GlennDelaneyParticipant@glenn-delaney0Join Date: 2014Post Count: 2
Hi everyone, so here’s my story I’m 28 with a full time job that has now taken me to Newcastle.
I have an investment property in Adelaide which at last guess would be worth $400,000 (4 bed, 2 bath in Hope Valley), I have a mortgage of just under $200,000 and no personal debt.
My partner and I are looking to start buying and flipping houses for profit. Or would it be best to develop and sub divide blocks? We both have a passion for renovating but really want to set ourselves up well for when we plan on having kids next few years. Any advice would be great, thanks guys!
GlennTerrywParticipant@terrywJoin Date: 2001Post Count: 16,190Jacqui MiddletonParticipant@jacmJoin Date: 2009Post Count: 2,539
Further to what Terry said, it will also come down to what you can get finance for. Financing development projects can be a bit trickier, particularly if your partner isn’t working and given that you cannot demonstrate experience in turning a profit in this field to the lender.
If you go down the renovation path, remember that you only pay capital gains tax on 50% of the “gain” if you hold the property for at least a year. This could help make it easier for you to find reno projects that will turn a profit that doesn’t all get chewed up in taxes.GlennDelaneyParticipant@glenn-delaney0Join Date: 2014Post Count: 2
Hey thanks for the tips. Good thing is my partner works full time aswell so no problems there. She only has a small $12k loan which she has been working on paying down.
Given that we are both full time employed and little to no debt I hope this will work in our favour. After reading Steve’s book it’s really helped us getting an ideas and understandings on property subjects that we were a little in the dark about before.
We’ve also talked about sub dividing my property as it has a large 797m2 block and building two 3bed 2bath houses and selling one off?BuyersAgentParticipant@knightmJoin Date: 2005Post Count: 330
In that situation my pick would be for a renovator in a growing area on a block that has dev potential. You can buy, reno, rent, then spend the next 12 months attempting the development. While you are doing that its growing with the market. CG is easier money than straight reno flipping in my view. You can certainly try fipping as a volume business but its pretty time consuming. With a reno/dev project you get to add value both ways and your deal volume is smaller so your time invested is less overall. I would allow around 18 months to get it all done. If you want to keep or sell at the end its up to you, also whether to sell raw land or go all the way and build the new dwelling. More profit if you do built (in most cases) but this is also where a lot of the effort is. With the Sydney ripple moving outwards there are some great markets you could get into that are affordable and have plenty of potential. IF you hold for more than a year you should also be elligible for capital gains tax 50% reduction which will reduce your costs when selling. (if you start doing it regularly as a business then I think the ATO will have concerns with this but in my experience doing it once or twice is ok)
The tricky parts to get this right:
1 – Choosing the right area
2 – Choosing the right zoned land
3 – Choosing the right block slope/shape
4 – Choosing the right house to reno
5 – Being disciplined enough to see it through
6 – Not getting pregnant right now even though thats probably what you want
But its all possible. If you have a few years you might be able to pull this off a couple of times and have either lots of property, or sell some and and have less property but with plenty of equity and some cash in the bank before you have kids. MY wife and I did basically this with some buy, reno, hold, and some buy, reno, sell, and 1 buy, reno, develop, sell before we had kids. Property profits paid for 9 yrs of her not working and gave us the deposit to buy the land we then built our PPOR on. Its great planning ahead if you can, most don’t.Jimmy86Participant@jimmy86Join Date: 2013Post Count: 46
A lot to consider. perhaps consider talking to a financial adviser or investment mentor who has been there and done what you are wanting to do. There are a lot of hidden costs involved with subdividing and building duplexes etc…
The good news is, you guys are in a fantastic financial position for your age. Most people try to get in your position at age 50+. A lot of your strategy should incorporate ‘wealth protection’ strategies.
Good luck! keep us up to date on how you go!FreedomParticipant@lindaqJoin Date: 2014Post Count: 22
Oh I am so jealous of your position!!! Although I built my first home at 18yo, I didn’t find the teachers or methods to show me how to go ahead and make the money I could have made. In my defence there wasn’t really the internet like there is now. But I came back to start back into Real Estate after having children and using up our funds. Tough position. If I could do then what I started doing later, my whole life would have been different. Will love to hear what you end up doing! If it were me, I’d re develop my block as you were mentioning, just to start.RichardParticipant@richardppiadvice-com-auJoin Date: 2014Post Count: 20
Hi Glen, great to see some young guns raring to go! Any traction before kids will make a big difference long term!
Flipping requires continuous effort, its like adding another day job to your existing ones. It can pay well when the market is right and rewards renos, but difficult to do year in year out profitably. If you are handy, there are other ways to channel this skill set.
Splitters are also hard to make money on if flipping, they can offer capital outcomes given enough time in market. But market timing would need to be just right (close to peak) to turn over and make a margin in the short term. Mostly due to the council/ infrastructure costs incurred. As well as entry & exit fees.
Small lot development might sound like the deep end, but not if you stage it. Its a longer time commitment, but will allow you to accumulate significant market share within the next few years. If done right the strategy has holding income throughout, and realizes enough equity to hold and facilitate continued accumulation. Not to mention the cash flow to cover costs and offer ongoing working capital.
I’ve done/ participated in (I think) most strategies available to an individual investor, concentrating nowadays on small development projects. if I could turn back time, I would’ve done this from the start and held everything I built and accumulated.
Food for thought…