All Topics / Value Adding / Our first reno project

Viewing 20 posts - 261 through 280 (of 288 total)
  • Profile photo of Jase and FlicJase and Flic
    Participant
    @jase-and-flic
    Join Date: 2004
    Post Count: 190

    Hi
    Thanks everyone for the encouragement. Much appreciated.
    Sorry for taking a while to reply – been flat out crunching more deals.

    Crashy, thank you for your input, and for asking me the hard but important questions. I have been considering your comments for the last couple of days, and here is what I've come up with:

    crashy wrote:
    you would obviously realise it could easily have gone the other way. generally those who say "I dont care if I make a profit or not on the first one" dont become successful in this game.

    At the time we made the decision to buy the house, we did have some of the attitude that it would not be a total disaster if we just broke even on our first deal. We did try hard to choose a deal that would be profitable, so our decision was a calcualted one, but our eagerness to get started certainly played a part.
    I think that "experience vs profit" attitude was a mistake, and it could very easily have caused us to lose $30k. During the project I heard a speaker say "If you lose money on your first deal, the experience you get is how to lose money, not how to make money." That hit home for me, so I was glad the deal went ok.
    Also, being in a rising market is helpful to cover over the mistakes, so a rising market is easier to learn in than a tight market. We knew the market was rising at the start, and thought that would help us not to lose.

    crashy wrote:
    as long as you have learnt from your mistakes (and Ive yet to see you admit you made any except for missing entry costs) thats the main thing. Experience is defined as the sum of all your mistakes. Therefore, if you didnt make any, you didnt really gain any experience. at least thats what they say………
    dont take this as negativity…………just realism

    The biggest lesson I learned only hit me today when I met with my old boss for a chat. He is a successful developer and explained to me how much money I really didn't make.
    Here is what he said:
    Our profit was about $41,500, but that included 860 hours of unpaid labor. Roughly 400 hours was mine personally.
    To hire sub-contractor labor would be a minimum of $35/hour. So apart from me, we should have paid another $16,100 in labor costs. Profit is down to $25,400.
    Next, by choosing to leave my job and do this deal, I missed out on earning wages for 12 weeks so far (because I haven't started the next project yet) which was about $1,175p/week before tax =$14,100. That means I just lost $14,100. So if I paid myself back that amount, the profit is down to $11,300. (If I paid myself $35/hour for 400hrs it is $14,000 – so about the same.)
    I did actually pay myself $3,600 included in the reno cost, so I can put that much back: profit is now $14,900.
    Next, the profit is split b/w me and business partner, so my half share is $7,450.
    After I pay tax on that, it will be about $5,200.
    To get that $5,200 I also worked many hours at night that I did not account for. If I accounted for all those hours, the actual profit would be very close to 0, or maybe less than 0.
    So the question my boss asked me is this: "Do you think you got a big enough return to be worth the risk you took by leaving your job and putting $40k of your money on the line?"
    My honest answer is no, that is not enough return to justify the risk.
    So then he said "So what is the lesson you learned?"
    Answer: Do things differently next time.
    Specifically, here is what I will do differently from now on, (AND I hope others reading this will make good use of my learning experience when you make your own investing decisions):

    1. Pay myself for every hour of work done.
    2. Only do deals with a much greater expected profit than $15k.
    3. Estimate and included in costs all labor associated with deal.
    4. Don't work under a "false economy". Understand how things really are, the true cost of what you do.

    There are many more smaller lessons out of these, but I will give my head a few days to chew on those.

    So in summary, I think I have made the right decisions so far based on what I understood at the time. I am pleased with where we are now, and where we are heading.
    I think I have had a great learning experience out of our first reno, and to have done it without making a big loss is partly luck, and partly good management. Though I can now see that it could very easily have been a painful lesson.
    I think that I can now apply these lessons and start to do truly profitable deals, but it is more complicated than I first thought.

    crashy wrote:
    any thoughts about doing renos in other states where stamp duty is lower or doing renos on your PPoR?

    Renovating with 4 kids in the house is not something I wish to experience.
    I also don't want to travel much over 1/2 hour to do a reno. At least not right now. Maybe when I am more experienced.

    That's all I've got for now. Keep those probing questions coming. See how much we all are learning? Fun.
    Thanks again crashy for your questions. I honestly did not take your comments as negative. I appreciate your help.

