step 1 - getting started structure & strategy...[00:03:24.54] all right, all improvements must...

STEP 1 | STRUCTURE & STRATEGY

cosmetic renovations for profit

STEP 1 - GETTING STARTED

Structure & Strategy[00:00:00.00] [MUSIC PLAYING]

[00:00:15.84] Welcome to your very first step on your road to renovating riches. Now structure and strategy may sound like a dry, boring old topic to kick off with, but trust me, it's going to be the solid foundation that all the other steps will be built on. Get this right, and not only will you have the winning mindset to be a highly successful property investor, but also a very clear understanding of things like exactly what your current financial worth is; how much avaialble equity you have to spend on property; what kind of unrenovated properties are best to target with the money that you have; roughly where to start your search; what your goals are, both over the next few months, within the next year, and longer term; what kind of financial structure best suits your renovation strategy-- for example, should you buy under your own name, or maybe set up a legal entity like a trust or registered company that better protects your assets? These are all really crucial questions that need to be answered before you even think about buying a property.

[00:01:21.90] By setting clearly defined goals and putting the correct structures in place right at the beginning, you'll maximise your profit potential and have a detailed road map of where you're headed. And don't worry, I've provided you with plenty of templates and tools to help you work out your structure and strategy, including online calculators that will quickly tell you how much money you have right now to kick off your property portfolio. All up, this step should take around two weeks to complete. And by the end, I promise you will have a clean focus and a solid action plan that will guide you through the exciting journey ahead of you.

[00:01:58.40] OK, what a cosmetic renovation is, it's visual aesthetic surface improvements that you make to a property. Under my system, I don't want you to knock down a house. I don't want you to demolish the back half of a house. I don't want you to be taking out 10 walls. That costs you money.

TRANSCRIPT

cosmetic renovations for profit TRANSCRIPT


[00:02:15.54] Write this down. At the very most in your cosmetic renovations, probably two, three walls, absolute maximum. Quite often in my renovations I'm only taking down one wall. And that's normally the wall between the kitchen and the lounge room. So try and take out the fewer walls is better, because every time you take a wall out, it's going to bump the cost up.

[00:02:36.63] So what the works are, cosmetic works are literally nonstructural works. Sometimes we say knocking out a wall. If it's non-load bearing, that's still cosmetic works. If you're taking out a load bearing wall, that is technically a structural work. But we don't say, for the purposes of my course, we don't say that's a structural renovation. Taking out one load bearing wall still fits under the scheme of a cosmetic renovation.

[00:03:01.38] And what they are, the works that we're doing, they're typically exempt work, which means no council approval required. So the big thing is the word exempt and complying. Exempt, no council approval or government planning approval required. Complying means you need to get formal planning approval either by the council or a local certifier. And we'll talk about that in more detail in step number six.

[00:03:24.54] All right, all improvements must be always relative to the property resale value. Most of you moving forward are going to be buying low budget properties. When I go through this section, you'll see, I'll share with you the sweet spot in terms of price range. Once you get over that amount, it makes it very difficult for the numbers to stack up. So you always have to keep in mind, the changes always have to be relative to the property value. You're going to be down in this space guys. You're not going to be buying properties up here. These two here are structural renovations. Cosmetic territory is here.

[00:03:59.36] So obviously a low value property has budget fixtures and fittings. A high value property has higher quality fixtures and fittings. So as your property value increases, you up spec the quality.

[00:04:12.01] Essentially, I don't want to-- please write this down, because this is key. If one thing I want you to get through this workshop is I don't want you to recreate the property. I don't want you to do win design awards. You're not out to get your renovation on the cover of Homes Plus magazine as much as we love Homes Plus magazine, we're not going to put on the cover. What you want to do is you want to make money from your renovations. You want to make your properties look better than before. You're renovating low budget properties. So low budget properties still mean good quality, but budget fixtures and fittings, better than before.



[00:04:49.01] Your time line for a cosmetic renovation-- now most of you are going to be doing free standing houses moving forward. Historically, you will get better capital growth on a freestanding house as opposed to an apartment. I think any of you who have apartments in your property portfolio right now, certainly get in and renovate them and up the rent. But moving forward, I would love it for you not to buy apartments. I would love for you to buy freestanding houses. I would much rather you go buy a free standing house on the outskirts of the city than go buy an inner city apartment. So historically you will get better capital growth on the outskirts, the freestanding house.

[00:05:32.32] You've also got to look at the domino effect. People are getting pushed further and further out from the city all the time. So those houses that you're buying sort of sub-500,000 now, do you think in 10 years time they could be worth $800,000 to a million? Absolutely, very, very high chance. So if you're doing it full time-- and what I mean by full time is if you've parked full time job or you're going to be on site every single day, you've got six weeks or less to cosmetically transform that house. Now guys, six weeks is a very long time in cosmetic renovation land. Remember, you're not demolishing half the house. You're getting it and you're making visual service improvements only, things like ripping up the carpet, polishing the floorboards, painting, tile painting, laminate painting. Your electrician will come over and change over the lights, basic plants. It's low budget, quick cosmetic changes-- so a very long time.

[00:06:24.80] If you're holding down your full time job and you're trying to have a renovation supplementing your income, give yourself 12 weeks or less guys. And as I said, it's a very long time in cosmetic renovation land. Under my system, you're not going to be getting one tradesperson in at a time. You've got to have multiple trades in, working one crew on the outdoor, one crew indoor. So we get in, we have multiple people. We get out very fast.

