Forums / Property Investing / Creative Investing / Buy, reno sell… what am I doing wrong

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  • Profile photo of davejohnodavejohno
    Member
    @davejohno
    Join Date: 2013
    Post Count: 6

    Hey,

    A bit of background, wife and I have recently done a full reno that is currently tenanted and taking care of itself. We loved the experience and have learnt since and would like to do a couple of buy, reno and sells, eventually doing some small development townhouses possibly.

    Our issue is that we are having trouble of finding suitable properties for this method (we have been looking for many months and only found a couple of suitable properties that were sold really quickly). We do a lot of the work ourselves and have good trade contacts and funding and serviceability aren’t an issue. We don’t want to make a huge amount of money off them but any money made, is taken up buy stamps, holding and selling costs. I read of people using this method all the time.

    We are looking anywhere on northside of Brisbane but keep coming up with nothing. Am I missing something,looking in the wrong area, or is this method not really relevant for the current market?

    Profile photo of Jacqui MiddletonJacqui Middleton
    Participant
    @jacm
    Join Date: 2009
    Post Count: 2,539

    Hi Dave

    I'll assume you have factored in CGT.  If you hold a property for more than 12mths before selling it, there is a 50% discount on the CGT.  Have you trialled your numbers on holding the property for a year before selling it?  Up to you whether you renovate at the start or at the end of the 12mths.

    Jacqui Middleton | Middleton Buyers Advocates
    http://www.middletonbuyersadvocates.com.au
    Email Me | Phone Me

    VIC Buyers' Agents for investors, home buyers & SMSFs.

    Profile photo of davejohnodavejohno
    Member
    @davejohno
    Join Date: 2013
    Post Count: 6

    Thanks Jacqui,

    Even with 50% discount on CGT the numbers don’t stack up. We are looking for a quick turnaround (max 3 months for renos) and move on to another one to build equity and reduce debt, Don’t want to live in the houses while doing renos either as we already have a PPOR.

    We think this investment method is achievable based on others stories, have done lots of research, super motivated but just need to find the right property. Do these exist in Brisbane under $350k

    Dave

    Profile photo of Jamie MooreJamie Moore
    Participant
    @jamie-m
    Join Date: 2010
    Post Count: 5,069

    Hi Dave

    Have you considered the southside – I know the entry price in the Logan area is much cheaper. Just not sure if it's the type of area you have in mind for this type of strategy but I remember seeing a run down, detached house in Marsden for low $200ks a little while back – would have been ideal for this type of thing.

    Cheers

    Jamie

    Jamie Moore | Pass Go Home Loans Pty Ltd
    http://www.passgo.com.au
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    Mortgage Broker assisting clients Australia wide Email: [email protected]

    Profile photo of RPIRPI
    Participant
    @rpi
    Join Date: 2012
    Post Count: 308

    Home Renovation shows were the problem

    There was a lot of money in doing renovators before these became popular.  Now there is often too much potential included in the price.

    Also be careful with the 12mths and CGT discount.  If your intention is to buy reno and sell then your income is business income not investment income and you should not get the discount.  That is one of the reasons we get clients who are developing property and intend to hold some of the development and sell some to buy the site in 2 separate entities, 1 development entity, 1 investment entitiy.  We then use partitioning to separate out the completed components without stamp duty or CGT issues.

    RPI | Certus Legal Group / PRO Town Planners
    http://www.certuslegal.com.au
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    Property Lawyer & Town Planner

    Profile photo of JpcashflowJpcashflow
    Participant
    @jpcashflow
    Join Date: 2007
    Post Count: 575

    RPI has hit it on the spot,

    Home renovation shows are a huge problem, Now every one wants to become a renovator….

    My theory has always been this (mind you i renovated three properties) I made my money from buying the property at a below market price and I am not talking 10K or 15K I used to aim at 60K.

    Renovating only gave me a better chance to sell the property….

    Also when you say "you dont want to make huge" how much % or $ value are we talking about?

