Browse Forums General Discussion 1 May 05, 2013 4:07 pm Hi everyone, This is my first post so please go easy. My wife has decided to look at trying to buy, renovate then sell properties as a part time job for her. We are very much in the 1st week of researching this idea and we have both spent days going over information on the web. The way we would look at doing this is a little different to most as we live in an extremely remote part of Australia. As we live so remote we would look at doing 99% while not being "on site" and fly in a couple of times during the reno which will bring its own set of issues which we are working through now. If we were to be buying, renovating and selling a house in the space of 4-6 months and the house would not be rented out does this need to be done as a business? if it can be done as a personal "hobbie" and not a business are we better off doing that or running under a business name. We were not sure how we would go not being able to do a lot of the "DIY" stuff but the more I read the more I find that the advice is have it done by people who know what they are doing for fixed price quotes. Does anyone think that as long as we buy the right house there is still money to be made if you have contractors do the whole job? We will still be about 3-8months away from buying a property if we can find the right one so we are looking for any advice on weather or not we need to start a business? if people think it is actually feasible using contractors for the whole job? or any other advice about the whole idea. Thanks in advance. Re: Wanting to start a reno as a hobby/business. 2May 05, 2013 8:32 pm I think its going to be a tough gig for you. Just curious, did you get inspiration by watching the block and think you were going to make a fortune? The way that show operates and the profit is pretty much false. Now, you will firstly need an owner builder license since you plan to project manage it. There are restrictions with OB licences. In terms of building a house they only let you tackle 1 project within a 12 month period. You would have to check if this also applied to major renovations. I think the OB licence also states that it is valid for your place of residence and immediate family only (from memory) The reason they do this is so someone without experience cant get in over their head or sneak through the back door of licencing which registered builders have to comply with. If you are going to turn this into a continuing business you need a builders licence. Basiclly if someone can go around an start up a business buying renovating and selling houses without proper qualifications it would make a mockery of the licencing system. It is different if you are living in the place and then moving on once renovated. It is also different if you employ a builder for the whole project, but then I doubt if you could spin a dollar from it Also, personally, Im not a fan of buying into distant markets. By that I mean an area which I am not personally familiar with Re: Wanting to start a reno as a hobby/business. 3May 05, 2013 8:40 pm Forget about if you can't supervise or even visit the site on a regular basis. Even builders require a site supervisor when there are exact plans in place and the same designed house has been built 100 times by the same tradies. Re: Wanting to start a reno as a hobby/business. 4May 06, 2013 1:34 am I gueSs a cosmetic Reno might be possible but I don't think you'd make much money between paying trades and reel state and stamp duty. Most people who do this do the bulk of the hard work themselves. I think if you didn't so it as a business you'd have to pay capital gains tax? If you did do it as a business you'd have to pay gst and possibly other taxes. I think you should seek proffesinal advice on the business thing, and also write a business case laying out all the numbers on how you'd actually make a profit. I. Think it would be extremely hard if you weren't there all the time to ensure things were being done how you wanted them. Recently moved to a 60's home in need of some improvement! http://s797.photobucket.com/user/leenii ... ch%20House Old house: http://s797.photobucket.com/albums/yy25 ... loo/House/ Re: Wanting to start a reno as a hobby/business. 5May 06, 2013 11:31 am Quote: Think it would be extremely hard if you weren't there all the time to ensure things were being done how you wanted them. I agree, and with the need to do as much as possible yourselves to save money. If you didnt visit at least twice a week you would be inviting disaster -- time to think up another scheme. Arfur Re: Wanting to start a reno as a hobby/business. 6May 06, 2013 11:40 pm Thanks for the advice everyone. If we did go ahead with it it would not be a major Reno in the way of major structural change, more a face lift. Things like paint, floors, fittings and maybe the kitchen/bathroom. Realistically we would only be able to visit the house a couple of times during the process as we love on an island and its not cheap getting on and off. We were really hoping we could find a place and have readies come in and do it up, eg kit kitchen, painters and landscapers then sell it within a very short time not to make hundreds of thousands but more 10-50k depending on the size of the project. I have done a lot of sum and it really seems to be about making sure you buy the right house at the right price. As I work 2 weeks on 2 weeks off I thought I could maybe even take a block off and be there for 6 weeks which if the project was well planned may be enough time to complete it. Not living within easy access of the project does pose large problems. Anyway thanks for the advice. I will keep crunching numbers and see if its feasible. Any more advice would be appreciated. Re: Wanting to start a reno as a hobby/business. 