Today’s Sydney Morning Herald has a breathless article about a flipper couple who bought, renovated and have for sale a Marrickville terrace. The underlying message: there’s profit in the renovation game.
My back-of-envelope calculations based on the article’s figures show they will lose around $43,000 on the transaction if they sell for the $680,000 mentioned – a reality more sober than Toby Johnstone’s writing.
Cathy and Antonio Leonardi bought the two storey in poor condition for $550,000. Stamp duty is $20,240 and they spent $105,500 on renovation. A selling agent at two per cent will cost another $13,512.
Let’s not forget the opportunity cost, the price of the money tied up in the project. The lowest conceivable figure would be the mortgage rate, currently 7.5%, on the $675,740 invested in the property for eight months. I make no allowance for State Land Tax which may or may not be payable. The un-billed labor contribution of the flipper couple is disregarded too.
Total cost to the happy renovators: $723,039. If they can execute a quick sale at their desired price they may contain their losses to the $43,000 mentioned. Delay or discounting immediately worsen their bottom line.
Australian house prices are falling. That and Stamp Duty make it very difficult for flippers to profit. Many renovation projects during the long boom were saved by rising land prices. That kicker is no longer available, as Mr and Mrs Leonardi are about to discover.
MO - can you let us know what the auction price achieves. Until it sells at auction they haven't made or lost anything.
If they have lost there job and have a large mortgage they could easily be losing by having their mortgage increase by a grand or two each month by making no payment. And this would be the case even if prices were not falling , the fact that it is shows just how bad it could get for some or many.If they owned it outright it would be a bit different.
trojan started a thread about this the other day...looking at the numbers is is very hard to imagine any profit at all could be realized. gone are the days when a quick tart up and flip are a guarantee of free money.
trojan started a thread about this the other day...looking at the numbers is is very hard to imagine any profit at all could be realized. gone are the days when a quick tart up and flip are a guarantee of free money.
Yes I don't think that conditions suit flipping property, but still I'm interested in the outcome. Regardless of our own biases, it would give us all an indication that is decided by the market, and not by our pettty arguments. In this market they really shouldn't make a profit doing this, especially if they had to pay for a high labour costs, so it's a test. I think they will do well to break even.
I would also like to see the arguments that flow from the side that loses this auction. Some will be very creative.
Any expressed market opinion is my own and is not to be taken as financial advice
Yes I don't think that conditions suit flipping property, but still I'm interested in the outcome. Regardless of our own biases, it would give us all an indication that is decided by the market, and not by our pettty arguments. In this market they really shouldn't make a profit doing this, especially if they had to pay for a high labour costs, so it's a test. I think they will do well to break even.
I would also like to see the arguments that flow from the side that loses this auction. Some will be very creative.
As they say, "let the blood flow".
I also read the article and was wondering how it could be so positive based on the numbers. I came to the conclusion that maybe the $680k number was thrown in to try to get more people to come to the auction, or something went wrong in the transaction between the vendors and the paper. I have friends who tried this game for a while, and part of their marketing campaign was always a feature article in the real estate section of some paper opr other.
I don't really regard this kind of activity as flipping. These guys have added a heap of value in the transacton. But conditions that don't support flipping are bad for the buy-renovate-sell business model too. It needs the tailwind of a rising market to fly.
P.S. The photoshop work on the "after" photo is really sloppy.
Every property forum I go to , some guy named shadow keeps saying this sort of behaviour is wise. I hear many valid arguments agaisnt this, but seeing as he is across this issue on every forum and news story comments section, im begining to think he must be right!
Ive had my money waiting on some sort of construction boom in Sydney or some shit. Cant wait!
It will be interesting to see how things pan out for this couple.
There is no need to spend anywhere near 100k plus if someone is able to do most of the work themselves .
There are people who actually do well even in a down market. They do their research, lowball a property with huge subdivision potential, source cheap materials and do most of the renovation work themselves. Granted they are well informed and have spoken to council and a surveyor regarding subdivision prior to purchasing the property.
The couple in the article have most likely done their balls with what they have done on this one though.. :pop:
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