    Jpcashflow | JP Financial Group
    http://www.jpfinancialgroup.com.au
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    Your first port of call in finance :)

    Profile photo of davejohnodavejohno
    Member
    @davejohno
    Join Date: 2013
    Post Count: 6

    I'd be happy to do a couple houses and only make 20k at the absolute worst each. If everything went well hopefully more but I also very keen to get some more experience also. I know a lot can go wrong and its a lot of risk for small return, but i'd rather manufacture the equity rather than sit aound and wait

    Profile photo of CatalystCatalyst
    Participant
    @catalyst
    Join Date: 2008
    Post Count: 1,404

    It's the same everywhere unfortunately.

    Reno is the buz word now with all the reno shows on TV. The Block makes it look so easy that everyone thinks they can do it.

    I've seen some disastrous buy/reno/sells in Sydney. Some have obviously made no money (I deduce this by looking at their buy price and what they did as a reno then sell price). Because lots of people are inexperienced they tend to under estimate reno costs and time therefore inflate their maxumum buy price. That makes it difficult for those that have calculated ALL costs effectively.

    What research have you done to decide on your area? This will tell you whether it's a good area for buy/reno/sell. 

    Hang in there. Don't make the mistake of buying something because you are sick of waiting. Work the numbers and stick to them.

    Profile photo of davejohnodavejohno
    Member
    @davejohno
    Join Date: 2013
    Post Count: 6

    Thanks Catalyst,

    And that’s my issue. I can find next to nothing where the numbers actually stack up. I’m thinking that they don’t exist so I’d thought I’d ask the gurus before giving up on the idea and looking elsewhere to spend time researching properties.

    I have focused on the north side of Brisbane because I know the area well and as I can do a lot of the work myself or my trade contacts are all based here also, it makes sense to look here first. As most well know, there is a lot of homework involved to see if certain areas so I have focused on certain areas. I’m happy to hang in there and keep looking if it makes sense to. Has anyone else on here done the buy/reno/sell in Brisbane successfully?

    Dave

    Profile photo of DerekDerek
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    @derek
    Join Date: 2004
    Post Count: 3,544
    davejohno wrote:
    We don't want to make a huge amount of money off them but any money made, is taken up buy stamps, holding and selling costs.

    Hi Dave,

    You haven't stated your 'target figure' and it would be interests to see what you are aiming to achieve.

    Have you considered the cost of your time in your profit/loss calculations?

    Reading this comment it would appear as if you're still in the learning phase and either paid too much, over-capitalised and/or got your 'sell price' research wrong. Without knowing a lot about your or your background I would consider this as part of the learning process and wouldn't be overly concerned by the lack of profit provided you review your experience and learn from any mistakes made and then use this knowledge to make a better success of your next project.

    As others have said you are battling against the media's current love affair with renos – every Tom, Dick and Harry is trying to emulate these shows which makes the task of making good selections difficult. 

    Profile photo of davejohnodavejohno
    Member
    @davejohno
    Join Date: 2013
    Post Count: 6

    I am definately still in the learning stage and I know I still have lots to learn. I have learnt so much since our first reno on our IP and plan on keeping it as its now cashflow + and in a pretty good location with potential good CG. Want to do a buy/reno/sells to consolidate our LVR as we don't want to be maxxed out.Dave

    Profile photo of DerekDerek
    Member
    @derek
    Join Date: 2004
    Post Count: 3,544

    Hi Dave,

    Love your commitment – this will put you in good stead moving forward from here.

    I am not a renovator so take what I say with a grain of salt but if you have learned 'something' from your first effort then you are on the right track. In my opinion those who claim never to make a mistake aren't being honest with themselves.

    There are a number of glib phrases that may provide you with some comfort – "Rome wasn't built in a day" or "Success comes to those who wait" or "Wealth is the transfer of money from the impatient to the patient" and so on.

    Hang in there.

