Can you buy, renovate and then sell houses for a living?

[Bridgette01]

Hi all, a friend of mine is keen to change his profession. As the title says, he wants to buy, oversee any renovations and sell houses for a profit. Can anyone give me some insite to what is involved in making this happen. Are there any members how do this for a living? My friend is thinking about possibly doing the easy reno work himself and organising the trades people for everything else. I guess you could call it project managing. He is looking at properties in Melbourne.

Many thanks.

[Sam_Boss260]

I've known some people who have done it. Some full time, some part time.

If you aim to flip 3 - 5 properties a year and aim to profit at least $30k to $50k on each one, you could stand to make a decent living. But you really need to know what you are doing, know which places to buy to make that profit and also be fairly hands on in the renos. If you friend is simply project managing and just organising the other tradies, he may not maximise his profit. Also, it is up and down. may do well on some houses, then take a hit on others if they do not sell as quickly.

[cheap]

It can be done, there are many factors, some of the obvious:

Seed capital (banks reluctance to lend you money)
Purchase price
Stamp Duty + Real Estate fees
Expected Capital Growth
Interest rates
Time frame
Your skills
Getting a bunch of good and reasonable tradies
Owner builder license is an option, but this has limits as to how many homes can be "owner built" during a certain time-frame

Selling the house for an actual profit (sounds easy in a booming market, but try selling in a flat market)

and then there is

CAPITAL GAINS TAX

Trust me a lot of people have looked into this (including me). Invest in shares it is easier

[Giant Cranium]

Has he ever project managed before? Is he a trades man? I have a mate who has done this beside his normal job and said he would never do it again. Said for the time and effort he would need to make 150k a year. Hard to make that sort of money on a Reno. Also is he a high earner that it would be worth it

[Bridgette01]

Originally Posted by Giant Cranium

Has he ever project managed before? Is he a trades man? I have a mate who has done this beside his normal job and said he would never do it again. Said for the time and effort he would need to make 150k a year. Hard to make that sort of money on a Reno. Also is he a high earner that it would be worth it

No, he has never project managed before and no, he is not a trades person. However, my collegue knows that I am a tradie as he has asked me to join him in his possible venture.

Thanks to the quick replies !!

[GASWAGON]

Gees you would want to know what you are doing but I suppose it could be done.....Would be great if you had alot of tradies as mates.

Imagine having the skills and knowledge to build your very own house from the ground up.....I have seen it done once for a mudbrick house....took them 20years to finish it.

[gtfpv]

it's tax free in it . , buy the house , live in it . renovate it and sell . there is no capital gains tax as it's your principal place of residence .
my friend did this over 20 years , about 6 times . hard work . but after 20 years he was able to own the last one outright worth 1.1 mill . and he sold it . cashed it , and lives in a rented apartment now . the moneys in the bank earning interest which covers his rent . and his wage is all his < ( well -- his wifes !!! ).

what he did was 1st off bought a home , extended it and made it a duplex , sold the old one , moved into the new one and sold it .
then he bought a home , renovated it whilst living in it and sold it , then he bought a house , moved in , built another one behind it , sold the old one and lived in the new one , then he bought a block , built a house on it , soldhis home and moved into the new house . then he sold the new house and cashed in .

[cheap]

Originally Posted by gtfpv

it's tax free in it . , buy the house , live in it . renovate it and sell . there is no capital gains tax as it's your principal place of residence .
my friend did this over 20 years , about 6 times . hard work . but after 20 years he was able to own the last one outright worth 1.1 mill . and he sold it . cashed it , and lives in a rented apartment now . the moneys in the bank earning interest which covers his rent . and his wage is all his < ( well -- his wifes !!! )

Be careful with CGT, we all think we know the rules but then there is the interpretation that ATO applies. You'll need a good accountant and air tight timelines of what was sold and proof that it was PPR.

[GT0132]

Originally Posted by gtfpv

it's tax free in it . , buy the house , live in it . renovate it and sell . there is no capital gains tax as it's your principal place of residence .
my friend did this over 20 years , about 6 times . hard work . but after 20 years he was able to own the last one outright worth 1.1 mill . and he sold it . cashed it , and lives in a rented apartment now . the moneys in the bank earning interest which covers his rent . and his wage is all his < ( well -- his wifes !!! ).

what he did was 1st off bought a home , extended it and made it a duplex , sold the old one , moved into the new one and sold it .
then he bought a home , renovated it whilst living in it and sold it , then he bought a house , moved in , built another one behind it , sold the old one and lived in the new one , then he bought a block , built a house on it , soldhis home and moved into the new house . then he sold the new house and cashed in .

