Greg MayerParticipant@greg-mayerJoin Date: 2016Post Count: 5
Thanks for taking the time to view my post. Being relatively new to the Investing scene, this is the first time I have posted on the forums.
My business partner and I have been looking into Property Flipping in the Brisbane, QLD area and have put together a costing/profit table for analysis of our projected profit margin on a fictitious project. We are finding it difficult to justify to ourselves that these types of projects are worthwhile, and are able to generate a profit margin that satisfies our risk/reward ratios. We have read a number of Steve’s books and are seeking ROI (or profit margin on flipping) of 12-15% given we are still relatively new to the investing scene.
We are hoping to perform simple cosmetic renovations including facelifts to the kitchen and bathroom, and internal paint. We may possibly also update the front facade and/or flooring dependent on the project.
If anyone is able to give feedback on our sample costing table and point out where we may be able to save on expenses, that would be muchly appreciated.
The more important question is whether anyone would be willing to provide their cost/profit calculations for a property flip which they have completed recently, say in the last 12-18 months? Obviously we do not mind if property particulars are removed. We feel this would be invaluable to our learning experience and would greatly appreciate assistance from any member of the community.
I have copied our sample calculations below.
Thanks in advance,
Purchase price $220,000 (Property Market Value $250,000)
Purchase costs $ 15,217
Building/Pest Inspection $ 500
Bank Fees: Application $ 400
Bank Fees: Trust Deed perusal $ 800
Bank Fees: Settlement Fees $ 350
Govt Fees $ 525
Transfer Duty $ 132
Stamp Duty $ 6,125
LMI (based on 90% LVR) $ 5,185
Solicitor Fees $ 1,200
Renovation Costs $ 20,000
Holding Costs (6 months) $ 8,213
Interest on Loan $ 5,633
Rates & water $ 1,400
Electricity $ 200
Planning Fees (builders etc) ?????
Permit Fees (Council for reno) ?????
Home Insurance $ 750
Builders Warranty Insurance? $ 230
Sale Costs $ 5,850
Staging (Virtual?) Costs ?????
Commission $ 4,500
Solicitor Fees $ 1,000
Bank Fees: Settlement Fees $ 350
Total Expenses $ 49,280
Sale Price $275,000
Profit $ 5,720
Taxation (CGT etc) $ 1,716
Profit Margin 2.12%TomParticipant@thebeardedbrokerJoin Date: 2016Post Count: 10
You can trim the fat wherever you want on paper to make your deal work, it means nothing in real life. I’ve only done one reno and I can tell you it will never go to plan.
A good friend of mine is a property mogul, he says if you can’t make a deal work on the back of a napkin using rainy day numbers then don’t do it.
The next question, you’ve factored in a profit of $5k…you’re taking on $275k plus of risk, time and effort to make $5k. Do you think the benefits outweigh the risk here? What if it goes terribly wrong, all for $5k which you could probably save in the time it takes you to execute this deal.
I’m not trying to rain on your parade, manage the risk, i.e. enough buffer, and you will be ok. The point being don’t cut costs in your feasibility because that will cause pain in the real world.BennyModerator@bennyJoin Date: 2002Post Count: 1,376
With a quick look, I would think you would want to do better than to add just $25k in Equity for $20k spent on renovations. The usual “rule of thumb” is to aim for doubling the money spent on a reno – i.e. spend $20k, but add at least $40k in value.
See, the fact that you appear to be buying well (buying a $250k place for $220k) should not disguise a low value add from a poor reno. It is a function of buying well – you would have gained that Equity without doing any reno at all.
So working back, if you are spending $20k on renos, then plan for a $40k uplift (from $250k, being current market value, to $290k) and work out your profits from there. From your figures, I think I was seeing a $4k return from a ~$200k Investment being 2.12% – so how about a $19k return? Gets you nearer to 10%, but is THAT enough? Look at the cash-on-cash return and it should look a whole lot better (how much you got back from how much you actually “put up”).
Also, you are using the term “flip” – but I don’t think that is what you are doing is it? It seems to me that you are buying to reno, then re-selling later (12 months later?) I’m not trying to pick you up on terminology – just trying to understand just what your whole plan of action is.
PS And I like the bearded bloke’s thoughts too !! Well said.
Good on you for thinking ahead in order to get ahead but….as mentioned above, you could tweak many numbers in your calculations and get to any profit margin you’d like.
My suggestion would be to do as I do:
1. base your calculations on an actual property that is up for sale, and
2. learn from others by attending property investors meetings. Matt Jones has a group in Brisbane. Never been there but been to his GC one and it’s great. The “real deal” section is the meat of the meeting. Meeting other investors is a huge plus as well.
