I’m going to start out this (short) post with a disclaimer: This is not investment advice. Rather, these are reflections on what’s worked for well for me when I’ve bought and sold properties.
Here’s the deal. If the investment doesn’t look great when you do the sums on the back of the envelope (0r a napkin or whatever scrap of paper you have available at the time) it probably won’t get better when you run the numbers through a fancy Excel spreadsheet. And it definitely won’t get better by spending more money on a renovation.
The sums that you’ll fit on the back of the envelope are these:
- Purchase price,
- Stamp duty and bank fees,
- Renovation costs,
- Agent fees,
- Profit (yes, that’s a cost to the development),
- Sale price of the end product.
If these numbers don’t show a conservative 15% profit start looking at #1.
Most junior investors blow their budget on renovations and most projects last longer than anticipated – and that blows out the interest costs. That only leaves the sale price as a variable and, in the main, there’s little you can do about that. Sure agents will tell you that they’ll get an amazing price for the property but the reality is they can only do as much as the market at the time will allow them.
And that brings us back to the purchase price. Work on getting that right. If you can’t, find another option.