Special CGT rules apply to splitting assets. If you live in a property and build another one behind it and then have the new property on a separate title you will be up for CGT when you sell it.

[MITCHAY]

It's called a flip man. Biggest dangers are buying too high and overcapitalizing on renovations.

I think a lot of tradies do this. Not only do they know what things should cost but they know a lot of people in trades and can obviously do a bit themselves.

I know a mortage broker I met with did a bit of this too and I can imagine it would be fairly common in the real estate/mortage broker industry.

Perhaps that may be a logical next step. Getting into either industry to build up the knowledge and contacts (while getting paid) before jumping in all out.

[ebxr8240]

Stamp duty is a killer...

[302 XC]

For every one that makes it in real estate theres usually 9 who don't ...It was all good a few years ago when people happened to get a house at the right time ,and the influx of house demand created their wealth,but its a lot harder now ...
Youll need tradies to work,on a decent perhaps cash in hand rate ,or a decent rate and get a lot of stuff for trade or mates rates ,start paying premium wages for tradies,and premium over the counter prices ,id pack my bags and run now ....
Houses out my way ,one was listed 18-24 months ago at 500 K,its now 370 K and hasn't had not even 1 viewing in 2 years ....
On the ball,know the game,buy wise,have good contacts and it mite work ...

[GT0132]

You can make good money if you time the market well and don't over spend on your reno...There are some good stories I've heard from a bloke called Nathan Birch (think his name is) who buys dumps of houses , gives them a quick reno of up to $25k including lick of paint, carpet, and maybe a new kitchen and bath. Does most of the work himself I believe then rents it out and uses the increased equity to borrow for the next venture. Sell after a year and you get the 50% CGT exemption.

Even in a flat market you can do well if you consider a dump of a house bought for say $400k +$17k stamp duty and $25k spent on a reno may be valued at $500k afterward. If you sell after a year, after paying agents fees you make a profit of roughly $50k. CGT is assessed on half that and if you're on the 46.5% tax rate the CGT bill comes to $12k. You bank $38k. I estimate to earn a decent living you'd need to do 4 to 5 of these a year but you must hold them for 12 months to get the CGT concession which will obviously involve some interest costs if you need to borrow which is not tax deductible if the property is not available to produce income, unlike for a property you buy to rent out.

If you do it as a business you don't pay CGT but are taxed on the profit earned on each venture after allowing deductions for outgoings.

People who do this usually do it as a hobby to supplement their main income.

I know some people who have done quite well out of property developments (knock downs and rebuilds) and I think if you want to do something like this full time then development is the way to go. Start with a couple of duplexes or townhouses and work up from there .

[nuthin' fancy]

To me the problem are your transaction costs. Buy at $400k (here in Vic), acquisition costs $20k, sell via agent, sale costs @ 2.5% all up ($12.5k on $500k). This assumes you don't need to borrow more than 80% of value in which case mortgage insurance is applicable, increasing your costs.

You only have a possible profit of $67.5k that has to absorb renovation costs. You'd need to be contributing lots of sweat equity to make it work.

For mine, property is buy and hold. Quick turnaround requires plenty to go your way.

If you want to do something speculative, you could, as previously suggested, trade shares. You don't have the transaction costs, you don't have the physical risk but you can earn income and obtain capital growth all from your dining room table.

Otherwise, they are similar. You will research the market, look for things that are undervalued, buy and sell when ready. Another advantage is that if you need a little bit of money, you can sell a few shares.

You cannot do that with a house.

[danzvtil]

Originally Posted by nuthin' fancy

To me the problem are your transaction costs. Buy at $400k (here in Vic), acquisition costs $20k, sell via agent, sale costs @ 2.5% all up ($12.5k on $500k). This assumes you don't need to borrow more than 80% of value in which case mortgage insurance is applicable, increasing your costs.

You only have a possible profit of $67.5k that has to absorb renovation costs. You'd need to be contributing lots of sweat equity to make it work.

For mine, property is buy and hold. Quick turnaround requires plenty to go your way.