[00:06:51.37] If you're doing apartment renovations, three weeks or less full time. If you're doing it part time, six weeks or less. For a couple of the projects that I've done, the living room, I've done like a whole apartment in three to five days. So apartments can be very, very easy, very, very quick.

[00:07:08.35] But just a couple of things on apartments guys. One thing you need to do is you always-- you might want to write this down, just a random tip. Always check the fire escape for things like long lengths of skirting boards, your long bench tops. You might be bringing in a 3.6 metre bench top. You've got to be very careful. It's certainly not going to go in the lift. They're only like 2.4 head height. So you've always got to make sure that the access, you can get your materials up through the access.



[00:07:37.57] Some ways that my students are holding down their full time jobs-- some of my students take their four weeks annual leave. That gets you through the bulk of your cosmetic renovation. Some of my students are taking their long service leave, which is a three month break. Who are the couples and who's going to be renovating as a couple, as a husband and wife, boyfriend and girlfriend? Yep, OK, great. So certainly don't go and throw in your full time job right now.

[00:08:04.66] What you want to do with the banks is you want to get your finance all done and then throw in your job. So don't be stupid. Don't do it the other way around. But for the couples who are renovating together, what I say is whoever is on the higher income, you stay in your full time employment because you, being on the higher income, will tick the serviceability box for the banks. And whoever's on the lower income, you can certainly throw in your job if you're in a position to do that. And you can be on-site, getting in and out of your projects very quickly.

[00:08:31.66] All right, here's the property selection criteria. Where cosmetic renovations work best-- what I say is every-- now these apply to all states of Australia, with the exception of Adelaide. So I'll come back and talk to you about Adelaide separately. Literally what I say, renovation no go zone is naught to three kilometres within the city. In the city that close, there tends to be a lot of apartment development. And a lot of overseas investors invest in inner city apartments in that naught to three k ring. So that tends to be a no go zone for property investment, purely because if something happens overseas, something good or bad, then those apartments tend to fluctuate quite radically where they can this value one day, drop the next. So don't buy within naught to three kilometres of the immediate CBD, with the exception of Adelaide.

[00:09:18.37] The inner city fringe suburbs, which I deem three to 10 kilometres, that is perfect territory for large structural renovations only. You will find-- so don't go looking here, as a cosmetic renovator, because the figures will not stack up, never. In the inner city locations-- a large structural is what I deem anything 100 square metres plus. You might want to write that down, guys. Large structurals, 100 square metres plus. That's where you're adding at least an additional 100 square metres of building footprint.

[00:09:52.09] The reason why structurals, larger structural work well in this suburb is because of the pricing, property values. Again with structural, it's all a multiplier effect. So here, if you timed the figures-- let's say we buy a million here. You do a large structural. If you buy a million, if the actual formulas are 190%-- which I'll get you shortly. But if you buy a property that's a million, you need to be reselling it for around $1.9 million to cover all your costs as a structural renovator and make a profit margin.



Can you imagine if you were attempting to do a cosmetic renovation, you bought it at a million, there is no way by putting a lick of paint, polishing the floorboards, you're not going to uplift the value that radically to cover those costs. So cosmetics do not work there. It's large structurals.

[00:10:36.52] The next ring is what you call the metropolitan suburbs. And that is 10 to 20 kms out the CBD. And that works particularly well for small structural renovations-- write this down-- small structurally between 40 to 100 square metres in size. Now as you go out, what happens is, when you're in the city, property prices are at their highest here. And then as you move out from the city, the prices drop back a little bit. And then you keep going out. They come down lower, lower, lower, lower, really lower. So here, small structures. If you do a large structural through here, by the time you multiply the figures, you may not be making any profit. So in my experience, small structurals, 40 to 100 square metres in size, work best in this particular ring.

[00:11:25.78] Now in the metropolitan ring, you may have some chance of making cosmetic work. But it's going to be very much suburb-dependent in that metropolitan ring. So you might want to put down, maybe cosmetics depending on the suburb. Where cosmetic renovations are the most lucrative are the 20 to 75 k ring out from the CBD. So what we are is we're on the outskirts of the city. And the most sweetest spot, in my experience, if I had to narrow that down again, it's around the 40, 50 k mark. The 40 to 50 k ring is probably where a lot of you are going to be operating.

[00:12:11.49] The regional ring is cosmetic and structural. So this is anything 75 kms or more. In the regional ring, certainly cosmetics, because you can buy a property in the regional ring, 100,000, 200,000, 300,000 any day of the week. So you just multiply the figures by that. But also structurals can work because there's some really great suburbs in the regional rings, like there's Bowral, there's Byron Bay. There's lots of suburbs out there that have high pricing. So if you have a regional area that has high property values, then structurals will work in that particular suburb as well.

[00:12:45.75] Now the exception here is Adelaide. Adelaide doesn't really have an immediate CBD no go zone. So for Adelaide, you're lucky. Your cosmetic renovations typically work-- your sort of cosmetic renovation sort of work from here, even some inner city locations. So you're pretty much all the way cosmetics through structurals. I'm sorry, in Adelaide, cosmetics pretty much all the way. And then in some parts, like the Adelaide Hills where you've got the higher property values, you'll be able to do structural renovations as well.



[00:13:16.55] OK, key target market-- as cosmetic renovators moving forward, one key demographic, it's families in the 25 to 45 year age range, and likely that they're going to have probably one or two children. So hubby, wife, children, or nontraditional family units, i.e. two women, two men, children, whatever it may be. So you're going to be targeting small families as such. That is your key demographic. And everything we do as a renovator will be done with that key demographic in mind, regardless of whether they're buying or renting.

