Hi all, I am looking at yet another deal and am hoping someone can help me out with my numbers!
I am confusing myself[blink]
Here goes This is a buy renovate sell stratergy over a 6 month period.
A renovators delight asking price
$160,000
Stamp Duty $4,000
Renovation Cost $20,000 (rough estiamte for new kitchen, install myself, shower in bathroom, retiling, rip up carper and polis fllorboards, paint inside and out)
Loan Payments for 6 months $4800
Total Cost = $188,800Selling Price = $240,000
Selling fee = $6000 (2.5%)
Exit Tax NSW = $4800
CGT = $8760Profit = $31,640
Is that right or am I missing something?
Thanks All[biggrin]collie
Hi Collie
What about Real estate agents selling fees? For $240000 selling price you would be looking at around 7 to 8K atleast if I am not mistaken. Unless you want to sell it privately without an agent, then advertising costs needs to be added.
PadmaHey Padma thanks for your reply, agents fees are included in selling fee, I have allowed $6000 which is 2.5% of selling price. I got that figure from one of Steve’s books.
Thanks,collie
Hi Collie
on the Profit of the property from you figures you gave before CGT i calculated a profit of 40,400. This is the amount CGT will be payable on.
As you will have held the home for only 6 months you will need to pay the CGT on the full amount so if you pay tax at 30% then thats a CGT of 12,120. Ouch it eats into the profits, Its even worse this Capital gains could push you into the 47% rate then you pay $18,900 TAX- Double Ouch.One thing to think about is can you rent the home for 6 months, especially at the beginning before you renovate , that way you get the 50% CGT free and then start the reno so when you sell it 12 months later its in new condition
regards westan
I live in New Zealand and for a fee find cash positive deals there, email me at [email protected] to join our database
To me the house is not rentable in current order. rae considering selling 6 months after renovating with tenent in place. The CGT I was calculating was on my income which is FTB of $5200 per year.
collie
Collie
One thing to look at is if you are going to rip up the carpet and polish the floor boards, how old is the house/floor boards, what type of timber is it and in what sort of condition are they in. might be an idea to go under the house and have a look at them to make sure they are in good condition or that reno figure could blow out in a big way if they need replacing.
Just a thought, good luck.Ty
Hi Collie
i don’t think you are workingout the Capital Gains Tax the right way. My understand is (i’m not an accountant) what you do is add it to your taxable income and pay tax on it as if it was ordinary earnt income.
so my above figure would be correct, i believe.
regards westan
I live in New Zealand and for a fee find cash positive deals there, email me at [email protected] to join our database
Hi Collie,
Check your CGT calaculations. As Westan said the net gain is added to your other income and assessed in accordance with the various income tax scales.
I have issues with your projected sale price. Turning $160K into $240K in 6 months sounds attractive (and it is) but the better question is – is it achievable? Where did the sale price come from? What evidence supports it? and so on.
Making investment decisions on best case scenarios can be fraught with danger.
Derek
[email protected]Property investment advice and researched property in quality locations available.
I am basing my sale figure on other comparable homes in the same suburb, this house is a deceased estate so it is going cheap…
Thanks for your help and input everyone.collie
Hi Collie!
Don’t mean to eat any further into your profits but, have you included costs for –Electricity and phone connection
Loan establishment fee
Mortgage stamp duty
Bank solicitor fee
Mortgage registration
Title registration
Search fee
Conveyancing
Council Rates
Advertising costs on sellingThere’s probably another $4,000 or so there to consider….
Hi Collie
Here is my 2 cents’ worth – have you considered to do the deal with your spouse or someone else in your family? If it is done in the name of the person with the lowest income the CGT is assessed at that person’s tax rate. That is were trusts are very beneficial.
Your accountant should be able to advise you how to set this up.
Regards
Crusader1Or if you had used a trust, you could then distribute the gain to the lowest income earner and pay much less CGT.
Terryw
Discover Home Loans
Mortgage Broker
North Sydney
Click below to email meTerryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
Ok Collie, I can very clearly see 2 rather big problems with your scenario.
1) Why would the house be worth $80,000 more after your $20,000 renovation?
2) In a falling market, have you done a comprehensive risk analysis with <$160,000 final selling price?I’ve seen many people do cheap renos with their own labour over the last 5 years and make massive profits, much like you describe. They fail to realise that in a boom market the massive profit would have resulted, even if the hard work hadn’t been done!
Speaking of hard work, have you actually completed a renovation?
Even in a flat market, buyers tastes will not always be the same as yours, therefore your renovation is unlikely to even pay for itself at sale, let alone add 3 times the reno cost to the sale price.Cheers, F.
Beware the irrational exhuberance.
You must be logged in to reply to this topic. If you don't have an account, you can register here.