If you want to do something speculative, you could, as previously suggested, trade shares. You don't have the transaction costs, you don't have the physical risk but you can earn income and obtain capital growth all from your dining room table.

Otherwise, they are similar. You will research the market, look for things that are undervalued, buy and sell when ready. Another advantage is that if you need a little bit of money, you can sell a few shares.

You cannot do that with a house.

^^^^^^
holding costs and transaction costs, interest on the loan while you are doing the reno. "Knowing" a few tradies means squat, anyone can google for tradies and project manage, i guarantee you will run out of cash pretty quick.
I have weighed up the risk in the past, 20k purchase cost, 10k selling cost, 25k reno cost, you need to get an extra 55k just to BREAK EVEN.
There are always exceptions to the rule, but in this climate, there are better returns to be had elsewhere..

[XP6]

Build blocks of low cost rent flats on cheap land... and dont sell collect rent instead.

[Dr Jekkyl]

You could just start gambling instead - it's all speculative.

Then again it's a much safer bet because the Aussie Politico-Housing complex has got your back and they sure aren't going to let anything that they can control to derail their gravy train. Even if it does the taxpayer has your back!

You cannot lose!!!!!!

Buy as many properties as you can......NOW!!!!!!!!!!!

Leverage, leverage, leverage!!!!!!!!

Don't forget:
1. Property doubles in value every 7 years....always
2. They aren't building anymore land
3. It's different here
4. Transaction costs and fees are not counted in profit projections

[mechanic]

In 2002 I worked for a property management couple on the GC. At that time buying and selling RE was a feeding frenzy and I watched these 2 people make serious cash out of buying, [ minor renovations ] and selling units.
They had some strict parameters for any investment, they would only operate in a sellers market, the unit had to have only minor refurbishment required and a very short time frame of holding the property.
Most of the time they were only owners of the unit for a period of less than 6 months.
Carpets, paint, AC and tidy lanndscaping or gardens, nothing major.
Most of the time they had the place rented by the time the first payment was due.
I can't see how they would operate in today's market, just doesn't seem to be enough frantic demand or easy money around to get in and out of property quickly enough.

[nuthin' fancy]

Originally Posted by Dr Jekkyl

You could just start gambling instead - it's all speculative.

Then again it's a much safer bet because the Aussie Politico-Housing complex has got your back and they sure aren't going to let anything that they can control to derail their gravy train. Even if it does the taxpayer has your back!

You cannot lose!!!!!!

Buy as many properties as you can......NOW!!!!!!!!!!!

Leverage, leverage, leverage!!!!!!!!

Don't forget:
1. Property doubles in value every 7 years....always
2. They aren't building anymore land
3. It's different here
4. Transaction costs and fees are not counted in profit projections

There had to be one.

How do you invest your money?

[Dr Jekkyl]

Originally Posted by nuthin' fancy

There had to be one.

How do you invest your money?

One what?

Regarding investing of money - I took out a rather large loan to invest in my education. At present I direct a significant portion of my income into servicing this debt so am making no investments as such.

[nuthin' fancy]

Originally Posted by Dr Jekkyl

One what?

Regarding investing of money - I took out a rather large loan to invest in my education. At present I direct a significant portion of my income into servicing this debt so am making no investments as such.

One ill informed, ill considered,anti-property post.

We all need somewhere to live, no-one likes being told what to do, a property you live in is exempt from tax.

Buying a property takes advantage of these desires and opportunities and it feels good. You buy in today's $$$$ and repay with tomorrow's $$$ so even without any increase in value a house you own gets cheaper and cheaper over time.

Anyone on salary has superannuation being paid and generally this will be invested in equities (shares).

So, in a really simplistic approach, anyone with a house and super has a balance to their investment portfolio.

No one here was suggesting the rapid acquisition of property yet you proclaimed that such an approach was what was being suggested and was foolhardy but without any explanation of your reasoning.

I think everyone should take on a level of risk that suits them. I am a mortgage broker and I have clients with in excess of 20 properties and initially seemed to lurch from potential crisis to potential crisis while they bought as quickly as they possible could but after 10 or so years the benefit of this high risk and high stress approach has now created significant equity and further opportunity for them.

I also have clients who time their mortgage repayments to their retirement and finish work with no debt and their super to live off.

Opposite ends of a strategy but each was a considered approach and works for the groups involved.

