151 – Achieve Financial Freedom With Renovating – Focus on 3 Types Of Projects
So you want to transform your world with renovating?
We highlight here the 3 types of projects every renovator needs in her plan to achieve financial freedom with renovating.
Now before you start cruising Instagram or the real estate pages, you need to get the basics in place.
Watch Episode 151 on Video:
The 3 Types Of Projects To Achieve Financial Freedom With Renovating
- [01:00] The act of planning
- [02:00] Start with your big Kahuna
- [05:00] The Jet Fuel Of Your Goals
- [06:00] First type of renovation- family home
- [08:00] Guard your emotion when renovating your family home
- [09:00] Maximising your assets
- [10:00] Getting the sequence right with your projects.
- [12:00] Flips- cashflow projects
- [15:00] Wealth building strategies
- [17:30] Poor investing decisions
- [19:00] Buy and execute wealth-building projects
- [21:00] Know your biggest challenges
- [24:00] If the market’s not going to pay for it, you don’t put it in
- [26:30] Updates about The School Of Renovating
The process of planning really helps you to sharpen your axe and get focused and intentional about what you’re trying to achieve. But the plan itself should never be set in stone because you need to flex and bend.”
~ Bernadette Janson
Create Your Master Plan
Without a plan, your goals are just pipe dreams
Start With Your Big Kahuna For Financial Freedom with Renovating
This is the ultimate goal you want to achieve with your renovating
If we use the travel analogy, you might decide you want to go on a holiday and end up in NEW YORK in 4 weeks’ time..
So there’s an outcome and a timeframe
With your Reno plan, you need to decide what you want to have achieved and by when.
It’s a good idea to express it in the present tense as if it has already happened. This helps to engage your subconscious mind.
Here are some examples…
- It’s 2029, and I have a portfolio of properties producing a cash flow of $150,000.
- It’s 2023 and I have completely replaced my day job salary of $90,000 with cashflow renovation projects.
- It’s 2026 I own my dream home in my dream location mortgage-free.
That’s your big Kahuna?
Map Out The Steps To Achieve Your Goal
Same with your financial freedom plan.
You want to map out your projects to get you to your goals.
Shortly, I will outline the types of projects to get you there.
The Plan Itself Should Never Be Set In Stone
You need to adapt to change and optimize your results.
If there’s something that we have learned from the pandemic it’s the need to be willing to work with change in order to succeed.
Plus, once you start working on your plan, the doorway to opportunity tends to open up.
Using our travel analogy, you might have planned to stay a couple of nights in Los Angeles then drive to Las Vegas.
But you hear from an old friend who is living in Phoenix who invites you to come and stay a few days.
You don’t want your plan to be so rigid that you can’t take up that wonderful opportunity.
Engage In The Planning Process Often
The process of planning really helps you to stay focused and intentional about what you’re trying to achieve
General Dwight D. Eisenhower said:
“In preparing for battle I have always found that plans are useless, but planning is indispensable.”
While you must be really clear about what your end goal is, how you get there will change according to the things that you learn and the opportunities that arise along the way.
For instance, legislation changes affect your projects, they can make one strategy less effective, then you need to look at another strategy.
Stephen and I had purchased a large block to build townhouses however there were changes in the legislation that impacted our original plan.
We changed to a different property and strategy and the detour provided the opportunity to pick up a cool $600k lump sum in the process.
1. The First Type Of Project Is A Family Home
(Principal Place of Residence)
For the majority of Australians, the family home represents MOST of their wealth Most Australian homeowners amass way more wealth through their homes than they could EVER save.
By being strategic about buying and renovating your PPOR you have the ability to make millions.
“I personally think if property is your thing, owning a family home is really important because it’s an opportunity to make a tax-free profit.”
~ Bernadette Janson
When you have a family home, you can build your equity quickly with renovation rather than waiting for organic growth. Renovating is like jet fuel for the growth of your equity.
That equity build-up can give you a bucket of cash to help fund your other projects.
Tax-free profit is a pretty powerful incentive but you also get to practice your renovating skills in a relatively low-risk way.
And, There Is A Problem With Renovating Your Family Home That You Should Be Aware Of
When we make decisions about the home in which we will bring up our children and create memories it’s not uncommon to lose sight of logic and reason.
The decisions are almost always tinged with emotion and lead to overspending.
If you find yourself scouring the timber yards for an exotic (and expensive) species of timber for your floors or you spend enough to feed a small country on your new kitchen it’s time to take stock.
Manage your emotions and your budget wisely so your renovation adds more value than it costs so you can free up extra equity to start building your empire
Optimise Under Utilised Space When Renovating For Financial Freedom
Another opportunity your family home can provide is additional cash flow.
If the space in your home is under-utilised, some minor alterations may enable you to rent out a portion of the home to create additional cash flow to fund your goals and maybe even pay off your mortgage.
Then There Is Downsizing
Let’s say you’re an empty nester and you are rattling around in a big home. You, my friend, are on the brink of a major windfall,
should you choose to take up the renovation challenge!
Let’s face it, your family home has grown in value in the time you have owned it. By selling, you will be into millionaire territory.
But wait, there’s more. If your home is a bit tired and dated, you should be able to achieve an extra 10% to the sale price (after costs) with a makeover.
And when you buy a doer-upper as your new home, you can save/make hundreds of thousands more.
