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

Is the share market at risk of de-risking?

Welcome To Finance and Fury. Is the market at risk of de-risking? Bit of a mouthful – but over the past 12 months the share markets has been going on a run with higher flows of capital going to higher risk shares over those that could be considered defensive shares –...

Say What Wednesdays: The Trump Economy

Say What Wednesday The Trump Economy Today, we’re talking about the Trump economy, and the state of the US market. Love him or hate him, America is doing better than ever – Trump just can’t stop winning when it comes to a lot of political and economic factors. In his...

Building a strategy to fit your goals

Welcome to Finance and Fury Today we are continuing from last week, and going through strategies to fit your goals. Some bad news… The workbook will be released next week because there are a few pieces missing, as it doesn’t achieve what I wanted it to. So as a DIY...

Say What Wednesday: The relationship between shares and property in Australia

Say What Wednesday The relationship between shares and property in Australia Welcome to Finance and Fury’s ‘Say What Wednesday’. Today’s question is from John. John asks, “What is the relationship (if any) between shares and property in Australia? Should we expect the...

What is happening in the Repo Market? Banks bankruptcy or just business as usual?

Welcome to Finance and Fury, The Say What Wednesday Edition Question from Mark part 2: Can you explain the repo markets that are going on at the moment? Apparently the banks are loaning money from the Feds at 10% so they have enough liquidity to survive the night/Bank...

How does corporate debt fuel market bubbles?

Welcome to Finance and Fury, The Furious Friday Edition Today – want to look at how much Corporate debt has been fuelling the top end of the share markets growth – signs that if liquidity is withdrawn, companies and markets collapse   Last FF ep – went through...

Say What Wednesdays: Petrol Prices are going up – why this is and what to do about it!

Say What Wednesdays Petrol Prices are going up – why this is and what to do about it! Australian motorists are suffering the biggest annual increase in petrol prices in 9.5 years as global factors combine to slug drivers at the bowser. ACCC - 2017-2018 financial year...

Where to invest in preparation for the next financial collapse?

Welcome to Finance and Fury Today – Want to start looking at what would likely survive another financial correction or worse, collapse Been thinking a lot recently about the structure of the modern economy – This episode is probably more like a FF ep, but this topic...

What is momentum investing and can this be the best investment strategy in a world where fundamentals mean little?

Welcome to Finance and Fury. This episode is about what is momentum investing and can this be the best investment strategy in a world where fundamentals mean nothing?   Over the past few years – value managers – or those that try to estimate the fair value of a...

Accumulating wealth and the steps to take in preparing for Financial Independence and funding retirement expenses

Welcome to Finance and Fury, the Say What Wednesday Edition Today's episode is about building wealth and getting ready for retirement Keeping with the Theme – Solving the economic problems Using the resources you have (income, savings, equity, etc.) to get what you...

Pin It on Pinterest

Share This