kitchen and bathroom first

[Brickie]

Then theres the capital gains tax.

50% I believe on profit if you dont live in the place for 12 months.

[Sturdee]

It looks as you did a good job on the renovations but as to having made a good profit depends if you can sell at the price the agent estimated.

Agents are notorious in overestimating the sale price in order to get you to sign the sale agreement and when signed are never able to sell at that price.

If you are interested in selling ask the agent to put it in writing and also in the sales agreement that if it doesn't sell within a certain time and at the estimated price that no commission is payable on the eventual sale.

That will give you a quick idea if the estimated price is realistic of the current market. Usually there are no free evaluations of price as they ususally cost you grief at a later stage.

You will also need to take into account the cost of selling and buying as Brickie said and the tax implications, not only capital gains but income tax as well. Sound paid professional advice will help you decide as to the best course of action.


Peter.

[Ashore]

Qld stamp duty to buy the place.
$15000

The stamp duty to buy the place is in the purchase price of $385k you don't have to pay that again when you sell

Agents fees to sell it
$10000

If you use an agent , you can sell properties without one , its more leg work and would pay you to do a couple of courses it you intend to do the reno and sell thing more than once or twice.
The capital gains tax can be ovoided if you own the property for a specified time but if you do sell early the tax can be ofset against all expences incurred on the property which may include the stamp duty to buy as well as part of the rates if you are living there , so always keep all reciepts for every cent you spend on the property
But most of all talk to a good accountant and the tax office to find out where you realy stand advice though freely given with the best intentions on the forum and by friends etc may not be accurate in your case,

[OBBob]

I think the killer part could be the loan ... unless you have $400K sitting around? It's certainly possible but you need to work out how long you can afford to hold the property etc. upfront. Then remember that this loan will put you under significant pressure to renovate on schedule and also to sell quickly ... you wouldn't have the luxury of just leaving it sitting on the market for months waiting for a good offer.

Also on that note, don't forget INSURANCE. Especially to cover all these costs if you were to get hurt and couldn't complete the job?

It is certainly possible. Why not give it ago again without burning your bridges? i.e. don't quit your day job yet ... but you could retain that as a goal to work toward if you so desired??

The way I see it is that if the market is OK in your area, chances are the worst that could happen (if you are sensible about your purchase) is you end up with no inbcrease in value. So you've burnt some labour time and a bit of cash ... but you could hold and rent the property or take a lesson learnt and move on. There is no investment without risk.

[Dirty Doogie]

I would suggest that you now try and realise your profit by selling and buying again. Be careful how long you keep the next property if you are buying it as your Principal Place Of Residence. Although you pay no Capital gain tax on your PPOR, if you buy and sell too fast you attract the attention of the state Duties Office who will want to classify you as a Property trader and charge you more Stamp Duty AND pass info on to the Tax Dept.

If you buy the second property as an investment property then capital gains tax is applicable. If you hold the investment property for more than 12 months then tax is only assessed on 50% of the capital gain. The problem with capital gain calculations is that the cost of any renos are discounted and you will need to show reciepts.

This is a complicated area full of pitfalls but it can be profitable. Good advice can be found on the ATO website and I would also talk to a good tax accountant.

Alternatively you cAn buy the next property in the name or co-name of your wife/partner/sibling. If your present property is in jiont names - reverse the name order on your next title. Yes there are a lot of tricks you can pull if you have the right social network and get out of CGT.

CGT complicates the idea of renoing for profit - hence my personal choice to reno and hold high value property for a min 2 years.

Just as an aside on Mackay real estate - a renovating friend of mine bought a very ramshackle workers cottage near the heart of Mackay on 850 mt2 for 195k + duty in late November 2007. It seems strange that people would pay more than twice as much to live further away.