[00:13:53.76] The architectural styles here in Australia-- if you actually look at where Australia has come from, you've got the old colonial period. So that was typically housing before 1840. Then we moved into the Victorian period which went 1840 to 1880. Federation period, 1890 to 1950. We then did the interwar period, then postwar period. We then went into the late 20th century. That took us up to around the year 2000. And we are currently in what's called the contemporary period, which was from the year 2000 to current.

[00:14:29.28] The most lucrative housing period for cosmetic renovations-- and this is the property, the era that you need to target, is the late 20th century. And we're lucky because here in Australia, the bulk of housing is late 20th century here in Australia. Obviously you have some suburbs that are going to be pushing back and you're going to get more Federation periods.

[00:14:50.67] So the general rule of thumb guys is the further you come back to the city, you're probably going to be getting more of these style houses. Certainly in Adelaide, this is a very common style in Adelaide. But closer to the city you're going to be getting that. I would probably say in the metropolitan markets, you're probably going to be getting more of the interwar, maybe a bit of this and a bit of that, some of this as well. And then as you go out into those outer metropolitan suburbs, you're going to start seeing more of these here. And then obviously in a lot of the newer developments, you've got the contemporary period. So keep that. Late 20th century is the era that is most lucrative for you as quick cosmetic renovators.

[00:15:27.85] All right, the age of properties-- you're targeting properties between 20 and 50 years of age. So what I call them is the '60s, '70s, and '80s sleepers. I mean, I grew up in them. Who grew up in one of those sorts of houses? We all did, yep. So '60s, '70s, and '80s sleepers-- you don't want to be getting any property prior to 1960 because, as the years roll on, properties become more decrepit, more wear and tear. So in my experience, any property over 50 years in age, you're probably going to be heading more into structural renovation territory where you're having to knock out walls, redo that sort of stuff.



[00:16:07.31] These are, visually, the types of properties that you're going to be targeting moving forward. And these are what you call the late 20th century style houses, all built sort of the '60s, '70s, '80s. And as I said, Australia is chockablock full of these on literally every street-- Your classic fibro asbestos shacks, you've got your brick houses, your weatherboard houses. Yeah, they're all around.

[00:16:38.06] All right, ideal site attributes-- nice, quiet suburban street. So all I want you writing down is this. I want you to buy-- write it down-- in an average suburb in an average street and an average house. Average house in an average street in an average suburb. If you go looking for the worst house in the best street, guess what? You're never going to find any deal.

[00:17:10.12] So you've got to be careful what some property experts tell you. They always say, target the worst house in the best street. It just never happens guys-- average house, average street, average suburb. You know there are suburbs you go to and they're almost like they're stood still in time. They're the sorts of properties that you're wanting.

[00:17:28.84] Never buy on the main road. If you as a renovator, particularly if you're going to be doing buy, renovate, and sell strategy, if you buy a property on the main road guys, you're going to struggle to sell it. Also, it'll sit on the market a long time. Once your property sits on the market, it becomes a lemon. And then it's game on for whatever price anybody pays for that property. So never buy on the main road.

[00:17:49.31] I really want to stress this guys. We've had students who have come and educated themselves, paid $6,000 for a workshop. They've walked out of a workshop, completely ignored what I've said, gone and bought on a main road. They get in and renovate. They put on the market to sell, can't sell it. Ring the office, help, help, help, I'm in trouble. When my property coaches drill down and say, where did you buy? Tell me about the property, or they look the address up, they say, it's on a main road. And they say yeah, I didn't think it would be so bad. Well don't do it. Just don't do it. It is a recipe for disaster.

[00:18:23.29] In an ideal world, avoid corner blocks. Corner blocks have one major buyer objection, which is called privacy issues. Now a lot of real estate agents will say, oh look, corner blocks are really valuable. You can split them and you can put a granny flat in them. The problem is that in a lot of areas that you're going to be in, these suburban, these sort of outer metropolitan suburbs, most blocks are around 600, 700 square metres, 600 to 800 square metres typically. And the house will take up at least half of that. So then by the time you actually dump a granny flat in the rear of that property,



the front house has absolutely no yard whatsoever. The granny flat section, that has no yard. And when it comes time to sell-- so they can be very lucrative for the buy, renovate, and rent strategy. But when you sell, that's where you're going to get caught on them. So granny flats are great, but expect to have issues when you sell if you're slicing and dicing too much.

[00:19:20.15] So the reason I'm telling you that is because the real estate agents, what will happen is I'll give you some parameters to work to. And you'll go out there and other people will change your opinion or make you think about different things. And you can put yourself at risk. So in my experience, avoid corner blocks.

[00:19:36.48] And I can only say that guys because I've had two corner blocks in my property portfolio. I've done amazing renovations to both of those properties. And both of those properties struggled to sell. And I ended up dropping the price to on-sell those. And the major buyer objection, corner block privacy issue.

[00:19:53.50] I actually lived in one of the properties for about a year or so in between renovations, on a corner block in Balmain. And everybody could hear you speaking inside the house, So you know particularly when you've got a corner block or a footpath wraps around and continues up the street. So in my experience, just avoid them.