Hope this helps? 👍😎
Ethanwilko1Participant@wilko1Join Date: 2010Post Count: 510
Where I would trim the fat in your fictitious flip is this.
– Holding costs, 6 Months to complete renovation, way to long (are you just working weekends?), Speed is the key. (If the renovation could take longer, get early access on a unconditional contract, finish the renovation before you even settlement, some risks here, You would need have to locked in the valuation with a desktop valuation, can’t have a valuer showing up) 80% loan can solve this majority of times.
– Swap to conveyancer over solicitor (cheaper)
– PS (No CGT on a flip). Using Income tax.
– No Home warranty if you keep individual contracts with trades under 12k. (I.e. split it up don’t get one person/company to do it all)
– as long as no interior walls moved or structural changes, no council fees.
– Staging costs ($2-2.5k)
– Try LVR at 80% (there are some loans that offer 85-90% but with no LMI) depending on purpose and / or your occupation.
Keys to finding these properties (using RP Data, find suburbs with the biggest variance in prices)
Rough work out that you need the original house component to cost you (70% of the sale value) IE your hypothetical sale price at $275,000 you need to be purchasing at $192,500.
Here is the numbers for a property flip completed within the last 6-8 months. This is something would recommend for beginners.
Renovation time – 4 Weeks 2 days, Sold First Open for listed price. Approx 60 Hours my time put into it, into organizing materials, trades etc. Type of property – 1 Bed, 1 bath Unit. (No exterior work required)
$154,000 – Purchase Price
$7,495 – Stamp Duty and closing costs (conveyancer included)
$15,286 – Renovation costs
$1,100 – Holding costs (two months and a bit on loan at 80% purchase price at less then 4.5% interest rate)
$6075 – Sales (agent fee plus conveyancer)
$ 183,956 – Total
Sale price (1st open), 1 month settlement = $212,500
Profit = $ 28,544
Return on Investment – 15.52 %
Return on investment (annual) – 140.48%
IRR – 187.9
Excellent detailed post, Wilko. Well done! 💪👌👍
I do my calculations very similar to yours except the holding costs are on 105% (as funds invested for the purchase would have otherwise offset another property).
How do you calculate internal rate of return?wilko1Participant@wilko1Join Date: 2010Post Count: 510
Just had to amend that IRR. The feaso (feastudy) program did not like a value (less then 3 months, must be a glitch). Calculate using the feasibility program.
Estate Master will do it for you as well, and will also let you included a cost of capital as well, (as you say money invested is money not offset, which is a cost).
Plenty of free excel formulas available online or calculators though.
All good, was just surprised at the super high IRR value 😉
Anyway, well done! Excellent flip 👍😎Corey BattParticipant@cjaysaJoin Date: 2012Post Count: 1,010
2.12% is abysmal for a return – with a tiny fluctuation in any costs or sale price and you’ve lost money whilst wasting months of your time.
Just like development, if you’re going to flip you would want to be making sufficient return commensurate with the time and effort being expended. And likewise look at your goals – is 5k here and there going to get you to retirement? Unlikely. A simple buy and hold which is well positioned would likely outstrip that return every day of the week.
I won’t comment on the specifics of the renovation numbers, wilko has done well breaking this down.blackhotelParticipant@blackhotelJoin Date: 2010Post Count: 139
The funniest post ever. 2.12% return. I just have to laugh Greg – in a polite way.
Your 1st problem is Brisbane,
Your 2nd problem is Property Purchase price of $220K – your dreamin!
Your 3rd Problem is Property investing in Oz is a long term investment if you want to make $$$. Even if you make some profit the ATO will eat up most of your profit.
Your 4th problem is you have not allocated the funds of being totally ripped off by the Qld tradies.
Good luck with your figures!
My advice – Get a job as accountants.
The funniest post ever. 2.12% return. I just have to laugh Greg – in a polite way.My response:Your dreamin,Your 1st problem is Brisbane,Your 2nd problem is Property Purchase price of $220K – your dreamin!Your 3rd Problem is Property investing in Oz is a long term investment if you want to make $$$. Even if you make some profit the ATO will eat up most of your profit.Your 4th problem is you have not allocated the funds of being totally ripped off by the Qld tradies.Good luck with your figures!My advice – Get a job as accountants.LOL!!!!
Not the friendliest reply… 😕
The OP mentioned the numbers don’t work, hence he came to share here.
That said, I also disagree with some of the ‘problems’ you raised.
Property doesn’t have to be a long term investment. It is possible to make short term gains, although it’s less common and it’s good for cashflow, not so much for wealth building.
Also, the ATO doesn’t take “most of your profit”. That’s not how the taxation system works. The highest marginal rate is still under 50%.
There are good QLD tradies and bad ones, like everywhere, in all professions.
Wishing us all a great weekend! 👍😎