    Hopefully those of you about to do your first deal can now do it better than we did, and be aware of some hidden risks.
    Cheers
    Jason

    Profile photo of Jase and FlicJase and Flic
    Participant
    @jase-and-flic
    Join Date: 2004
    Post Count: 190

    Hi corhig – Pabs Rental: 1800 201 020

    Hi chpropdev
    Those are some absolutely ripper ideas. You have got my head churning all over the place. Thanks a million (maybe 2!!)
    Re: using percentages
    I agree with this too a point. Before doing this deal we worked out all the % returns, did the 3 tests in Steve's book etc. I will keep doing this with all deals.
    But, if I had a $1M deal that would return 10% in 12 months, or a $150k deal that would return 20% in the same time period, I would do the big deal, small %, big $profit. Obviously some risk assessment involved there too.
    I have heard Martin Ayles say "you bank dollars, not percentages".
    That is why I said I would probably not do something that would make less than about $30k. The effort of getting finance, managing deal etc is too much. I would waste too much time on the small deal, and not be able to take advantage of a better deal.
    Of course, this opinion is based on 1 reno project, a labor intensive type of deal, so if I found a way to only spend a few hours on something, and there was a low buy in price, I might change my opinion.

    For the sake of some more stats, here is the % of our reno.
    Total cash that we put in was $40k each partner =total $80k
    Profit of $41500 =51.9% Return On Investment
    Contract date to settlement date is 152days =0.416years
    So Annualised %ROI =51.9% divided by 0.416 = 124.8%ROI

    For Steve's 3 tests (see 0-260 book):

    Net Profit Percentage =51.9%
    Required =23.2%
    PASS

    2x Interest Paid =$11,122
    Cash Back = $41,500
    PASS

    Risk free return ($80k @ 5%, for 152days)= $1665.75
    Danger Money Multiple = 24.91
    Required =12
    PASS

    Wasn't that fun??

    Jase

    Profile photo of chpropdevchpropdev
    Participant
    @chpropdev
    Join Date: 2005
    Post Count: 39

    Hi,

    I haven't got a lot of time to reply to your post Jase (as I have a pressing engagement with a ceiling through which a sparky fell yesterday!) but you are of, of course, correct to say that you bank cash not percentages.  What I personally do is this (which I didn't really explain in full): I do look for a 20% profit margin but I then also take into account time available, cash/finance available and actual cash return.  I guess I look at my year and say is this a good project to fit in.  Is it going to give me a good return on all my outlays.  I'm not not a big one for going through a hundred tests to see if a project ticks all the boxes.  Many good projects just don't pass all the "guru" tests.  I tend to be a bit more of a free thinker.  If I'm comfortable putting my portfolio on line, then I get on with it.

    And just one other thing.  Unless your boss is totally non partisan (which I doubt is the case – guess what, he probably wants you back to the grindstone) do not put too much store in what he says.  I used to earn over $250k a year as GM of a large employment law training company in the USofA.  I gave it all up to become a full time investor.  Guess what?  I earn a great deal less.  In fact, we live on my wife's salary – nothing flash – she's a nurse.  However, we now have more assets that we ever did when I had to turn up to work everyday to a job that I didn't particulalrly enjoy for a boss I disliked.  When I left, I had more time to do the things I wanted to with my family (4 kids, the wifey and the dogs), I have never had to beg for a day off or feel bad at taking off to go fishing at two o'clock, and I am certainly a lot healthier and happier.  So, don't put too much store in what boss's tell you.  And treat all the stats that people come up with a bit sceptiscism.  At the end of the day, be happy with what you want – not with what someone else wants you to be happy with. 

    Have a great day.

    Andy

    Profile photo of Jase and FlicJase and Flic
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    @jase-and-flic
    Join Date: 2004
    Post Count: 190

    Thanks Andy
    Good stuff.
    Good luck with the ceiling.
    Jase

    Profile photo of crashycrashy
    Participant
    @crashy
    Join Date: 2003
    Post Count: 736
    Jase and Flic wrote:
    Crashy, thank you for your input, and for asking me the hard but important questions.

    glad you realised what I was getting at, even if nobody else did & I copped it. Your boss must be a little like me…….
    It was worth it. I realise I have no tact and this is an issue for some. But thats the way I am.

    Jase and Flic wrote:
    The biggest lesson I learned only hit me today when I met with my old boss for a chat………. If I accounted for all those hours, the actual profit would be very close to 0, or maybe less than 0.
    So the question my boss asked me is this: "Do you think you got a big enough return to be worth the risk you took by leaving your job and putting $40k of your money on the line?"
    My honest answer is no, that is not enough return to justify the risk.
    So then he said "So what is the lesson you learned?"
    Answer: Do things differently next time.

    now we are getting somewhere.

    Too often I watch these reno shows on TV and they make it seem so easy & cheap. Then people follow their example & lose a bundle of money. I guess I was beginning to think the same thing was happening in this thread. Thats not really your fault either.