[00:20:12.71] What you want to find in terms of ideal site attributes-- you want a block size in line with the suburb average. So one of the things you need to look at a suburb level is what is the average block size in my suburb? In my suburb, Balmain, it's 200 square metres. 200 square metres is a minimal subdividable block. Most blocks are around the 200 to 300 square metres. Where I do my cosmetic renovations out west, most of the block sizes are around 700 square metres. So that's one thing you definitely need to know at a suburb level, because what will happen is you'll get a great property, a great house that comes on the market. Let's say your suburb has an average of 600 square metre average block size in the suburb. A property will come on the market, great unrenovated house on a 450 square metre block. People will look at that, and that drop in block size actually is not-- you can't compare that with a block that's on a 600 square metre block size. So make sure that you check that out.

[00:21:10.75] What you want is a normal street frontage. Your street frontage is basically this section here. So typically the wider your street frontage, the more valuable the block. The smaller the street frontage, the less value on your block. And what you want is a rectangle, ideally a rectangle or a square block format.



[00:21:30.94] One thing I want to avoid is what's called irregular blocks. This is what you're aiming for. And this is, fortunately for you, most of the property transactions across Australia are either a block format or a rectangle format. But somewhere along the line in your journey as professional investors, you're going to come across an irregular block size like this. These blocks, sometimes there's nothing wrong with them, but they will take a long time to on-sell, because what I do know from experience, people don't like buying something that's outside the norm. It's almost like we're conditioned to do things a certain way. So typically irregular block sizes will be harder to on-sell, no problem to rent.

[00:22:13.68] Now look, if it's slightly irregular, I said what I don't want you doing is I don't want you going to the real estate agent-- let's say you have a block size that's almost square and it's a little bit out. I don't want you to be going out saying, oh no, I can't buy that block because it's not perfectly square or rectangle. Cherie said not to buy that. Don't do that stupid stuff.

[00:22:29.19] So if it's slightly irregular that's fine. But what you don't-- if you've seen any blocks where they're coming to a point, quite often that point, that sort of back section of the property becomes a dead zone because what can you do on a point?

[00:22:39.05] All right, this is a property that came on the market in a very hot suburb out in Lethbridge Park, which is one of the suburbs I invest in. And this is when the market was booming and properties were literally selling straight away, like selling an hour after they'd come on the market. This property sat on the market quite some time because this had a very small street frontage. So this is literally, their street frontage is from here to here. So see how that's reduced? That's probably only like a five metre frontage, whereas all the properties in the other suburb would have anywhere between a 10 to 15 metre street frontage.

[00:23:12.82] So be very careful when you're buying. You have to look at these things guys, because you may not think anything of this. The house we can clearly see, this is oozing potential to be cosmetically renovated. But you can do an award winning renovation or a fantastic reno, but what will catch you on the tail end is the reduced street frontage. So be very careful.

[00:23:32.34] So all I'm doing in this workshop, I am just departing everything I know that works. And walking out of this workshop, it is entirely up to you as to what stuff you follow. I'm not trying to make you mini-mes of me. All I'm doing is giving you the stuff that I know works. And it's up to you whether you want to deviate. If you deviate, you put yourself at risk.



[00:23:53.47] A backyard space is absolutely essential. We are targeting families. They must have a backyard space, and in an ideal world, a front yard space as well. What I don't want any of you buying is a house where the house has actually been pushed really close to the back lot. So if you actually-- like if you were drawing a block here, sometimes you get houses that are really pushed close. This is called the front set back. You might want to write this down, just quick random thing. This is called side set back. And the line-- have you ever seen any houses where they're all on a grid and they all sort of stop and start at the same line? The line at the back is called, just abbreviated, BLZ, building line zone. And that's where the council wants all your properties to stop at the back.

[00:24:53.39] Sometimes even having a property where the house is pushed really close to the front yard can be a problem. If that's not the norm in your suburb, I'd say don't buy that property. That sort of stuff is very common in the inner city locations, more so for structural renovations. Not so great for cosmetic renovations. Sometimes you buy a property where they've done stupid things, like the house is pushed really far to the back of the property.

[00:25:19.51] Have you ever seen pools, swimming pools in people's front yards? Yeah, so you open your back sliding door, and then literally there's only one metre at the back. Don't buy that property. That is a major buyer objection for the demographic that you're going to be targeting as cosmetic renovators. So don't do that. In an ideal world, you want your property smack bang in the middle. You've got a front yard. You've got a backyard. You tick all the boxes. OK, thank you John.

[00:25:49.14] Ideal property types-- you're going to be targeting either-- the brick houses. Brick houses, they're fantastic guys because you can make them look radically different as a cosmetic renovator through render. So what you're going to be targeting is the red, brown, or blond brick. That is the king ping. If you had to say, what is my ideal wish list, brick house, because people know that a brick house is better quality than a fibro house, for example. So red, brown, or blond brick veneer, and brick veneer ideally. Brick veneer is where you've got a skin of brick and then timber frame inside.

[00:26:23.24] For some of you, a lot of the Perth people, Perth people, you have a lot of double brick construction in Perth, and so not so many brick veneer. So you're going to have to just deal with that. But you're lucky. Most of your housing is brick in Perth.

[00:26:37.99] Fibro houses, fibro asbestos guys-- we're not going to be scared. Us renovators, we're not going to be scared of the fibro asbestos houses. But we're going to learn how to deal with asbestos professionally. And certainly the cladded houses,



plastic clad houses are perfectly fine in the suburbs that you're going to be targeting. So in that outer metro ring, you are going to be buying, probably more so, the fibro asbestos or the plastic clad houses. As you come a little bit further in, they tend to be more brick.

