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Trading Property to make a Profit
There are a lot of people looking at going full time into property trading to make a living and gain wealth.
My first comment, is be very careful about quitting your day job.
- This job brings you day to day cash flow, which enables you and your family to live.
- Banks love a steady, solid income. So without one, you might find borrowing difficult.
Secondly, do the figures really stack up? In today’s market it is easy to buy, easy to renovate, but the problem lies with selling. This can result in additional holding costs and also with a lower than expected selling price.
Here is an example of a Property Trade that I have heard an investor talk about.
Example
Purchased for $275,000
Renovations cost $5,000
Could sell for $300,000
From a quick glance, a lot of people think “that’s not too bad”, and it’s $20,000 profit. But unfortunately that is not the case. Below are the likely expenses and I have included commission because in today’s market, many sellers are needing to use an agent to get a good price.
So based on the expenses included, the Trade would make a loss of $693. If Commission is excluded the profit would be $8,307 before tax, or around $6,000 after tax at average tax rates.
This example shows how quickly a perceived profit can disappear. If the property was held for longer, then it is likely to make more of a loss.
My example didn't post well on here, but look at http://www.cswaikato.co.nz/news/trad...make-a-profit/ to see the full profit and loss.
Be careful of trading in South Auckland
There are a number of property investors getting tutored about property trading, and my understanding is that there are around 90 such students targeting areas in South Auckland.
So in my opinion this is too many traders concentrating in the one area, so I would suggest being very careful about trying to trade in this area, as it is likely there are too many other traders competing to sell their properties.
$50,000 rule
I always think that you need $50,000 gap between the purchase and sale, with limited renovation expenses. So for example buy at $250,000, spend $5,000 on renovations and sell for $300,000. Based on the same kind of expenses including commission, the profit before tax would be approximately $20,000.
This level of profit gives the trader some room to move with either the selling price, or to hold the property for longer, and to still make some kind of profit.
Ross
My first comment, is be very careful about quitting your day job.
- This job brings you day to day cash flow, which enables you and your family to live.
- Banks love a steady, solid income. So without one, you might find borrowing difficult.
Secondly, do the figures really stack up? In today’s market it is easy to buy, easy to renovate, but the problem lies with selling. This can result in additional holding costs and also with a lower than expected selling price.
Here is an example of a Property Trade that I have heard an investor talk about.
Example
Purchased for $275,000
Renovations cost $5,000
Could sell for $300,000
From a quick glance, a lot of people think “that’s not too bad”, and it’s $20,000 profit. But unfortunately that is not the case. Below are the likely expenses and I have included commission because in today’s market, many sellers are needing to use an agent to get a good price.
So based on the expenses included, the Trade would make a loss of $693. If Commission is excluded the profit would be $8,307 before tax, or around $6,000 after tax at average tax rates.
This example shows how quickly a perceived profit can disappear. If the property was held for longer, then it is likely to make more of a loss.
My example didn't post well on here, but look at http://www.cswaikato.co.nz/news/trad...make-a-profit/ to see the full profit and loss.
Be careful of trading in South Auckland
There are a number of property investors getting tutored about property trading, and my understanding is that there are around 90 such students targeting areas in South Auckland.
So in my opinion this is too many traders concentrating in the one area, so I would suggest being very careful about trying to trade in this area, as it is likely there are too many other traders competing to sell their properties.
$50,000 rule
I always think that you need $50,000 gap between the purchase and sale, with limited renovation expenses. So for example buy at $250,000, spend $5,000 on renovations and sell for $300,000. Based on the same kind of expenses including commission, the profit before tax would be approximately $20,000.
This level of profit gives the trader some room to move with either the selling price, or to hold the property for longer, and to still make some kind of profit.
Ross
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