    Profits aside, you should be commended on your candid and honest contribution, especially during a period when your time was valuable and in short supply.

    thanks

    Profile photo of StumunroStumunro
    Member
    @stumunro
    Join Date: 2006
    Post Count: 49

    Crashy you have good points to make, but I think sometimes you don't bring them around in the same light that you mean them?

    Profile photo of pinknic20pinknic20
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    @pinknic20
    Join Date: 2007
    Post Count: 52

    Why does everyone always comment on Crashy's comments? surely we can all have an opinion.

    Profile photo of mymatephilmymatephil
    Member
    @mymatephil
    Join Date: 2007
    Post Count: 9

    I just wanted to thank Jase & Flic for perservering with updating us all on the progression their  first reno project. I think I would have given it away after the first couple of weeks when the project got going. It's a hell of a task to renovate all day then come home and type up an online progress report.

    It's been a rivetting read and an eye opener into the realities of renovating for profit. I'm glad that there has been some in-depth probing about the pro's and con's of doing a reno rather than just looking at the profit and up-side. I think Crashy was trying to warn all of us that's it's not an easy street to financial reward. It's a careful and calculated process which can often fall on the wrong side of the ledger. 

     I'll admit that whilst the reno was under way, I kept reading about your "team of helpers painting" etc. I suspected that your labour figures would be quite high and that to do it without volunteer help would have dramatic impact on profits.

    I guess family and friends are keen to help on the first project but would get a bit tired pitching in on the fourth and fifth one.

    So congratulations on your efforts and results, this a thread that'll be worth referring back to again and again.

    phil 

    Profile photo of Easy Beach ShowerEasy Beach Shower
    Member
    @easy-beach-shower
    Join Date: 2003
    Post Count: 46

    Check out this link.

    I have placed info on todays blog about a cheap renovation deal on TV.

    People did a Vendor finance deal.

    No deposit home sale in exchange for a completed renovation in 6 weeks – the handover day!

    Enjoy!

    William Price
    http://www.plumbingtips.com.au/

    Profile photo of pinknic20pinknic20
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    @pinknic20
    Join Date: 2007
    Post Count: 52

    so what's next for you two???

    Profile photo of Jase and FlicJase and Flic
    Participant
    @jase-and-flic
    Join Date: 2004
    Post Count: 190

    Lots happening. Tell you more on the weekend.

    Profile photo of Jase and FlicJase and Flic
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    @jase-and-flic
    Join Date: 2004
    Post Count: 190
    Profile photo of crashycrashy
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    @crashy
    Join Date: 2003
    Post Count: 736

    Hi Jase

    just sold my 3rd reno, heres the numbers:

    Purchase: 300k (Sept 07)
    stamp duty 3k
    solicitors cost $570
    total 303,570

    reno cost 25,170
    sale price – 435000 (Jan 7)
    agents commission – 11325
    profit – 94935

    Profile photo of Jase and FlicJase and Flic
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    @jase-and-flic
    Join Date: 2004
    Post Count: 190

    Beeuda full. And quick too. I like it. I like it a lot.

    Profile photo of ValkyrieValkyrie
    Member
    @valkyrie
    Join Date: 2008
    Post Count: 5

    Crashy,

    I'd love to see the finer details of your latest reno. Sounds like a nice solid deal.

    Profile photo of crashycrashy
    Participant
    @crashy
    Join Date: 2003
    Post Count: 736

    sale goes unconditional on Monday (we hope) so will have more to say then.

    Sarah Beeny (Property ladder tv show) would say this was the perfect candidate for a reno.

    Have a tonne of before & after photos which will help explain why it was a success.

    will start a new thread I think….

    Profile photo of ValkyrieValkyrie
    Member
    @valkyrie
    Join Date: 2008
    Post Count: 5

    How did the contract go Crashy? Got that lovely "unconditional" part about it yet? ;)

    Profile photo of Jase and FlicJase and Flic
    Participant
    @jase-and-flic
    Join Date: 2004
    Post Count: 190

    Hi all. Sorry to take so long to answer the question "what are we up to now?".
    A bit of a saga to tell you…. I will give you the short version.