[00:27:08.33] These are examples. This is what you call a red brick house, classic. I mean, this is Australia, right guys? These are absolutely everywhere. This is another example of red brick. Both these properties are late 20th century. This is what you call a brown brick house, pretty ugly the brown brick. With a lick of render, that can be completely transformed. This is a blond brick house. There's certainly a lot of blond brick houses here in Aussie as well. And then fibro clad, so a lot as renovators. I'd probably say most of the cosmetic renovations I do, I would almost go far to say that 90% of them are fibro clad houses that I'm certainly doing here in Sydney. And then you've got your plastic clad. So plastic clad is great guys. And quite often you don't ever remove the plastic clad. If it's a terrible colour, you spray paint it.

[00:28:01.71] Ideal property size-- we're going to be targeting three, four, or five bedroom properties. Most of you are going to be buying three or four bedroom property only. Very rare will a five bedroom property come on. So none of you are to buy a two bedroom property. If you buy a two bedroom property, particularly as a cosmetic renovator, because you're not adding to it. You're just working within the confines of the building. A two bedroom property will totally not be attractive to your core demographic, which is families, younger families. So three or four bedroom properties moving forward-- if you get lucky, a five bedder.

[00:28:36.23] The existing floor plan must have a family friendly layout. So this is an example here. One of the things I want to teach you is the four zones of a property. Can you see how all of these bedrooms here are clumped together? That's great. You've actually got your lounging and kitchen. So this is a very typical layout. A lot of the houses that you're going to be buying as cosmetic renovators moving forward, they will be small, because a lot of them are late 20th century. So they were postwar. Money was very tight after the war. So the housing, what they did is a lot of servicemen came back from the war, and they built these very small houses right across the country to put a roof over the head over a lot of servicemen. So they will be small, which is great for your budgets.

[00:29:15.87] But these are the four key zones that you need to be familiar with. So the first zone-- let's say this is the front of the house. The first zone is called the sleeping zone. So you might want to write this down. Sleeping zone equals your bedrooms. And



your bedrooms should be clustered together, in an ideal world. What that is, it's the quiet zone, shh, where people sleep. There's no noise.

[00:29:39.76] The next zone is what's called the service zone. And that tends to be things like your bathroom, where all the water lines are located. So your bathroom, your separate toilet, your laundry, and sometimes overflowing into your kitchen. So that's where all the services tend to be. If you look at any house, those rooms quite often piggyback, like they're basically abutting each other. Because instead of carrying water lines and stuff all through the house, they centralise them mainly in one spot. So that's the service zone.

[00:30:08.11] The living zone is your lounge room, your dining room. And sometimes that overlaps into your kitchen if it's an open plan kitchen. So what that is, it's your busy area. It's the noisy zone where you have TV. You have people sitting on the lounge chatting.

[00:30:24.75] So see the clear distinction between the quiet zone and the noisy zone? Hence the reason why they're actually at opposite ends of the house sometimes. And then in an ideal world you'd have doors, sliding glass doors or bifold doors that lead you to the outside, which is called your entertaining zone. So that is the ideal layout.

[00:30:44.38] Now if we look back at this house here, let's say this is an unrenovated house that came on the market. This is actually a really, really good layout that fits that ideal model. You walk up your front porch. You've actually got here your lounge room. Now you can quickly see-- this is actually a project that I've done. I've just flicked that. That was actually the property prerenovation. You can see you've opened the front door. You're straight into the lounge room.

[00:31:08.98] So that's one thing that buyers hate when you open your front door and you're smack bang in the lounge room. So all I've done there is I've put a screen there. You'll notice the wall there. So I'll just show you the after. See what I've done? I've just erected a timber privacy screen through there, created a little bit of separation. I've actually removed the wall there. So what I've created here, this here is the living zone. Open plan, living, dining, kitchen, that is beautiful. See how I only took out one small wall, not 10 walls.

[00:31:37.63] This is actually the service zone here, your laundry, your bathroom. If there was a separate toilet there, that would all be clumped in the service zone.



[00:31:45.37] This is actually the sleeping zone, the quiet bedrooms. And over here I think there was a door here. There was a sliding glass door here that actually then went out into the entertaining zone. So that is an ideal layout, something for you to think about when you're going and inspecting properties, to have that layout.

[00:32:04.98] One of my students in Melbourne-- it was actually one of the homeowners I worked with on a living room. We did a renovation in Altona Meadows, and he was super excited. And the property across the road came on the market while we were doing the renovation. So he said, "I'm going to buy the property." So I had to look at that property with him. And we had to take out about-- the layout was just so disjointed, we would have had to have taken out 10 walls and erect new walls. And I said, "Your budget does not cover completely re-engineering this house." I'd be very careful with your layouts.

[00:32:35.02] Your ideal purchase price range is $150,000 to $500,000. A lot of my students around the country are buying in the $300,000 to $400,000s. So certainly here in Sydney, you've got still lots of options. There's still lots of suburbs around Mount Druitt that you can buy in the $400,000s here in Sydney. A lot of you are going to, here in Sydney, you're going to get on the central coast. A lot of opportunity down the south coast around suburbs like Campbelltown, Ruse, where you can still buy in the low $400,000s in those suburbs, and in a lot of other states.

[00:33:08.86] Again, if you followed that rule, the 20 to 75 kms out from the CBD, particularly the 40 to 50 k ring-- because what I do know from experience guys, people ideally want to be in the city, in an ideal world. They're pushed out because of housing affordability. And a property that's 40, 50 kms out from the city, it's not too far that they still can't commute to work in the city. They hop on a train or they hop on the freeway, it's an easy commute. But when you start getting out 75 to 80 kms, the drive or the commute starts to become a lot more difficult. So 40 to 50 kms is that ideal price range.

