How to Profit Like a Pro on Your Next Renovation Deal
Part 5 of a Five-Part Series with Professional Renovator, Caroline Vass
Over the last four weeks, we’ve learned from Caroline how to find, buy, renovate, and sell a quick-cash renovation property. We’ve used one of her recent deals in Geelong as an example of how she applies her winning principles.
She chose this property because I asked her to profile a deal that was not her best. I believe we can learn as much from the mistakes that others make as we can from their successes. In this interview, I wanted to take a closer look at the final numbers on this deal to learn what she did well, and also where she feels she could have done better.
This particular property already had two homes, but they were both on one title. Council approved the subdivision, but the previous owner did not carry it out because of some unforeseen challenges. Caroline completed the subdivision and renovations before putting each property on the market.
Here’s how the property looked when Caroline found it:
And Here’s Some Photos Of Caroline’s Handiwork:
As you may recall from my second interview with Caroline, here are the figures she was aiming for in her initial profit projections:
- Purchase $390,000
- Acquisition costs $ 20,000
- Holding costs $15,000
- Renovation costs $20,000
- Subdivision costs $15,000
- Selling costs $15,000
- Proceeds from sale $520,000
- Potential profit $45,000
1. Caroline, How Did Things Go With This Deal? How Close Were You On Your Initial Cost Projections And Expected Sale Prices?
- As you can see in the figures below, we were pretty close with our profit projection.
- Purchase $364,000
- Acquisition costs $22,000
- Holding costs $14,000
- Renovation costs $27,000
- Subdivision costs $23,000
- Selling costs $15,000
- Proceeds from sale $505,000
- Actual Profit $40,000
Our renovation and subdivision costs were about $15,000 over our initial budget. As you may remember, I mentioned in a previous article that we discovered some issues in our due diligence that required us to go back to the vendor to negotiate a lower purchase price.
We were able to knock $26,000 off, which came in handy considering our proceeds from the sale were about $15,000 below our expectations. The units were close to a railway line, which affected the selling price more negatively than we anticipated. Our initial aim was to make $40,000 profit, so even though our initial projection was $45,000, we were more than pleased with the outcome.
Apart from the financial gain, the knowledge and trade connections I gained through this project were priceless. Most importantly, I had fun and loved the whole process.
2. In Hindsight, Is There Anything You Could Have Done Differently That Would Have Increased Your Profit?
- Not really. We increased the scope of the project by deciding to remove a wall in order to create a more open feel in the living area. This increased our internal renovation costs, so perhaps we could have avoided that. However, it is possible that the end sale price would have been lower as a result.
As I mentioned in a previous interview, I could have saved some labour costs by buying door handles that were easier to install, and plumbing costs by buying the vanity unit with drawers on the other side.
Although I was able to save in other areas, if I knew then what I know now, I could have increased my profit by a few thousand dollars.
The one buyer objection I could not change was being so close to the railway line. In hindsight, would this have stopped me from buying the property? Not at all, but what I have learned is that although you can’t overcome a buyer objection such as this through renovations, you can allow for a longer selling period.
3. Steve Explains Several Key Number-Crunching Formulas In His Property Investing Course. Which Do You Find The Most Helpful, And Why?
- For quick-flip renovations we often use this very simple formula:
Purchase Price x 135 Percent = Sale Price
This quick rule of thumb allows me to instantly determine the estimated end sales price I need to achieve. Assuming you have a reasonable understanding of the property market in your area of interest, you should be able to test whether a resale of that value is realistic.
4. Steve Also Teaches The Benefit Of Conducting A What If Analysis To Consider The Impact On Profit And Return Projections, Just In Case There’s A Change In The Key Variables. Is This Something That You Do In Your Due Diligence Phase?
As part of our due diligence, we test our assumptions on high-risk items that we do not have complete control over. The obvious one is the end sale price, so before we enter into a deal, we prepare multiple scenarios. The What-If Analysis we undertook for this deal was to consider what would happen if the units sold under our expected sell price.Would there still be enough profit for the time, risk and effort we took? We concluded that the answer was yes.
Other variables that we test include changes in interest rates, and the duration of the project including the length of the sales campaign. Our main concern is how this could impact our holding costs.
We also have a Plan B exit strategy, just in case we can’t achieve our sales target. This could be to rent out the property to cover our holding costs until the market conditions for selling improve. We apply a higher interest rate to this scenario because external economic conditions, such as interest rates are out of our control.
There are also the associated infrastructure costs that come with subdivisions, which can be difficult to quantify. We can’t determine many costs until we lodge all of the formal applications to the relevant authorities. It’s important to be aware of the best case and worst case scenarios. Then you can make a decision to move forward or not based on whether you can still make money, assuming the worst case scenario.
5. One Final Question: What Would You Say To Any Up And Coming Investor Who Is Considering Enrolling In Steve’s Property Apprenticeship Course?
If you are lacking practical experience, Steve’s course will give you the confidence and knowledge base to get you started. You will become an informed investor, and feel empowered to make less random decisions. You’ll make decisions based on an understanding of the overall market and learn to choose a strategy that meets your long-term objectives and needs.
Even if you have a few property deals under your belt, I would still highly recommend Steve’s course, as he teaches you the fundamentals and number crunching skills you need to be a more skilled investor. When I started Steve’s course, I had already completed a few deals of my own, so I was questioning if I would learn anything.
I met Steve at a conference, so I asked him this question. He replied with his own question: “Do you think there might be one thing I know that could make all the difference to you?”
It’s what you don’t know that you don’t know that has the greatest impact on property investing. Steve’s course answers a lot of unknowns. I can honestly say Steve’s course has paid for itself, because the knowledge I gained from Steve has meant that I didn’t have to make the costly property investing mistakes that others make. If you have the chance to learn from an expert like Steve, why wouldn’t you?
For More Information About Steve’s Property Apprenticeship Course, Register Your Interest Here: https://www.propertyinvesting.com/store/property-apprentice
You Can Learn More About Caroline And Request Some Free Training Videos At Her Website: http://www.smartchoicepropertydevelopment.com.au