    It all started with that lovely 30 day, cash, unconditional offer we were so glad to receive back in Sep '07. The purchaser did not actually pay any deposit when signing the contract, saying that he would pay a 10% deposit within 2 days. This was the start of a string of excuses and apologies and promises that never resulted in any actual money being paid as a deposit. The settlement date arrived and we were promised and assured that the whole amount would be paid in cash on that date. Then some more apologies, excuses, "we couldn't get the money out of the bank. They are taking ages to release our money. Sorry……"
    The buyers happily agreed to pay penalty interest of 14%p/a on the full purchase price, so we thought we might make a little more than first thought.
    Settlement was re-booked, and re-booked over and over. After about another month we issued them a "notice of rescindment" which means that they had 14 days to pay up or the contract is void. However, we really wanted them to pay up because they still had not paid any deposit so we had nothing to pay our extra costs with. We wanted them to settle so we got the original price PLUS all the penalty interest – about $7,000 by that stage.
    Then the story emerged that they had inherited the money, and not realised at the time of making the offer how long it would take to actually get the money in their hands. A plausible excuse perhaps, so when the buyer (now in direct contact with myself, not through agent or solicitor anymore) assured me that the money was now in his account, we gave him another chance to settle.
    This time he told me 2 hours before settlement that everything was under control, and his father was on the way to the settlement officer with the bank cheques in hand. Yet still no money showed up.
    This time he told me that there had been a major medical emergency in the family, which turned out to be him (the buyer) being diagnosed with terminal cancer, and not going to be around for long anyway. But he still wanted the house, so we tried again to settle a couple more times. I tried to meet him – and got stood up. And then finally (yes, I know I let it drag on too long) I said forget it, I will sell the house again.
    Within 4 hours of making that decision we had another offer of $345k, 30 day unconditional. We accepted due to the short settlement, and the fact that it was almost Christmas and we didn't want to wait, and then after we had all signed the contract, the new buyer tried to re-negotiate an extra 2 weeks on the settlement.
    We said no, but agreed to an extra 2 days. They asked for a letter stating we would give another 2 days, so we wrote it for them. Then on Christmas eve they pulled out of the contract on the last day of their cooling off period.
    After Christmas they asked for their $1000 deposit back, and got quite upset when we kept the 0.2% ($690) stated in the contract as the penalty for cooling off.
    We had a few more offers after Christmas, but all too low to consider.
    So then in early Jan '08 we ordered more furniture, got the house pretty again, re-advertised, started an auction campaign (just to do something different and try not to let the house appear "stale") and basically started the sale process all over again.
    It took about a week after furnishing the house for us to get another good offer -$350k on Fri 11 Jan. It was a 45 day offer, subject to valuation. We said we would think about it for the weekend.
    Then the next day (Sat) buyer number 1 sent me a message asking if I would give him one more chance if he took a bank cheque for the full puchase price plus costs to my solicitor's office on the Monday morning. I told him if he was there by 11am then I would still sell to him. He didn't show (surprise).
    The new buyer (number 3) meanwhile called the agent on the Monday morning and said they would make the offer unconditional. So at 12pm I got the agent to call them back and explain that we really wanted about $360k, so after a couple more hours of negotiating they raised the offer to $355k, 45 days, unconditional.
    We agreed and got the papers signed that night. They paid a 10% deposit by bank cheque the next day. Their cooling off period has ended, and we are once again looking forward to settlement -this time on 25 Feb.

    So there is the fairly short version of the saga of selling our first reno project. Moral of the story is that the house isn't sold till the money is in the bank.

    Now, what are up to from here?
    After looking hard for a couple of months, making several offers, and being beaten on price numerous times, we finally bought a home in Chadstone which is due to settle on Feb 15th. It is a 4 bed, 3 bathroom Weatherboard home on 1013m of land. Our intention is to get plans drawn and a permit approved for 4 new townhouses. We will then aim to sell the property with the Planning Permit (DA) and make a profit of about $80-$100k. Our other option is to appoint a builder to construct the dwellings for us, and sell them individually when complete. This would have an expected profit of over $400k, but this is not our preference as it would be a much longer project, it would expose us to more risk, and it would take more cash than we have. Also, we would rather have a quick profit in our bank as our company is still quite young.

    So far we have appointed an architect who has made good progress on preparing the permit application, drawing plans etc. We are still finalizing the loan, and are trying to keep the architect and others moving as fast as possible.

    Apart from that deal we are looking lookin looking for more, and have some exciting prospects currently under investigation.

    Profile photo of aussieinvestoraussieinvestor
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    @aussieinvestor
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    Great to hear from you guys. I hope all goes well.

    Peter

    aussieinvestor | Digital Revenue Pty Ltd
    http://appliancewhiz.com
    Email Me

    Profile photo of emu1208emu1208
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    @emu1208
    Join Date: 2008
    Post Count: 19

    We just bought our second IP in Morayfield (QLD) its 4yo, house looks great and in an excellant location. Its within 5k of major shopping center, school, and day care.
    We are thinking of doing a bit of landscaping and a cosmetic reno to add value.. Are all these tax deductable???

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