[00:33:45.94] So anything over $500,000, you'll find that the numbers become a lot more difficult to stack up. That's what we're finding. If you can stay sub $500,000, you will not have any problems with a buy, renovate, and rent strategy, because that's a small multiplier. If you're looking to sell, do the buy, renovate, and sell strategy, and you're over $500,000, you're going to find it impossible to find the deals. We know that for a fact. So don't waste your time.

[00:34:15.49] Now the cosmetic reno formulas to sell-- as a professional renovator, you need to add 37% back to the property value without capital gains tax or 42% with capital gains tax. So when you buy a property, you have cost. You have the purchase



price. You have your acquisition cost. So you might want to write this down quickly guys. Acquisition cost equal your stamp duty, your legal fees, and any due diligence cost. So it's your entry cost to buy that property.

[00:34:52.34] Your finance costs are your mortgage holding cost. Your renovation cost at 10% of the property value. So we'll talk about that in a. second. Capital gains tax is rounded out at around 5%. Now that doesn't mean 5%, you're paying 5% capital gains tax. These figures are 5% of the property purchase price. Your profit margin is around 10%. So if you go buy an unrenovated house for $400,000, you're going to dump 10% in for your cosmetic reno. Your net profit margin, all said and done, will be 10%, $40,000 net profit. That is the formula.

[00:35:31.32] Now if obviously you're selling, if you're doing the buy, renovate, and rent strategy, there is no tax. If you're going to be selling, capital gains tax is the only cost that will need to come out of that.

[00:35:41.19] You've got your professional cost. They tend to be things like your building, pest, and asbestos inspection. And your resell cost-- resale cost equal agents' commission, marketing cost, property styling cost. And they equate to about 7%, and your contingency of 0.5%. So when you add all of that up, it equates to 42%.

[00:36:10.13] If you're doing the buy, renovate, and rent strategy, it's only 28%. So what a lot of my students across the country, most of them-- literally all of our students are not having any problems doing the buy, renovate, and rent strategy. It's the buy, renovate, and sell strategy that is becoming increasingly difficult. The problem is is that with housing affordability rising over the last two years, it's pushed the property purchase price up. And then you have to multiply that by 142% to get your resale. With the increasing property cost, it's making it very, very difficult.

[00:36:47.05] So guys, I'm going to make it very clear. You adjust your strategy according to what the market is doing. It's stupid to say, why can't I do the buy, renovate, and sell strategy at any time? The property market changes constantly. It comes in cycles. So generally the rule of thumb-- and this is not on your DVDs guys, so you might want to listen. The general rule of thumb is when the market is quiet, when it's flat, even when it's a bit bad, it's declining slightly in property prices, what happens is the buy, renovate, and sell strategy figures stack up when the market is cool. When it's soft, buy, renovate, and sell strategy, the numbers will stack up. But when the market is booming and it's hot and the property values increase, the buy, renovate, and sell strategy will be very, very hard to get the figures to stack up. So when the market is booming, you do the buy, renovate, and rent strategy.



[00:37:42.18] Some of my students have said to me, Cherie, I've noticed that over the last year or two you've changed your strategy from buy, renovate, and sell to buy, renovate, and rent. And that's the reason why, because the market over the last two years has boomed. So we change our strategy according to what the market is doing and where it's at.

[00:37:58.51] So in all truthfulness with the property market potentially cooling, we're seeing a lot of cooling in a lot of states, Perth for example. With a cooling, what you should find is that the buy, renovate, and sell strategy figures are starting to come back into play. Because when the market is cool and all that hysteria has gone out of the market, your ability to buy the property at the price you need to becomes so much better. When the property market is hot, people go to auction. So typically-- sorry. When the property market is hot, more property owners put their property on the market to sell via auction. When the market is cool, more properties for sale.

[00:38:38.54] I love negotiating on properties for sale because there's a price. And you can decide whether or not you pay that or not. But when you go to auction, jeez, it's like it's game on. You could go to auction, they might be saying $400,000 they're hoping to achieve, and then the property sells for $580,000 at auction. You've all seen it, right? So make sure you change your strategy according to what the property market is doing. In an ideal world, I would love it if you can do the buy, renovate, and rent strategy regardless of whether the market is cool or hot.

[00:39:08.73] What we have here is what's called the cosmetic revalue calculators. Moving forward, you don't have to sit there on a calculator crunching out all the numbers yourself. You've actually got all of this stuff online. So you all have your own username. So normally your username is-- like if I was a student, my username would be capital C Cherie dot Barber. So it's your Christian name dot surname. And the universal password is called renovate. And you can go in and change whatever you want post your initial log in.

[00:39:43.77] So you click up on the-- sorry Hayley, can we just go back so I can show the students. So you click right up on the top right hand navigation bar. It says Log in. So you type your username and password, and it brings you here to the private graduate area of the web site.

[00:39:59.79] And see the tabs down here? You've got all sorts of things. You've got your resource centre, which is all the checklists, the templates, the calculators. You've got graduate videos. You've got all your national trade group suppliers are through there, RP Data stuff, forums, blah, blah.



