As someone who loves a property renovation, I know how easy it can get caught up in the emotion of purchasing and how easy it is to over capitalise on a renovation (however, I am yet to overcapitalise).
This is why you need a sound process that allows you remove the emotion from the decision and let’s you focus solely on the numbers. Property is exactly that, a numbers game!
When dealing with a high volume of properties, like we do here at Property Principles, speed and accuracy are your friends. The deal lives or dies by the numbers. We ensure every clients purchase is going to be something that will add value to their portfolio.
Let me teach you how we do it here, so you can go out there and buy a stud and avoid a dud property.
Learn if your next property is going to be a stud or a dud
Renovations require you to be accurate with your numbers and financial assumptions. The thing most in your control is the purchase price of the property, then things start to get a bit more based on assumptions, like what the renovation is going to cost you and what the end value is going to be. Down below, we will let you know the core questions you must ask yourself before you think about buying a property.
Rules, rules, rules.This is one you’re going to want to follow.
The way the 135% rule works is that the sales price of the renovated property must be at least 135% of the purchase price: Purchase Price x 135% = Sales Price
The 135% is broken down:
Purchase Price: 100%
Acquisition Costs: 5%
Renovation Costs: 10%
Holding Costs: 4%
Selling Costs: 4%
Your Min Profit: 12%
Total: 135%
If You don’t think it’s at all possible to sell the property at 135% x the purchase price, then it may be best to cross that property out and start looking at the next one.
Once you have run the top section of the calculator, it’s time to have a deeper dive and ensure the accuracy of the numbers. Now remember, this calculator is a quick renovation calculator and that you will need to do more deeper dive into the property and metrics.
However, do look into the expenses more, factoring in the correct stamp duty (check out our stamp duty calculator here) for your situation and if you’re using a buyers agent to assist with the purchase (we know a good one – Here).
The next crucial decision, which should be made before you’re putting any numbers in a calculator: If you’re going to sell the property or if you’re going to hold it. There are considerable fees involved with selling a property, along with capital gains taxes, which all eat away at your take home cash, so it may look like a sensational deal on the calculator but do ensure you need factor in your individual situation and speak with your licensed professionals.
I prefer to hold my properties, which saves me the cost of selling and allows me to leverage the equity position I build as I add value to purchase more property.
Here is the 2 min Renovation Calculator below, test is out for yourself:
It’s not over yet, we have some of the most important questions every investor needs to ask themselves when looking at the numbers:
Congratulations, you have just crunched the numbers on your deal, there are many more stages of Due Diligence that you need to go through to ensure you have a successful property on your hands.
This is what we do day in and day out here at Property Principles, you can book a call with us with the button below and we’d be happy to run through what you’re looking to do and if we can help you in anyway.
This information is general in nature and does not take into account your personal financial situation. It is for educational purposes only, and does not constitute formal financial advice. You should always seek personal financial advice that is tailored to your specific needs. All calculations are based on averages and are not 100% accurate. The assumptions made in this calculator are not suited to a person’s individual circumstances.
Please Note: This information is general in nature and does not take into account your personal financial situation. It is for educational purposes only, and does not constitute formal financial advice. You should always seek personal financial advice that is tailored to your specific needs. All calculations are based on averages and are not 100% accurate. The assumptions made in this calculator are not suited to a person’s individual circumstances.
I am the Director of Property Principles Buyers Agency, a Qualified Real Estate Buyers Agent, Property Investor and I co run Aus Property Investor, a 12,000+ people Community.
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Joe’s dedication and professionalism throughout each transaction is second to none.
We secured the property under market value and are already thinking of the next.
Joe was never pushy and always honest. We’re stoked with the property he found for us.
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