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MELB: still time to Buy Reno Flip?

Discussion in 'General Property Chat' started by zed_kid, 23rd Sep, 2016.

?

Buy Reno Flip in 6 months in Melbourne inner/mid West?

  1. YES

    35.7%
  2. NO

    64.3%
  1. zed_kid

    zed_kid Well-Known Member

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    Buy Reno Flip in 6 months in Melbourne inner/mid West?


    Just want to hear what people think.


    Have $160k cash and approval for $750k purchase.


    Thinking West Footscray maybe Sunshine along the train line.
     
  2. Big Will

    Big Will Well-Known Member

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    Without knowing your skill set it is hard to give you a more informed decision but I would say no.

    It is very difficult to renovate for profit in Australia very few people succeed.

    If you have some trade skills you will have a better chance but then all you are doing is putting in your time for free and getting paid when you sell.

    Reason it is hard is the buying and selling costs are very high, to give you an idea lets say you buy something for 600k, your stamp will be about 33k and then to sell you would be looking at a further 10-15k (lets call it 50k) plus you also have mortgage repayments using 80LVR at 4% for 6 months is 10k. So now you are at approx. 60k or 10% and you haven't even spent a dime renovating it yet.

    Then with renovating if you got $1:$2 return you would need to spend 60k renovating just to get an increase value of 120k but this has only just covered your total spend.

    This would be worse if you were borrowing at 95% LVR and needed to pay LMI.

    TLDR - No.
     
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  3. zed_kid

    zed_kid Well-Known Member

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    Thanks Willis. Sums it up nicely.


    My reno skills are only paint and lay the floors, would be relying on tradies for all else.


    If I did it last year I might have made a buck or two, oh well hindsight 20/20
     
  4. Big Will

    Big Will Well-Known Member

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    It is likely the capital growth is what got the profits and not the renovation itself, e.g. if the suburb gained 15% in last 12 months and you spent 30k to renovate getting (1:2) and it took six months to renovate on a 600k purchase now being worth 735k but less all the costs you might have a profit however it wasn't really the renovation that got you the money it was the organic growth that got you there.

    If you are spending 50k that is a 10% deposit on a 500k purchase (still need stamps/legals).

    We are in the same boat as you can paint and my wife can lay floors and her father & brother are both chippies (however we try not to rely on them).

    Renovating to flip is not part of our strategy but we are happy to update and rent, if you were going to renovate to flip you would be wanting to get 1:4 imo which is difficult to do, unless you don't charge time however it is like an owner builder spending 12 months to build a house and not pay themselves. Yes it looks good but fundamentally it wasn't that good, same as when I have photography as paid work, yes it is good but it wasn't all profit if I was actually running a business.
     
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  5. MrFox

    MrFox Well-Known Member

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    pianissimo likes this.
  6. Coastal

    Coastal Well-Known Member

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    You make your profit when you buy so if you buy really well, i dont see why this cant work.

    Forget CG as that is a bonus, its all about the numbers!

    Your purchase price should be calculated as:
    Sales price

    Less

    Purchase costs
    Holding costs
    Selling costs
    Potential gst and
    Desired amount of profiit

    = purchase price

    For example

    Say final sales price is $350000

    Less
    $1500 legals
    $5000 stamp duty
    $500 building inspection
    Include travel costs if interstate
    = $7000 purchase costs

    Holding costs
    Say $10000 for interest for 6 months

    Selling costs
    $8000 agent fee
    $1500 legals
    =$9500

    Reno costs
    $30000

    Profit $25000

    $81500

    $350000 - $81500

    Purchase price = $268500

    You can also deduct the deposit as welk as that is also techically a purchase cost.

    Make sure your dd backs up your final sales price and know your $hit and always be conservative as reno costs are always higher than estimated.
     
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  7. the world is your oyster

    the world is your oyster Well-Known Member

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    I think it's always a good time to buy a great property inner west is very attractive for people wanting to move there so there is real value in buying I renovated and selling renovated
    If I had that much cash I would be looking in there my self I have half that amount of cash so Iam looking further out
    I am also looking in to doing a joint venture with to buy closer to cbd to do a slightly bigger deal with a bigger profit ✌️
     
    youngbuck likes this.
  8. vbplease

    vbplease Well-Known Member

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    i agree, and believe this is the most important part.

    I also think the type of property that fulfills the criteria of; undervalue, potential to add value, structurally sound etc won't be advertised on re.com
     
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  9. youngbuck

    youngbuck Member

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    I think it's a great idea especially within the Inner West where I just can't see values levelling off any time soon (Houses not apartments).

    I do agree with the previous post where you make your money when you buy. Another important consideration is being certain that the property isn't going to incur a lot of "sunk costs". Buy as well as you can, undertake a renovation suited to the buyer demographic and go from there!
     
  10. big max

    big max Well-Known Member

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    I agree with all this. And would add, if you really want to do this do it in a fast rising ideally coming off a low bottom. Gold Coast would be perfect in current cycle. Melb not so much, nor Sydney.
     
  11. JohnPropChat

    JohnPropChat Well-Known Member

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    Yes buy in regional town instead of a capital city - Not.
     
  12. MelbInvester

    MelbInvester Active Member

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    HI All,

    What about CGT and early bank exit fees? better to keep 1 year and sell?

    MI
     
  13. ATANG

    ATANG Well-Known Member

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    Gold words. Amazing how kiwis can buy without stamp duty.
     
  14. Greyghost

    Greyghost Well-Known Member

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    Why?
    If you used that $160K and bought something for $750K and held onto it you would have made more than reno and flipping it in the past 12 months..
     
  15. Greyghost

    Greyghost Well-Known Member

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    For mine flipping is a mugs game;
    Massive capital outlay
    Entry costs
    Large costs of reno
    Timing sale
    Exit costs
    Sale price sensitivity
    Tax

    Not saying you wont have a few wins though.
     
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  16. Greyghost

    Greyghost Well-Known Member

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    Like most people who undertake this sort of venture they forgot one of the most important factors.
    Tax.
     
  17. Greyghost

    Greyghost Well-Known Member

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    Then why not buy and hold? Spend enough to get a nice street valuation done and extract equity and buy again.

    The scope for 20% returns on $600K or sub priced houses is not there... Yes it can be achieved in areas such as Essendon, Ascot Vale, or Yarraville when bought well, renoed, hold for 12 months and then look to sell, but you are doing so in a rising market.

    So if there is a rising market, why expose your profit to tax, go again, entry exit costs, when you can refinance and buy a second property based on pure equity, thus have exposure to double the asset base in a rising market (assuming you can service/hold the assets).
    To me that strategy is somewhat short sighted.
     
  18. TheRayTracer

    TheRayTracer Member

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    Like most PC'ers will tell you, it's all about sourcing a good buy or lead. At the moment, you have full control over the buy side of the equation. And like with anything else, the goal is to buy low and sell high. I was looking at this place to buy low and sell high:

    35 Edward Street Macleod Vic 3085 - House for Sale #123914786 - realestate.com.au

    Why? The agent/vendor denied a building and pest inspection. So I went around and walked the property - garage door was unlocked - and kicked a few bricks and poked a little wood. The place is riddled with termites. I asked the agent about this, and he denied it. This place will likely go for low $800k's even with terminates. I'm still working on this one. :confused:
     
  19. MrFox

    MrFox Well-Known Member

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    What is the upside buying a house with termite damage?
     
  20. TheRayTracer

    TheRayTracer Member

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    Buy it below "perfect" house price and save money on fixing it up.

    It was just an example, and not one of my best. :)