[00:40:14.28] So click on the resource centre. So the resource centre is just where all the resources are. And what it has is it has these categories. It's got all the construction project plans, the renovation style guide. So what I don't want-- like you've got a big box from us, and you've got CDs. We're phasing all of those out, because if we make a change to anything, as soon as we send you those CDs, they're dated. So we encourage you, every time you start a new project, come and download the construction plan that's online. Because if there's any tweaks or we pick up any little errors, we fix it online. We're not in a position to go and email 9,000 new CDs to all of my students across the country. So always make sure you download the latest versions of everything online when you need them.

[00:41:00.66] If you go into financial feasibility-- so you just click on the image or the tab, whatever. And you'll see all the state by state. So it's got all the cosmetic calculators, all the structural calculators. So Hayley, if you just click on New South Wales for example. So all you do is you click on New South Wales, whatever state you're in. And it opens it up. You can see it's opening up down the bottom there. So just be careful because when I did this first time, I was like, where is it? I didn't realise it was actually downloading it just on the little left navigation bar down there.

[00:41:34.90] And all you do is you print it. And so Hayley, can you just plug in 400 here? So the red box, enter purchase price in the box below. Look, we tried to make it super easy guys. 400,000 Hayley? And just the other one. So it automatically spits out all the costs. You're not going to be sitting there going, oh, what's this, what's that. And we've accounted for everything. Because as I said, if you're unfortunate that land tax falls through then-- as I said, we don't normally include land tax in the equations because it tends to be an ongoing property cost associated more postproject. So basically it goes through all of the things that are included in the acquisition-- the finance, professional, the reno, resale cost. So you've got everything.

[00:42:12.25] What I've done guys, in those calculations, there is fat in them, extra fat. I'm not going to go up and say, oh no, don't include that cost. I would rather give you worst case scenario so you're fully across everything. And then it's up to what you want to cut out.

[00:42:28.30] So for example, there are certain things there that there is a little bit of fat built in. So what it's saying, if you buy an unrenovated house for $400,000 and you're doing the cosmetic to sell strategy, the property that you buy for $400,000-- Hayley, can you go down a bit please. Hayley? Hayley? She hates being onstage.



[00:42:56.47] So a properly that you're buying for $400,000-- excluding capital gains tax, because some of you might be able to write capital gains tax. You've got losses of. I've just giving you ex and inc figures. You have to sell that at $544,000. If you're doing the buy, renovate, and sell strategy and you're going to be paying the capital gains tax in that financial year, it's roughly you have to resell it for $564,000.

[00:43:17.28] So what you need to do is you need to go to a property due diligence system, which we're going to learn how to do today. You're buying at $400,000. If you go through your due diligence system and all of the houses are reselling around $540,000, the numbers don't stack up. You're $20,000 $25,000 short of what you need.

[00:43:35.46] So it doesn't mean you give up. Do you give up? What do you do? Renegotiate $20,000 $25,000 grand off if you can, so that the numbers stack up. If you're doing a buy, renovate, and sell for a property about $400,000, you've got to get it revalued at $507,000. See how there's a massive, whopping big difference? This is very easy to achieve. This becomes a lot more harder.

[00:43:58.44] Now if you change that, if you're going outside my rules and you're buying a property for, say, $500,000, you have to sell it, cosmetically, at $705,000. See how it becomes a lot more difficult? That's why I say stick to sub-$500,000. You shouldn't have too much issue. But I want you to make your very aware, this is getting extremely hard to do. We do have students doing the buy, renovate, and sell strategy successfully. But you're going to have a lot easier life as a renovator doing the rent strategy. All right, so it's got every single cost involved.

[00:44:33.87] OK, your renovation budget-- cosmetic reno, 10% of your property value. If you buy an unrenovated house for $300,000, your cosmetic renovation budget is $30,000, so 10% of your property value. And it's 10% of what you bought the property for-- sorry, what the property is worth right now. Some of you bought your investment properties five years ago. You might have paid $300,000. But today your property is worth $400,000 unrenovated. So it always goes, your 10% is based on what the property is worth today.

[00:45:06.50] There are formulas. So the big umbrella formula is 10%. And that is to do your whole property guys, inside and out, fully finished budget, not a cent more. As renovators, we need to be super strict with your budget. Some of you will be tempted to spend more. What I can tell you from experience, if you spend more, that will be coming out of your profit margin, not anybody else's.



[00:45:30.07] So what we do is we apportion it. 20% of the 10% goes into the kitchen. 20% you apportion to the bathroom. These two rooms here add the most value internally. Kitchens and bathrooms sell houses. They're the two biggest areas for a bank valuer, so you apportion more of your budget there.

[00:45:50.99] You're going to spend 20% on everything on the outside, your front yard. So the bulk of your renovation budget for the 20%, the bulk of that will go on your front yard or your front facade. Very little money spent, like literally no money spent on the left and the right side. You're really just mowing the lawn and maybe spray painting a fence and maybe spray painting the side of your house. That's it. So don't go out and build elaborate structures on the side of your house left and right. It's not going to add any value. And your backyard, your job in the backyard is really just to clean it up. The bulk of your 20% will be spent on the front facade.

[00:46:24.98] You've got a 10% contingency. So that's just for unknown surprises which they will always be. Doesn't matter how experienced a renovator, there will always be surprises.

[00:46:34.97] 10% goes to your lounge, living, and dining. So that's 10% across those three rooms. It's not 10% living, 10% in the dining, 10% across those three rooms. The reason why you can spend less money in those areas, those three rooms, is because they're not service orientated. They are really just cosmetic changes. It's not like you've got major plumbing or major electrical going through those rooms.