7May 07, 2013 1:02 am Keen starter we love on an island and its not cheap getting on and off. Too much information! But seriously, you need to do your homework before you commit yourselves to a large financial outlay. For starters... You don't need to start a business to buy and sell a house. Talk of a quick turnover shows little or no understanding of capital gains issues. Selling after the first 12 months halves your capital gains tax liability. You need to research the area that you are considering buying in and this takes time. I have been to auctions that were packed with novice DIYers where houses in desperate need of a makeover have sold for more than the neighbouring houses in far better condition were worth. There are buying and selling costs as well as the cost of procuring a loan plus interest charges before you even realise a profit. These costs are only starters, there will also be travel and accommodation costs, electricity connection etc etc, the list is long. People who do makeovers save on labour costs. They can also organise tradesmen and make informed decisions on the spot. It also takes time to organise a make over; paint colours, sourcing carpet and tiles just for starters...and it isn't just the house makeover that will hopefully increase the property's value, there will also be the garden to consider plus its ongoing maintenance. How would you vet, organise and inspect the tradesmen's work as well as pay them? Most insurance policies do not cover an unoccupied house once it has been vacant for 2 months or more. There is a lot to learn and not everyone makes money. For the sake of making a pittance as you have indicated is your hope, your risk is not worth it. 3in1 Supadiverta. Rainwater Harvesting Best Practice using syphonic drainage. Cleaner Neater Smarter Cheaper Supa Gutter Pumper. A low cost syphonic eaves gutter overflow solution. Re: Wanting to start a reno as a hobby/business. 9May 07, 2013 6:33 pm If you think you could paint a house, new carpet, and new kitchen and gardens and clear 50K I think you are sadly wrong. Legals in buying and selling wil costyou 2K, the agent ill take maybe 10K of the sale price (depending on your price bracket and the agent, then the ATO will take half of whats left. If you cant be there often, it will be impossible to organise. If you dont do it yourself you will probably make a loss. But, please keep updated with your findings and if you do go ahead Re: Wanting to start a reno as a hobby/business. 10May 09, 2013 12:41 am Ad stamp duty! Don't forget that! Recently moved to a 60's home in need of some improvement! http://s797.photobucket.com/user/leenii ... ch%20House Old house: http://s797.photobucket.com/albums/yy25 ... loo/House/ Re: Wanting to start a reno as a hobby/business. 11May 09, 2013 1:24 am ...and having to give all of the tradies and other visitors the keys to the place!!! 3in1 Supadiverta. Rainwater Harvesting Best Practice using syphonic drainage. Cleaner Neater Smarter Cheaper Supa Gutter Pumper. A low cost syphonic eaves gutter overflow solution. Re: Wanting to start a reno as a hobby/business. 12May 09, 2013 2:32 am The ato will only take half assuming you are in the top bracket. Whether or not you push this through a business or your own account would depend on profit projections. There will be a point at which is it more efficient to be a company from a tax point of view. Accountants are not cheap to engage and run the company and FIFO costs for you guys plus what you have to pay people I am not sure there is enough meat on the bone. ambitious first venture. out of curiosity how will this be funded. i doubt banks will lend to a shell company as they will need security in the way of hefty deposit and then all out of pockets will need funding. sounds up hill to me but i am not in the building caper.... good luck Re: Wanting to start a reno as a hobby/business. 13May 09, 2013 11:11 pm Well just worte a massive reply but it got lost in the depths of the web. So again i would like thank people for there input. I would look at getting a loan for the house intrest only like a normal rental property (this should not be an issue as we have 2 other rentals which could be used as security and a deposit). The loan would cover the house only. I have allowed enough funding to cover loan repayments for 6 months, although i think the "facelift" would only take 3 if not less as long as its well organised. This funding is not part of the loan but an out of pocket expense which we are in a position to cover. I have factored in stamp dutys, repayments, real estate fees, capital gains tax (CGT has only been worked out if i did not do it as a businees, not sure how the tax side will work if we do it as a businees but will continue to look into it.) The cost of kit kitchens and bathrooms has been looked at aswell as installation costs from companies who supply them where we are looking to buy. We have multiple quotes from painters and tilers etc in regards to square meter costs of painting and tiling. Have spoken with 2 landscapers in regards to minor clean and tidy works with gardens and basically simplifing back