Stephen and I pocketed a total of approx $500,000 in our downsizing operations.
What If You Don’t Have A Family Home?
Guess what, that’s your first project.
If you can’t afford the home you want, buy what you can afford.
Renovate and sell, go again and keep going until you have worked up to your forever home. Renovating for financial freedom is a step by step process.
This strategy is called climbing the property ladder and the beauty of it is that your profit is tax-free*
2. The Second Type Of Renovation Is A Cash Flow Project.
So let’s say your long-term goal is to produce, let’s say $200,000 income per year, or it might be 50,000.
Now let’s say you’ve harnessed the potential of your family home and you’ve got that bucket of equity that you can use for your next project.
So What’s Your Next Project Going To Be?
If you’re really happy in your job or running a business and you have sufficient cash flow and equity you would be wise to skip this step for now. The third type of project, wealth building projects will build much more wealth over time. Achieving financial freedom with renovating is a muscle you can grow stronger with time and experience.
You may not have that option though, especially If you’re not happy with your job or you’re not earning enough income, your next type of project probably needs to be a cash flow project.
Cash flow projects are generally flipping to produce lump sum profits to:
- Create cash flow to replace the income from your current job or business
- Build up a chunk of cash to buy your first home
- Make cash to fund other projects
- Pay for school fees, holidays, or your mortgage.
Flipping Is Addictive
It Is Important That You Don’t Stay Flipping
It’s just like having a job, if you don’t work, you don’t get paid. In order to get leverage, you do need to start holding property as soon as you can
My suggestion would be to keep turning over projects until you have replaced your income and are in a position to be able to move on to wealth-building projects
The Problem With Flipping
Put simply, flipping can be risky.
This is because the market is fluctuating constantly and if you buy at the peak and sell in a trough, you can lose a chunk of your profit margin to the fluctuation. Add to that a few nasty surprises and a bunch of rogue trades and you are in a pickle.
So How Do You Reduce The Risk Of Flipping?
Get educated, learn the system, and how to do research and due diligence.
Build a team of trades and professionals to help you make the right decisions.
Most importantly, have a solid plan B so you are never forced to sell.
You only lose money when you sell and if the market turns, hold until it recovers.
I have found that every time my profit margin has been impacted by market fluctuations, holding the property for a bit longer has solved the problem
Of course, your feasibility needs to have been solid in the first place. If you have based your feasibility on unrealistic numbers, you are in trouble before you start.
The Power Of A Reno Brainstrust
We do have a lot of renovators who are doing very well with straight flips.
It is not safe for a newbie with no training and no support because you can easily come unstuck.
We’ve done really well in terms of flips is we’ve put together the joint venture strategy. So, that someone that’s not quite as experienced can team up with someone that’s more experienced. And so that they have that I guess, expertise with them on a day-to-day basis, cashflow projects are very exciting.
Stacking Strategies To Reduce Market Risk
Consider stacking strategies, to add more opportunities for profits, add a buffer against changes in the market.
If you were to add a subdivision strategy to your reno, you might seriously increase your profit potential but it does depend on where you are working.
Let’s say you’re in North Melbourne, land big enough to do a subdivision is going to require a much bigger budget.
If you are working in say Wollongong or Ballarat, then that’s quite possible that you could find that sort of project at a more affordable price.
3. The Third Type Of Renovation Is A Wealth Building Project.
You Have Got To Get The Right Strategy, Location And Property For Your Plan
Plenty of people make big mistakes at this point and waste time, money, and energy on properties that don’t get them the results.
They do the right thing, build a portfolio and after years, decades even, they are not worth much more than the loans and they are producing little to no cash flow.
The annoying thing is that many of these purchases are guided by so-called experts.
If you are a renovator, use your skills to give you wealth-building wings. If you don’t have the capacity to do it at the time, buy the potential and do it when you have the time or money.
Small Units And Studios
Too often an investor will buy a little unit or studio as their first purchase because they think it is safe. It’s not safe, it’s often a dead end.
You might give it a splash of paint to tidy it up but then you have to just sit on it and wait, and wait, and wait…
Small units and studios have their place, particularly in high-growth areas.
Amanda Gould talked recently about smart little studios being a great SMSF investment and I agree because they can often produce excellent income compared to their value.
Where You Buy Depends A Lot On Your Age
If you are in your twenties or thirties, you can afford to wait a few decades and capitalise on the growth
If you are older and want to retire soon, you really need to be more focused on cash flow and renovating to retire.
When You Are Buying Wealth Building Properties Go For Quality Over Quantity
By quality, I am referring to their potential to expand both the equity and cash flow.
Now I am going to shock you here, I really don’t think an older renovated property is a great long-term investment. New properties are better which is why I think the micro-development strategy is hands down the best wealth-building strategy.
- Buy a house with enough land to further develop
- Subdivide and build new on the spare land. Either a house or a duplex
- Renovate the existing house and sell for profit
- Pay the profit back into the project
- Rent and hold the new property
Why Do I Love The Micro-Development Strategy?
- It uses domestic builders and residential borrowing
- Utilises your renovating skills to increase the value of the house to in effect, get your land for free**
- By selling the existing house, avoid paying GST
- You retain the new property so low maintenance, high depreciation.
- By putting the profit back into the project you have high equity and high cashflow
- By refinancing you can rinse and repeat to build a highly charged property portfolio