[00:46:55.61] 10% gets apportioned to the bedrooms, 4% to the hallway, 3% to the separate toilet, 3% to the laundry. So these two rooms do not add any value. You're literally just cosmetically sprucing them up as you are the whole way.

[00:47:10.04] Your net profit margin per project should be 10% of the property value. So as I said, you buy an unrenovated house for $400,000, your net profit margin, all said and done after your costs will be 10%, $40,000. And if you're making the decision to sell, then it's obviously excluding capital gains tax. That's the only cost that's not included in that calculation.

[00:47:30.56] What you're aiming for as a cosmetic renovator-- what you're aiming for as a cosmetic renovator is a $2 return for every dollar that you invest. Now you get that back on your renovation spend, not your project cost. So I'll just quickly flick back. All of these costs up here are what's deemed project cost, because they're not actually related to the construction. So you've sort of got like project cost, renovation cost. So these are project cost, project cost, project cost, construction cost, project cost.



[00:48:03.87] So with the return, what you're aiming is for every dollar that you invest in the construction budget, you ideally, at a very minimum, should get a $2 return for every dollar that you invest. Now saying, I don't want you to misconstrue that and go, OK, well I'm going to get $2 back. I'm going to spend 15% of the property value. That won't happen. So that's typically how it works out. Every dollar construction, you should get a minimum return.

[00:48:33.84] To work out how successful your project's actually been is to look at your return on your resell price. So for example, whenever I do a renovation for the living room, I often say on TV, we actually got $3 return for every dollar invested on this project. So that's just a good indicator moving forward of how successful your projects are.

[00:48:55.77] Cosmetic renovation-- I'm just going to do this and I'll take those questions. Cosmetic renovations, which will we apply? OK, you've got four options guys. You can either be the DIYer, and that's the person that does all the work themself. And that's not what I recommend. If you're the DIYer, you're going to end up in a straight coat, a complete mess.

[00:49:14.49] I'm going to be very honest with you in this workshop. I'll share with you along the way wins that my students have had. I'll also share failures as well. Last Friday we got a phone call into my office of one of my students who is at the point of an emotional breakdown, meltdown. So I was in Melbourne-- I think Melbourne last Saturday. So I flew in from Melbourne Saturday night. And I actually had to drive to their site at Campbelltown at 7:00 last Sunday night, which I wasn't too happy about, but it is what it is. And we discovered that they're doing all of the work themselves.

[00:49:48.21] So they bought an unrenovated house out in Campbelltown. They had only worked on a 5% budget, so trying to renovate a whole house with 5%, which is never going to happen. And the way that they were going to do that was to do as much of the work as they can themselves.

[00:50:06.62] So what happened? They've just entrenched themselves in this renovation while they're working their full time job, doing all of this work. They've been at it for eight weeks. They're almost close. They're 90% finished, 95% finished. But they are so physically tired that now he can't even think straight. And he's waking up in the middle of night with anxiety attacks because now his performance on his job is actually suffering because they're so physically tired.



[00:50:33.90] So I tell you these things with nothing more, not to make you mini-mes. I tell them because I don't want you to fall into the same trap. I care about all of you. I don't want you to make these mistakes. So please, do not be the DIYer.

[00:50:48.27] The one role that you can do, which is probably where the most of you will be, is number two, the DIYer and the project manager, so the person who does some of the work and outsources other parts of the work. So write this down. Your job as cosmetic renovators is to do maybe 5% to 10%, tops-- 5% to 10% of the work yourself tops, 90%, 95% outsourced through tradespeople. The works that you will typically be doing yourself are laminate, painting your kitchens and bathrooms, tile painting. You might do bench top resurfacing. You'll probably plant the plants in your front garden and put the wood chips in. You may pave and paint your front porch. And that is pretty much all I ever do on my renovation projects.

[00:51:42.51] And if you can stick to that theory guys, you're going to do well. You're going to love renovating. Because I can tell you, if you are in the trenches every single day-- you're up on a ladder, you're painting your whole house yourself. What will happen is you'll come to the site and you'll be like yeah, this is so much fun. And you'll be painting and you'll have your stereo on-site and the funky tunes will come on. You'll think, I'm so happy. Why didn't I do this 20 years ago? And you start painting you house. And about three hours on the day, you're like, reality sets in. Then you come back the next day and you're like, OK. You start fine in the morning. Then the afternoon, you're like an Energizer bunny that's running out of battery power. By the time you're like day three, day four, you're going to say, this really isn't good. And then you're going to go like, ugh. And then you get up on day five and you're like, oh, I just can't go in today.

[00:52:31.23] Can you say the traps that people fall into? And this is really important because, particularly for those couples that are renovating together, when you're tired, you become irritable and you start nitpicking. Like if a fly goes past your head, you blame your partner on that alone. This is how you've heard couples breaking up renovating. So please guys, do not be the DIYer. 5% to 10% tops, that is it. Stick to the rules. You'll do well.

[00:52:58.11] The other roll is project manager, a person who does zero work themselves and everything is outsourced. And that's fine. You can do that as well.

[00:53:07.12] The other option is to engage a project manager and they will do all of the work for you. But in my experience as cosmetic renovators, you will not have enough profit margin left over. You are the last one to be paid in the deal. And if you have too much money going out, too many hands taking all along, there's going to be nothing



left for you moving forward. I think that's a fine option if you're working a really stressful, really busy job and you just want to get these properties renovated and park them out and put them into your portfolio. That's fine.

[00:53:35.94] But the ideal scenario is here. This is where the bulk of you are going to be in number two.

[00:53:39.90] [MUSIC PLAYING]

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