and front yards. In regards to keys we are looking at 3 suburbs, 2 of which are close to my retired mother in law who would be happy to open and close the house daily when required, also take photos of works completed for us. Run down houses in the preffered area we are looking to buy are around $400k but the renovated ones and or newer ones are are selling for $440-$480k. Probably THE biggest thing to making this work would be getting the right house for the right price. I still think working trades from afar while difficult, should not be impossible. The idea is not to make big profits off of 1 house but to try and do 3-5 a year if possible. It would be a project for my wife as well as a supplementry income. It will come down to the numbers matching up, and risk verse reward. Anyway please feel free to keep the comments comming on your thoughts. Time patience and reserch will tell if this can be done. (although it is a little worring that other people are not doing it) Thanks again for your input. As a side note do people think its worth buying the packages off the net from people like the reno kings etc, There are hepas of them out there but do they really contain usefull iniformation??? One last thing in regards to my tax bracket i dont think it should matter to much as my wife is currently not working. (stay at home mum for the past few years.) not sure how it effects eveything but the property could be soley in her name. We will talk this over with accountants if we get that far. Re: Wanting to start a reno as a hobby/business. 14May 10, 2013 1:37 am A few tips as I hate to see people make poor choices. When I was into property investing, I use to factor a 10% increase between the purchase price and the selling price after 12 months as the break even point for urban residential investment properties. This was for the stamp duty, selling commission, conveyancing etc plus the outlay to do any needed work. The stamp duty was much less then and I don't know how that formula would stack up today but it means that if all things are equal, your $400,000 example would need to sell for $440,000 to break even. Your one year factor would be much higher due to the vacancy period and tradies labour and material costs. I also figured the rent needed to be $15 pw for every $10,000 outlaid to be positively geared but interest is lower now. If you rent and the property is negatively geared, then you need to also factor the shortfall as the tax deduction does not cover the short fall, contrary to the urban myths believed by the uninitiated. This will effect your ability to continue purchasing. Most properties are negatively geared for the first 5 years or so. One adage with property is to buy and hold. You gain the most benefit once you have had the properties for ten years as by then they have usually more than doubled in value and subsequent annual increases in value are a greater % increase on the purchase price plus they will be generating positive returns. It is not something to be looked on as a hobby. Another adage is land appreciates, buildings depreciate. There are many ways of investing in property and successful investors develop their own formula. Many people only purchase near their own area as they know the values and so they can do maintenance and cleaning etc between tenancies whereas others would never consider purchasing in their own backyard. It depends on what works for you. The best books to read are anything by Jan Somers and John Fitzgerald is also very good. Their advice is similar and proven but mainstream. There are ways to be more creative and chase bigger dollars but you are better off staying safe in the early days. To create wealth, you need to balance the capital growth potential with good rental returns. You need to be able to service the loans if you want to expand your portfolio and steeply negatively geared property is not the way to do it. Having a property vacant is as negatively geared as you can get. In the early years, it is sometimes better to borrow more and have an off set account as bigger borrowers are eligible for interest discounts if their borrowings exceed a certain limit. By borrowing more and off setting your own funds, you can pay less! You need to take out a package but the package will also offer other benefits. You also pay capital gains tax on the sale of any property that is not your principle place of residence. You can buy as many properties as you like as an individual and starting a business to do so is amateur talk. For a start, a business, unlike a company, is not a recognised entity plus there are other issues already mentioned by a knowledgeable poster. You should also subscribe to the Australian Property Investor magazine and purchase as many back copies as you possibly can. You should then read them over and over and over. There are great profiles on individuals, regional profiles, statistics, growth figures, rental returns, the works; it is a brilliant magazine and reading the back issues and then studying the current stats will be an eye opener. You will learn to look for new freeway announcements, job boom areas, new projects and a whole lot of other things. There are reasons why some areas boom and others don't and you need to know what to look for. One article about 10-12 years ago on the likely effect of a new freeway to Bunbury WA is etched in my memory...because I failed to act! Gold information on a platter but the opportunity of a lifetime