Welcome to Finance & Fury’s Say What Wednesday

Today’s question is from Lucas, “Hey guess, just wondering if you think that flipping houses is a good strategy? Can you really make a living flipping houses?”

Good question! Flipping houses has become very popular but it’s not as easy as you think.

 

The Theory

  1. Find a ‘fixer up’ property at a low price
  2. Renovate it. Spend some money bringing it up to higher standard.
    • There are people who run courses on this – you spend $1 and it should increase the value of the property by $1
  3. Sell it for a profit – Like magic! Sounds good right?

 

Finding the property  

It’s the same process for any property purchase (researching, etc):

  1. Research property
    • Values, growth history, what work needs to be done on the property?
  2. Your situation
    • Cap your price – Know how much you can afford
    • Budget – do you have surplus cash in case renovations go over budget?
  3. Is it worth it?
    • Look at potential gains – Minus costs in and out, along with interest, stamp duty, agent fees, legal fees etc.
    • Timeframes – how long will it take?

 

Does this work? Here are some examples.

Buy something for $450k, with a 10% deposit (so, you’ll need $45k plus other costs)

 

 

Scenario 1 –

$2 for $1 every spent

Scenario 2 –

$1.50 for every $1 spent

Property Price

$450,000

$450,000

Loan

$405,000

$405,000

Purchase costs    
Legal fees, registration, pest inspection, etc.

$2,500

$2,500

Stamp Duty (QLD)

$14,175

$14,175

LMI (10% deposit)

$7,938

$7,938

Total

$24,613

$24,613

Renovation & ongoing costs  
Interest expenses – 8 months

$12,150

$12,150

Renovation costs

$80,000

$80,000

Total

$92,150

$92,150

Selling fees    
Sale Value

$610,000

$570,000

Agent fees, advertising

$16,775

$15,675

Assessable Gain

$67,850

$27,850

Taxes – CGT (If not living in and only income)

$14,425

$14,425

The Bottom Line

$57,037

$18,137

 

When it goes right:

  1. Property markets climb in under 12 months (there’s no guarantees)
  2. You are experienced in property construction, renovations
    • You’re in a trade industry, you have friends in trades, and have the time to get the work done

 

Risks:

  1. Overcapitalisation – spending more than needed
    • Profits come from ‘cosmetic’ renovations
      1. Structural is normally not valued by buyers. For example – Replace foundations, rotted walls, etc.
  1. Your Experience and situation – there’s lots of moving parts to get it done in a timely period
    • How much of the work can you do yourself to save on costs?
    • Is this going to be your full-time job?
    • Getting finance for the project
  2. External factors
    • If the property market goes down, you’ll struggle to break even
    • Council or Body Corporate approvals
    • What if it doesn’t sell? Can you afford the loan?

Other Options

  • Keep the place and rent it out for more income now
  • Retain the property and refinance for more equity and invest elsewhere

 

In Summary

EVERYTHING needs to go right – it’s hard to make a lot of money if you don’t have much experience.

 

If you have any questions hit us up here at the contact page

Agenda 2030 – A global conspiracy theory, or something to actually worry about?

Welcome to Finance and Fury, The furious Friday edition Intro ep to a new FF series – probably going to be the biggest Today – episode to give the bird's eye view of the overall topic - massive topic - ranges from education, energy, transportation, medicine prices,...

How to prepare for buying a home, paying off a mortgage, starting a family or funding your kid’s education costs?

Welcome to Finance and Fury, The Say What Wednesday Edition special series – running through the catalogue of questions and concerns The series is broken down into three stages – 50 years or so timeline – last week was basics and the first stage...

The Cash Bill – stabilising the financial system for negative interest rates, Bail Ins and more, all at your expense

Welcome to Finance and Fury Last Monday's ep – Cash Restrictions Bill – Went through black economy and outline of regulations Today – Go further into implications of this – along with other considerations such as bail-ins and negative rates why bill needed – not for...

Say What Wednesdays: Should I lock in a fixed rate on my home loan with interest rates so low?

Say What Wednesdays Should I lock in a fixed rate on my home loan with interest rates so low? Welcome to Say What Wednesdays – Where we answer your questions about personal finance and the economy! This week’s question comes from Michael. His question related to...

Congratulations! You will be able to borrow more money to purchase a property!

Welcome to Finance and Fury Looks like borrowing for property purchase is going to be easier. APRA is looking to make some changes to lending criteria enforced onto the banks. Today: Run through what these changes are Why they are occurring What the lending...

Which Vanguard ETFs are best to diversify into?

Welcome to Finance and Fury, The Say What Wednesday Edition This week the question is from Dan I am 21 and have about 70k in a term deposit and 5k in VHY and VGS ETFs. I am wondering whether over a period of 20~50 years I would be better diversifying into VAE or VGE...

How to not get screwed over when buying property

Episode 28 How to not get screwed over in property, the warning signs of scams and how to do your property research Warning signs of scams Off the plan/cold calling companies Buying off-the-plan, or purchasing a property that has yet to be built – The time between the...

What would you do if you won the lotto?

Welcome to Finance and Fury Have you ever thought about What would you do if you won the lotto? What would you do with it? This depends on many things: the size, type of lifestyle, and how much you value money now. Today: Talk about how winners end up with no money...

Tax Scams and the Brexit Mess

Welcome to Finance and Fury, the Furious Friday edition. Today we are discussing what is happening with Brexit? At the time of the release of this episode, we will be approaching the 11th hour of the 2nd deadline to negotiate a deal for the UK to leave the EU. Why...

Furious Fridays: Is minimum wage such a good thing after all?

Furious Friday Is minimum wage such a good thing after all? Welcome to Finance and Fury! The main aim of our Furious Friday editions is to clear up misconceptions. We’ve been seeing a lot of news stories lately about companies underpaying staff – 7-Eleven, hospitality...

Pin It on Pinterest

Share This