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Trading mark up

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  • Trading mark up

    Generally, im wondering if properties that need a refurb can be bought for 65% to 75% of the potential value?

    Im really trying to work out if a typical small run down 2 bed house (in say Avondale, Mangere Bridge etc) can be purchased for 300 and sold for 400 after, kitchen, bathroom, cosmetics, little landscaping but no building works needing planning consent. Is this margin possible or too high? Im not worrying about specifics here, this is just a general example.

    Reasoning: without any refurbishment (maybe some cosmetics) I believe $50k mark up is necessary to cover all costs, fees and tax and make the trade worthwhile. If replacing the kitchen and bathroom spending say 10-15k probably around 80k mark up (minimum) would be necessary and so on..

    Thanks for any help

  • #2
    Can it be done...yes....is it as easily done as it is said????....no not IMHO

    People can and do make good money out of reno's, but I'd wager that very few of the people that are will tell you that it's easy.



    • #3
      Agree that you need at least $50k margin for simple reno.

      Sell $400k, less GST is $348k

      Purchase $300k
      Plus $15k kitchen and bathroom from your figures
      Plus $2200 legal
      Plus $1000 rates and insurance
      Plus $5k other reno
      Subtotal $323,200 less GST is $281k

      Less Interest $5k
      Bank fees $500
      Total expenses excl GST = $287k approx

      Net profit before tax $61k

      Less tax at say 33% = $20k

      Leaves a Profit after tax of $41k

      This would be a great trade if completed, but I'd say it is a little too good to be true. Maybe selling for $360k incl GST, and making $26k Net profit before tax is a bit more like most traders are making. I'm not saying that you can't make $61k net profit before tax, just that it would have to be a real Gem!

      Book a free chat here
      Ross Barnett - Property Accountant


      • #4
        As a (very) rough guide, price the $'s for kitchen, bathroom, cosmetics, little landscaping. Now add 20% as contingency costs. Subtotal and multiply by 1.5 this allows for labour costs. Sub-total and then add 10% of this for holding costs, REA fees etc.

        If it's a first reno, don't think you can "do it in the weekend", "I'll get uncle - brother-in-law - nephew, to help me in the weekend to save money". It doesn't work like that. The longer you are renovating, the higher the holding costs.

        I agree with Spaceman. Yes, it can be done, and no it's not easy
        Patience is a virtue.


        • #5
          Is that 15k for kitchen AND bathroom, or 15k each? Even the latter is way too light for anything even remotely, well, nice.

          They say (within reason) 10% of a home's value should be reflected in the kitchen's quality. I really hate walking into $2m homes and finding a $20k kitchen. Depressing.


          • #6
            In a small 2 bed house 15k is plenty to spend on a reasonable kitchen and bathroom (both) including labour, fittings, tiling and floors.
            Last edited by rich hand; 05-12-2011, 11:23 PM.


            • #7
              $15k on BOTH the kitchen and bathroom is more than enough - on a two bedroom home. Anything more than that and you're over-capitalising.
              Patience is a virtue.


              • #8
                ^ depends on your market....a mate of mines dad does kitchens for a crust......$20k is the minimum he'll look at anybody that hesitates at that price he just advises them to call somebodyelse .....my dad used to make kitchens as well. It was a few years back and I can't remember the numbers he talked about but they were new builds $500k and up in AKL, they weren't cheap.

                $15k for both simply won't cut it in some markets......the one kitchen reno I did was a $3k flat pack from mitre10 mega and about $1k for appliances.....so maybe $6k once you count the extras and the paint



                • #9
                  Exactly. $6-8k for a kitchen is so utterly bare-bones cheaparse it could hardly be described as "well-capitalised".

                  Having said that, I suppose in some one-horse town a small 2-bed unit in the rough end (let's say Moerewa, for example), then an 8k kitchen may well be 10% of the home's value.

                  In nicer parts of Auckland, not a hope.


                  • #10
                    A budget 400k auckland home needs a nice modern but budget kitchen, fitted and finished well by good tradesmen. Forget this 10% rule, this is just for home owners paying a premium for a kitchen including the fluff!

                    A cheap kitchen can look great if it has been designed, fitted and finsished well and is 'framed' by the right tiling etc. If you look at many mid market kitchens carefully you will see that the handles and worktop are what seperates them from many budget kitchens. The carcass and doors are similar if not the same. And tiles never need to be expensive for good effect, just get a good tiler.

                    This kitchen 10k, bathroom 5k

                    And we are all talking about small kitchens here?


                    • #11
                      I disagree.

                      You say that handles and benchtops distinguish mid-range from low end. Fair enough. The "fluff" as you put it is what distinguishes nicer kitchens from mid-range.

                      As with anything, it is true that you pay over the odds for certain branding, and that sucks. However, a $2k tap will always look a whole lot nicer than a $200 tap.


                      • #12

                        Absolute and utter rubbish!!! It has been proven in tests, when people do not have the shop lighting, expectation of cost factors included VERY few people can tell the difference between a $2K tap and a $200 tap installed within like-by-like kitchen settings.

                        It is a human factor that people EXPECT that what they pay for a fitting/lipstick/shirt makes it better ie the more expensive the longer it will wear, the better it will look.
                        Patience is a virtue.


                        • #13
                          Well either I'm one of the very few or you've never experienced proper tapware.


                          • #14
                            We're just getting quotes for new kitchen joinery for our PPOR. Really want floor-to-ceiling cupboards. Amazing what that does to the price! Basically rules out flatpack, as far as I can tell.


                            • #15
                              Originally posted by TheLiberalLeft View Post
                              Well either I'm one of the very few or you've never experienced proper tapware.
                              You have never refurbished a lower end property to make a profit on have you?