happens at least once a month. A definitive moment later occurred when I came across a Government website that listed new feasibility studies and I noticed that house prices invariably increased in those areas during the (usually 2 year) study. The first area I noticed was Port Campbell and when the feasibility study was finished and the gas project went ahead, house prices boomed and rentals (if you could find one) soared as confirmation after an already healthy increase over the preceeding two years. This is an example of developing your own formula through research to make big increases in equity. I have a friend (a professional property investor) who learnt about a proposed freeway extension and he purchased a run down inhabited property on a bit of land on a corner of two roads, one of the roads was proposed as an off ramp exit road. I remember what I was thinking when he told me that he had bought the dump but there is a McDonalds on that site now. You make your own luck but you need to read, read, read, do the research and step out of the queue. 3in1 Supadiverta. Rainwater Harvesting Best Practice using syphonic drainage. Cleaner Neater Smarter Cheaper Supa Gutter Pumper. A low cost syphonic eaves gutter overflow solution. Re: Wanting to start a reno as a hobby/business. 15May 10, 2013 2:19 am Yep..... need to look seriously and realistically at what your goal is. Saying your wife is not working and it will be her sole income is all well and good but unless you are able to pay her a wage and claim that against the property you are going to generate a capital gain. The bank may not allow you to put everything in her name unless you collateralise the loan with your properties and if those properties are mortgaged the mortgaging bank would have first right. Get get the best loan you would be wise to stick with the same lender. For get using terms like business as its bs as pointed out. There are various reasons and approaches to why you would use a company and be aware the rates you can borrow at may be higher than as an individual. Not sure of your background and experience with financial modelling etc but as Save H20 says you need to have a rough idea. Negative gearing is purely claiming interest expense and other costs incurred in deriving income. If you are renovating you would have no income only expenses so you would be generating carry forward losses that could be used to offset tax on capital gains. This is all well and good but you need to work out in present day terms whether the investment stacks up. Keeping properties for a few years gives you the leveraging effect however you still should work out what the intended NPV is of the deal. Not sure where you achieve 15 per 10K spent and think that it would be difficult to achieve especially where you are looking to invest. An easy way to look at things is take the gross rental and multiply by .915 this will allow for agents fees, then take off rates and taxes and divide the resultant by the amount you pay for the property. If that rate is lower then your rate that you are paying on the mortgage then you are losing money every day. I know people will say but if you put a deposit then the interest payable is less. To be honest then the opportunity cost of the deposit should be taken into account but lets not complicate things. Work out what you want to do...... 3 - 5 a year is not realistic as you have no track record. I think get one under your belt and see what the numbers look like. I personally think it will be tough as it is likely that anything good will be snapped up by locals looking to do the same thing that can price better as they will not incur the same costs as you. Cheers Re: Wanting to start a reno as a hobby/business. 16May 10, 2013 5:20 pm Whats your back up plan if you cant flip the property quickly once the face lift is done? I think you need to be financially prepared to have to hang on to the property and rent it out if you cant get the sale price needed to make a gain. Also, anything you do isnt tax deductable, so if you make a loss on the property you wont get a tax deduction for it. A capital loss can only be used to offset a capital gain not general income so if you do make a loss you will have to wear it without any tax advantage. I think investing 400K aiming to make 10K is risky. Thats only a 5% return if everything goes smooth. Interest on the loan over 6 months will be 13K. You have to get the steal of the century to be able to buy a property and sell 6 months later after a minor facelift. Properties that only need the sort of work you are talking about already have the potential built into the price tag. If you have still got yourself convinced, my advice would be make sure you can afford to hold the property if you cant flip it. Also, putting the property solely in your wifes name for tax purposes could be tricky when applying for the 400K loan. I think you would have to be 50-50 to get it through without posing security issues for the funds Hello It is good to have a planned bathroom reno to suit your budget and design, living for 10 years I think you need a bathtub 4 10371 Bought in Nov 21 at the height of the market (classic). Good area, atrocious floor plan. BUT has land out to the left-hand side that we can extend out on (see second… 0 8772 The only thing to add to these comments is that where possible it's always good to try and work with people than just say "no" because you can. Having someone… 4 17141 |