Reno for a living ?

My wife and I currently work full time and have just taken on our third and largest renovation to date.
I'd like to scale back my current full time job to 3 days per week and set up a situation where I can renovate a house over the course of say 12 months then sell.
The goal would be to eventually step away from my current job to work for myself doing renos then resell.

Does anyone
A. have any advice on the pros and cons of this idea ?
B. how I could best structure this idea from a business perspective ?

Thanks

 

12 months... That's a lot of holding costs for that time frame. In and out as quick as Cherie Barber should be more like it.

Your increase in value would need to be considerable, factoring Reno costs, selling costs and CGT.

 

Heya,

It may be difficult to obtain finance, at least for a little while until you have a track record in financials.

You can set yourself up as a company and have the profits of projects recorded as income each year (accountant advice necessary). After a couple years, you'd have access to finance pending profitability and what the financials show. You can demonstrate this via two years company financials + individual tax returns.

The issue is how will you continue to fund projects within the two year period if you have no income to show the banks. May be able to source higher cost methods of finance here (e.g. low doc alternatives with shorter company histories), but this will have an impact on project profitability.

Noting transaction costs associated with selling and buying, it may be difficult to do well and make a living. Also market risk is quite significant during slower periods.

 

l've always wanted to reno for a living and the buys are always out there but yeah, l did try for awhile but the financing and holding were the killer for me. And by the time your selling your skint so if you can't sell fast your screwed by then.
You can do it easily people do it, especially if you have a good eye for potential buys, it's just organizing the money that's the thing l found.

 

Does this mean you would have to purchase the property in a company to then show the profit?

 

12 months hold is far too long IMO but perhaps that's because your basing it on what you have done to date not what could be done if it was full time.

The holding costs are a big thing but I would be more concerned with the market turning with such a long hold period. Interest repayments are a known, the market dipping 10% And eating every cent of profit is not.

 

I would love to reno full time also. Finance is the big issue. The way I see it is you basically have to get to a point where you can buy the property outright with additional funds for the reno. Then you are not dealing with finance every time. Ideally 6-8 week turn around. I agree you would need to set it up as a company and have a good team of regular trades.

 

Small issue of requiring a buildets licence?

 

An Owner-builder limit is $10k. If OP keeps costs under this, he should be ok without one

 

From a finance perspective - it can only really work if the other partner can still service the new debt that you take on (assuming that you become self employed).

Cheers

Jamie

 

Limited to once every 5 years?

 

Ah Yes! That wont help OP...

To what extent of renovation does OP intend on doing? Obviously licenced contractors are required for electrical, plumbing etc.
Do you plan on doing any structural changes?

 

Sorry - I have a storage unit full of wet blankets

 

Each State will have it's own limitation for Owner Builders so it will depend on where you are located to what you can and cannot do.

Either way set up an equity line of credit on your existing securities to allow you to draw down funds when you need it as you will find financing any new project a lot harder especially if you have made the leap and given up PAYG full time work.

Cheers


Richard

 

It depends on what you are doing. I have not required a building licence (or Owner Builder) licence for any reno I have ever done.

 

@wetblanket aka @Scott No Mates how do you determine owner builder requirements of work your doing over 12 months, whilst they are improvements to a ppor?... Then the situation changes after 12 months and unforeseen circumstances means you rent that house then move into another?

Most people improve their house over a number of years, chipping away at sections at a time. it's it those tax and legal spruikers that are also supplying wet blankets?
There's probably some words like "intent" and other ones that mean you should declare what your doing. I guess the real question is how do you do it workout getting caught? Or blurring the situation so you don't get in trouble what do you tell the parade rainer oner's?

 

@bob shovel - the issue isn't so much about which hand holds the umbrella but when it comes to selling of the property, that you don't want to be caught with your pants down when the purchaser asks for building certification & warranties but you don't have any (& they may ask for a healthy discount to offset their risk).

 

I don't know anything about the licencing requirements, but assuming they can be met consider the following:

1. Inability to claim any CGT discount because you are not holding as capital assets
2. Inability to get finance for 2 years
Way around this is to wait or to use related party lending, such as Richard has said above. Set up a LOC on other property and/or cash and then lend to your company/trust
3. Land tax

It may be worth considering using a company to own the land if doing this in NSW. The company shares could be owned by the trustee of a discretionary trust. Company would get its own land tax threshold and can retain income if need be.

Perhaps set up another building company to do the work and have the owner contract to this company. For asset protection and business goodwill build up.

 

Interesting. I have sold 3 renovated houses and I have never been asked for certification or warranties. I am putting an offer on a renovated house tonight and I won't be asking for certification or warranties.

I guess it depends on what you are doing, as I stated above. None of my renovations have involved extensions. The house I am putting an offer on has exensions but they are from the 70's and they are not the renovated part of the house. The renovated part includes a more recent kitchen, new tiles and vanity in the bathroom and new tiles, cabinet and sink in the laundry. Not sure what relevance certification or warranties have to those kinds of improvements.

 

So just sell to someone else. Gotcha