Hi All
I purchased Reno Toolbox several months ago and have found it thoroughly informative. I love the product and have great respect for Dean and Elise. However, I am struggling to find properties that stack up according to the 33% margin to get the end sale price. I have viewed so many properties here in Perth that fit into my Renovation criteria and budget but when I do the quick calculation the selling price is just way too high – and as they mention in the training to not waste your time on deals that potentially won't make money. I'm finding this quite demoralising as I really just want to get renovating and make some money.
Where do you find these under-valued, rough diamonds? Is Perth not the right place to be doing reno's? Or is my inability for negotiating the price down hindering the process?
Any views, comments, tips? Please.
Must be a few real roughies out there to turn 33% on total investment, it is more like making 33% (or more) on what you put in ie deposit + cost of works.
ie Cost: $200k, dep $40k, works $30k : you might sell at $250-260k – what idiot would pay $300k+? Developers profit on a complete package is even tight at 25% which is down on numbers we used to use.
One way to get a greater return than just a straight reno is to find properties where you can add value in different ways. For example adding another bedroom can increase the value of a property by much more then it costs to build. You could buy a reno where the block may be sub-divided and raise extra cash that way.
In response to Scott No Mates comments – what idiot would pay $300k+? It seems the current market in the South Eastern suburbs of Melbourne is full of idiots. Houses are being sold for $50,000 – $100,000 more than the asking price in this price range. We've put many offers in on reno properties at more than the asking price and been beaten by up to 10 couples putting in higher offers.
We've found that by keeping in contact with real estate agents and telling them exactly what we wanted we were told about a problem property before it went to the internet. That way we were able to make the first offer and beat the crowds. We settled on it yesterday and will start the reno this weekend.
SumnerStephen my advice is to keep at it. You have to earn your money in the first few deals you do but it gets easier the more you do.
Good Luck.
regards John
Hi Stephen, I am going to quote Martin Ayles (the developer guy that does seminars with Steve), It all comes down to “How bad do you really want it”. Beat the agents, place a little classified ad on your local paper (I Buy Older house, etc, etc), also do a little flyer and drop it on those houses that you think are good to profit from a reno. It takes time and effort, however you only need one, and then another one and so on…
Work you market hard and smart and reap the rewards
Happy Investing
Hi guys,
I'm no expert in this area but there's a few things to keep in mind – these are based on what an expert renovated shared with me and he has done very well from renos.
1) You buy for 30% below your intended sell price, not 30% below average price for houses in the area – big diff.
2) Your sell price will most likely be well above the average in the area because it's "all new and shiny", rather than "average and/or tired".
3) You know what your intended sell price is going to be by doing your research, lots of research, in the area and know what it will take. ie find other great renos that are on the market or recently sold and use them as a guide.Here's a rough example using simple round figures;
a) Avg house in area $400k.
b) You plan to sell for $500k ( your research confirms the market will take this "top end" price for a "shiny and new" house.
c) You buy for $350k (30% below sell price, not avg price). This would be a fairly tired looking place that is below avg condition.So you are actually looking for a place that is just 12% – 13% below the avg price, and that's a bit easier.
Make sense?
Hope so and hope it helps.
Thanks for the comments guys. I think I may have worded the question wrong. The 33% on top of the purchase price was not he margin. There is only a 10% profit the rest is as follows:
aquisition costs (+-5%)
interest (+-8% for 6 months)
reno cost (10%)
selling csts (4%) and
profit (10%).This is where I am struggling because all the properties that I have found to renovate are not cheap enough to add all of these percentages and still come out with a reasonable selling price.
Check your interest rate Stephen, 8% for half a year is 4% over the period – not an anualised 16% (unless of course you are borrowing at 16%).
Ie – Purchase – $300k + costs $15k = $315k.
Add interest say, 6 months @ 8% = $12.6k
Reno = $30k + interest, 6 months @ 8% x 50% = $0.6k
Gross Profit = (net profit rate + selling costs rate) 14% x (costs) $358,200 = $50,148
Selling Price = $408,348, but say $410k
Less selling costs (incl in gp) = $16,400
Net profit = $410-$16.4-$30.6-412.6-$315 = $35,400 or 9.88%Note that holding costs will affect your profit (council rates, land tax, duration, settlement period etc)
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