My Property Investment Tip #9
Now the great Australian hobby of renovating is about to take a beating. And you’ll note I’ve referred to it as a ‘hobby’ because that’s really all it is. If you’re looking for a wealth creation strategy, this ain’t it. As the Americans say “That dog don’t hunt”
It’s an easy trap to fall into though. I’ve done it. I’ve seen plenty of others do it too. We get stuck in jobs with fixed salaries and we start looking for a little side hussle. We’ve watched the tv shows and romanticised about flipping a house or two ourselves. Why not? It’ll be fun right?
When you watch those shows there’s a whole heap of factors going on that you just aren’t considering.
Firstly the contestants on those shows are there full-time. They have either quit their jobs or taken long term leave. Do you really have that option? If you did have that much leave, would you want to use it on that?
Next point. The projects are selected and planned by a professional developer. Not amateurs. They’re already confident that they’re going to succeed. Can you imagine that? They get to the last episode where they auction the property, and it sells for a loss! Disaster. But that happens all the time to amateur renovators.
Then there’s the materials. All the materials your seeing being used are supplied for free from the sponsors who want to get their products featured on the show. It’s call product placement. A form of advertising. You don’t have that luxury. You’re paying full price for yours.
Then there’s the labour. Ever noticed the small army of tradies and labourers helping out in the back ground? They are there to ensure: 1. That the contestants don’t stuff things up, 2. That it gets done quickly. Time is the enemy of any property renovation/development. Because holding costs wipe out your profit.
Again, this is not your reality. Your reality is knock off work and go home via Bunnings and KFC, because you need tools and materials and take away food. You ain’t got time to cook because you’re painting the lounge room wall tonight! Yay!! ?
Oh yeah, and there’s the tools. When a tradie buys a tool, they will use it on probably 1000 jobs over 10 years. So they can acquit the cost of those tools over all of those jobs. You however, all on the one job. Or 2-3 if you’re a slow learner ?
Then there’s the quality of your workmanship. Hard work doesn’t equal good work, and the reality is that when you come to sell, the buyers are going to see it’s an ‘own reno’ job.
Be very very careful about taking on a reno (read: don’t). I have seen renos claim marriages and people’s health. It’s just not worth the effort required.
To this day I have NEVER seen an amateur make a true profit of note on a reno.
I’ve had people say “Not true! I made $100K!” But every time I’ve analysed it… they didn’t. It seems most people don’t know the difference between a gross profit and a net profit!
However before we get to that point, I ask a very important first question…. How much of your profit was capital growth? ie. How much would the property have gone up in value anyway if you didn’t lift a finger and kept the property in its original state?
You see you can’t claim that as renovation profit!! You don’t get credit for that. That would of happened anyway.
So when we take that out. And the cost of all materials and tools. And the holding costs. And work out the TRUE profit, it’s waaaaay LESS than they thought.
Then my next question… How many hours did you work on this?…
Every. Single. Time. The hourly rate has been less than $5 per hour. You may aswell get a job at Maccas.
Seriously… don’t renovate.
Otto Von Bismarck said “A fool learns from their own mistakes. A wise person learns from the mistakes of others.”