Buying Rules for trades

[MaryJ]

I'm just starting to formulate trading rules.
I've been studying Dave Relly's interesting thread on a reno he did:
http://www.propertytalk.com/forum/showthread.php?t=6776
He refers to a rule that Dean (Pooomba) apparently formulated in a thread (I've searched but can't find it):
Renocosts+buyprice=80% of sale price.

Anyone out there using this rule? If so, what's your experience of it? Any other trading rules people are using?

Cheers
Mary

[NZGEMS]

Hi Mary,
I do a few trades, it is vitally important to know your reno costs with a surprize factor built in as well incase you come across anything unexpected. So it means you have to buy well, know what it would sell for done up and know your do up costs. Now a days I like to add in a factor if the market drops before I get to sell there is still a profit for me. Always allow for having to pay market value for the items you are using then if you get them wholesale that is a bonus and more in your pocket.

For instance my husband and son are just doing up a house, they allowed a sum for the kitchen as it was old and needed replaceing, we managed to pick up a whole kitchen including 3 year old stainless steel appliances, dishwahser, oven and hob for $855, IT FITS PERFECTLY. so that was a real bonus, and we have the dishwasher over as it doesnt fit, still it is an older house so it wont be a disadvantaged not having a dishwasher, we will either resell the dishwasher again on trade me or just keep it for the next one. (probably keep at this stage) This is the first house they are attempting, and they found yesterday when they started pulling the old kitchen out it is RIMU under neath so that is a bonus will polish up beautifuly.

I have done alot of do ups over the past few years and I have always paid others to do it, it is heaps cheaper to do it yourself, but it is time, what is your time worth? In my case you wouldnt want to see a house I attempted to do up, would probably be worse afterwards, I felt my time was better spent looking for more deals. But my husband and son were bored sitting at home so it is a great project for them, they are enjoying getting out there every day, only started it on Saturday as it only settled on Friday. we are looking for the next one now so they have their second ready to go once this is done.

The other thing to bare in mind is work out how many you want to do if you are just happy doing one at a time that is fine, nothing wrong with that, it is a good way to get long term rentals at a good price too if you are after that, and i note you are trading.

Another thing to think about is why do up? If you are just wanting to trade do what I mainly do and look for houses you can just buy below value and onsell again with nothing done to them. This is the best way to do it if you can pick them up.

I guess you didnt need to hear all this, I am excited my family are at last taking an interest.

The main things you really have to do is know your reno costs that is the most important part, buy right and know what it will be worth to sell once all the work is done taking into account the market could drop a little from now till then.

Good luck, it can be alot of fun.
Robyn

[whitt]

I'm just starting to formulate trading rules.
I've been studying Dave Relly's interesting thread on a reno he did:
http://www.propertytalk.com/forum/showthread.php?t=6776
He refers to a rule that Dean (Pooomba) apparently formulated in a thread (I've searched but can't find it):
Reno costs+buy price=80% of sale price.

Anyone out there using this rule? If so, what's your experience of it? Any other trading rules people are using?

Cheers
Mary

This is a variation of and known as the MAO formula ( max allowable offer) from US investor Ron Le Grand.
It is taught as a strategy during the Global business sandwich lease course.

[MaryJ]

Hi Mary,

Another thing to think about is why do up? If you are just wanting to trade do what I mainly do and look for houses you can just buy below value and onsell again with nothing done to them. This is the best way to do it if you can pick them up.
Robyn

Thank you, Robyn- your post was really helpful. I don't think I ever really understood that trades aren't renos. Do you do cleaning up or simple landscaping for your trades or do you just flick it on to the next buyer as is? I like the sound of trades!

Best of luck with your family projects! It's so great to work together as a family! My son is my business partner and I'm enjoying that tremendously. It's shared fun and shared disappointment...lovely!
Cheers
Mary

[MaryJ]

This is a variation of and known as the MAO formula ( max allowable offer) from US investor Ron Le Grand.
It is taught as a strategy during the Global business sandwich lease course.