    Have you thought about networking with a real estate or buyers agent? May help

    Profile photo of I Buy Houses FastI Buy Houses Fast
    Member
    @i-buy-houses-fast
    Join Date: 2009
    Post Count: 7
    davejohno wrote:
    Hey, A bit of background, wife and I have recently done a full reno that is currently tenanted and taking care of itself. We loved the experience and have learnt since and would like to do a couple of buy, reno and sells, eventually doing some small development townhouses possibly. Our issue is that we are having trouble of finding suitable properties for this method (we have been looking for many months and only found a couple of suitable properties that were sold really quickly). We do a lot of the work ourselves and have good trade contacts and funding and serviceability aren't an issue. We don't want to make a huge amount of money off them but any money made, is taken up buy stamps, holding and selling costs. I read of people using this method all the time. We are looking anywhere on northside of Brisbane but keep coming up with nothing. Am I missing something,looking in the wrong area, or is this method not really relevant for the current market?

    A really great strategy that works for me to get a hold of these great buys before they get snapped up.

    I would drive around your targeted area and look for properties that are in need of a face lift or gutting and knock on there doors and ask them if they are open to selling their properties, I admit it is very hit and miss, but it does work and has produced some really great deals and profits. if your not comfortable in knocking on doors, you could try send them a letter I use this.

    Dear Property Owner, Neighbour

    I am a local resident and noticed your house when walking by. I would like to point out that I am not a real estate agent nor want to be. I am simply someone who is looking to buy a house in this suburb and took great interest in your property when walking by a few days ago. I really like your property and was wondering if there is a chance I could buy it from you?
    If so, I would like the opportunity to meet with you for an informal chat. I am prepared to pay a good price for your property as a private sale. This will also save you thousands upon thousands of dollars in not having to pay advertising costs or real estate agent commission fees.
    If you have been thinking of possibly selling, now or in the not too distant future, could you please call me? I am a serious and genuine buyer and promise to respond to you immediately.
    I sincerely hope to hear from you and have provided my personal contact details below for you to call me if you like. Thank you for your time today in reading my letter.

    Kindest Regards
    Mr X

    the tone is kept neutral and keeps to the point. the content of the letter is very similar to how I introduce myself at the door.
    you may find that you could organise to renovate the property and on sell it with out actually buying the property, I suggest getting some really good legal advise on the different strategies to control the property vs Owning the property to renovate it and sell it. you could save thousands in stamp duty and holding costs, these savings may help pay taxes or be able to be used to gain concessions from the vendors by maybe paying their rent for the period of the reno and sale, Make sure you know the numbers and never get emotional about the home, run it as business Knowing everything about your targeted area is the first thing you want to do, you want to fully understand what makes one property sell for one price and other houses for cheaper or more. really get out there understand what the differences are, and as I suggested earlier in this post, be the first to find it. talk to a good accountant that can help you with structuring your entities for this type of property trading. and freshen up on some negotiation skills.

    You are on the right track, you seem very persistent, I am happy if this has helped with getting some direction.

    Profile photo of I Buy Houses FastI Buy Houses Fast
    Member
    @i-buy-houses-fast
    Join Date: 2009
    Post Count: 7

    You need to be the first one to do the deal. its a great Business, you can make a real lot of cash in any market if you do it right, learning to do it right, unfortunatly isn't really documented, because every vendor is different, and you need to provide a solution to the needs of the vendors. the best money is made when you can secure off market deals. keep plugging away and learn from your mistakes, but educate your self on risk mitigation.

    mattnz
    Participant
    @mattnz
    Join Date: 2007
    Post Count: 574

    I would suggest doing a buy renovate and subdivide, especially in Brisbane, where there are great opportunities to find 2 lots on 1 title.

    I have created a video series exploring some of these opportunities, this is the first one http://www.youtube.com/watch?v=perF03avcZw

    Note that the website mentioned in the videos won't be live for another month.

    Cheers,

    Matt

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