While historical performance is no guarantee or indication of future performance, the property market here is sound. We have net positive migration (and they are mostly educated and financially secure), a transparent legal system that makes property ownership attractive for new migrants, little over supply of property (which is what harmed the market in the US and Ireland) and a strong (but very expensive) banking system.

I understand property, I believe in property but I invest at a pace that my knowledge is comfortable with.

I know that we are better off renting until we retire while we invest surplus funds but living in someone else's home until I retire doesn't feel right.

I hope that the investment you have made in education provides you the opportunities and choices you want, I'm sure property will feature in your purchases and investments over time.

In the end it is really simple, spend less than you earn, borrow only for assets likely to appreciate in value, invest your surplus and take on a level of risk you have educated yourself for.

Sleep well and have fun.

[Franco Cozzo]

Originally Posted by nuthin' fancy

How do you invest your money?

In cars and prostitutes, you?

[nuthin' fancy]

Originally Posted by Big Damo

In cars and prostitutes, you?

Same as you, but I waste the rest.

[neptune blue]

Good money can be made
I have a mate that did this for many years
The key to his success was that he knew a bit about everything - just like a builder
So if a bad tradie starting working he would get rid of him before it cost him money

He always bought properties in good locations - he once bought an old pub and turned it into 4 heritage style apartments - very smart
Did a lot of work himself ( a sparkle by trade)

Watched every dollar he spent carefully

He is now retired living like a king in Thailand - single - Happy days !

[Stefan]

Plenty good stories and plenty of money to be made. but not easy work with no experience.

IMO a "reno" will not net you a huge capital gain that would enable you to pay stamp duty and still sell at a profit.

Eg buy house for $500K, spend $50K on it, you need to then be able to sell it for $650K make a bit of money, pay interest, and cover stamp duty.

Where as turning something into a duplex.

Buy $500K, spend $400K on construction. Sell 2 x brand new duplexes at $750K each. Higher sale price as you have brand new properties.

Risk is any delays in approvals, slow tradies, a few mistakes and all will be for nothing.

[xxx000]

Shares are a better bet than property over time, obviously solid bank stocks or similar.

If at some time you need some of your money you can't sell a portion of a house but you can sell a portion of your share holding and so much faster too

You don't have to renovate or paint shares either

[Yellow_Festiva]

Originally Posted by xxx000

Shares are a better bet than property over time, obviously solid bank stocks or similar.

If at some time you need some of your money you can't sell a portion of a house but you can sell a portion of your share holding and so much faster too

You don't have to renovate or paint shares either

Course you can sell a portion of your house. Back to the bank. Anyone who has equity available and a means to service the debt can pull cash from a portion of a property no problems.

[GASWAGON]

I think it would be VERY risky at this stage because RE across the entire country has already seen huge prices being paid......Not really sure if ther is any profit to be made anymore unless you can do ALL of the tradie work yourself???

[Auslandau]

I know people doing it today and I sell to many (Kitchens). They are successful but you need to know a few things and as some have been mentioned above, the important ones are:

1, You will NOT make money by project management.
2, You need to know how to do most things yourself or be in partners with others with trades or good contacts.
3, You need to buy, reno (Again, do most yourself) and sell extremely quickly.
4, Need to know the areas you buy, Good areas are not cheap to start with but the margin when completed can be bigger.
5, Make sure you understand all taxes associated with doing this. You can get caught very easily.
6, Be prepared to work 7 days, 15 hours a day till its done.
7, Again ...... time is the enemy. Buy, renovate and sell quickly!!!!!!!
8, Have a very good real estate bloke
9, Money can be made with buying a house with large block out the back and build through a builder if you do not have the skills to do 80% of the work in a reno.
10, Did I say ...... do it quickly???

It doesnt matter what part of the market you buy in. Up or down ..... as long as you buy and sell in the same period of time. Not when things are up and sell 12 months later when things change down.

........and then cross fingers. Will not make money getting others to do it. You will if you build and project manage but not in a reno. DOnt be fooled by the shows on TV. They never ever quote labour, just material.

Those I know who do it are successful and do it full time as a living. Also have a few that buy blocks and have builders put units at the back. Good money on that one but you need money to start with ..... as you do with anything anyway

Good luck!

[SM1DY]

DO YOUR RESEARCH!!!

This is not a game.