Aha - well, the SLO course is on my to-do list. I can't go to the one in September, but if they offer one in July I'm going to go.

What do you think of Ron Le Grand's book?
Cheers
Mary

[Dean@Massiveaction]

Hi Mary. In Auckland in the current market I would even lower my MAO to reno plus buy price = 75% of market sale price. You can buy renovated properties for 20% below in Auckland at the moment. You have to be very careful to not lose money at the moment.
Some anecdotal research I've doen recently would indicate that only about 1 in 4 do up investors are making any money at the moment. The majority are losing moey after holding costs because they have got caught with things slowing down.

[drelly]

Hey Mary... it's actually Dave "Smyth"... Drelly is just my username

[whitt]

Legrand uses 70-75% in calculation. Without going into details the rest of the 20-25% difference gets used up when broken down for GST , agents fee , profit etc..
All depends on if you are buy and hold or trading it.

[NZGEMS]

Hi Mary
firstly I beleive there may be a lease option course at the end of July think I just had an email from them, dont ask me about them though as I have never done them. Quite a few of my friends have though and have done well from it and one of these days I will do one, will be in Queenstown when that one is on speaking at a 21century academy seminar.

as far as my trades go I do a mix, often though I just flick them on with doing nothing to them, I have been buying quite a few cashflow properties lately so they are selling on return, sometimes I do up though or get someone else to do up I should say, have never done any myself. Just take each one as it comes.

Do take note of what Dean says though, you need to know your figures and always allow for more than you think it will cost to do up and allow to get less than you think you will selling it, that way you wont loose money. There is only one do up which I really didnt do that well out of and it was one I decided to do as an investor with someone else organising everything, BIG MISTAKE, have just sold it actually but didnt really make much on it as it cost way more to do up than they said and rents dropped in the mean time in the area so we didnt get the rent we expected. still with everything added up I dont think I actually lost money, will know next week going to the accountant for the end of financial year financials.
But I do like the ones you can just mow the lawn and maybe paint a fence and make 20k but realisticly you dont get alot of those, especially at present there almost seems to be a frenzy in some of the places I am investing, so looking at changing my areas, might start buying a few closer to home.

Perhaps look for a few more do ups in Hamilton then if we dont want them all we can just offer them to other investors, once we get the ball rolling we will pick up a few.

get to know the area you decide to invest in well so you will know when you come onto a good property.
Good Luck
Robyn

[Richcrooks]

Hi Maryj,
The SLO fprmula (Ron le Grandew) is MAO (maximum allowable offer = ARV x 70% (after repair[or renovation] Value.
Le Grand works on seventy per cent and I find that fairly reliable.
Of corse from MAO = ARV x 70% you also get ARV = MAO divided by 70% or 70% = MAO divided x ARV.
Richcrooks

[MaryJ]

Confused...

Hi Maryj,
The SLO fprmula (Ron le Grandew) is MAO (maximum allowable offer = ARV x 70% (after repair[or renovation] Value.
Le Grand works on seventy per cent and I find that fairly reliable.
Of corse from MAO = ARV x 70% you also get ARV = MAO divided by 70% or 70% = MAO divided x ARV.
Richcrooks

I was always a bit weak at maths... so I'm having to work hard to really 'get' formulas. I put your equations into Excell and didn't get your results. What am I doing wrong??

The formulas I get are:

MAO=ARV/0.7
ARV= MAO*0.7
%=ARV/MAO

Cheers
Mary

[Richcrooks]

Hi Mary,
Start with MAO = ARV*70%.
Craig

[MaryJ]

Ms Pea-brain apologises...

Hi Mary,
Start with MAO = ARV*70%.
Craig

Yep, Craig. Got it. Ms Pea-brain apologises for the delay...

Oh, and while I'm at it, I apologise to Drelly for inventing a new surname for him and offer heartfelt thanks to Robyn, Dean and Whitt for their really useful contributions.
Cheers
Mary