Perhaps the coolest news this week was the sale of a ticket to travel into space alongside Amazon founder Jeff Bezos on his Origin Blue spacecraft. 

How much did it sell for? It was auctioned over the weekend, with 76,000 bidders from 159 countries competing. The winner paid $US 28 million (about $36 million Aussie dollars)!

What do you get for that? You get a 10-minute flight alongside Bezos, his brother, and a fourth yet to be named passenger. The flight will occur on July 20 and will be the first human-carrying voyage for Origin Blue (albeit they’ve done 15 test runs without humans).

It’s not the first ticket on a spaceship to be sold to the general public. SpaceX (founded by Elon Musk) does things a little differently, offering return flights and a one week stay at the International Space Station for $US55 million. Virgin Galactic (founded by Richard Branson) has completed three human-carrying space voyages and sell their tickets for between $250,000 and $500,000.

We’re not sure we’d be jumping on a flight to space, regardless of the cost!

Perhaps the most interesting piece of information we came across this week was a study published by Digital Finance Analytics (DFA). It says the Bank of Mum and Dad (i.e., parents helping their kids) is the fifth largest lender in Australia during 2020 and is the ninth largest lender by loan volume so far in 2021.

The report found parents contributed on average $89,000 to their children to help them get into the housing market, which was 20 per cent higher than 12 months ago.

That would give you a decent deposit in most places outside of Sydney and Melbourne.

It also found  64 per cent of parents dipped into their own savings to come up with the funds, 34 per cent cut back on expenses and 16 per cent used cash from their home’s equity. Interestingly, 13 per cent delayed their retirement to help their kids out and 4 per cent sold some assets to provide the help.

Perhaps a little concerning is the fact that the bank of Mum and Dad reckon only 55 per cent of their borrowers (i.e. their kids) met their repayments on time. About a fifth, 22 per cent, are meeting the repayments, albeit a little late, and 18 per cent haven’t started yet while 5 per cent are fortunate enough that their parents gifted them the help and don’t expect to be repaid.

For what it’s worth, we’re all for the bank of Mum and Dad helping their kids get a start in life. In fact, we’ve got a bunch of second-generation Custodians who have partnered with their parents using anything from gifted deposits to equity deposits, guarantor loans and joint ventures. 

If you’re thinking about helping the next generation – or you are the next generation wanting some help – hit us up here and we’d be happy to help you get started!

Finally, there was an article this week talking about the housing boom and how many Aussies were taking big profits from flipping renovated properties.

The article talked about a couple who made a $490,000 profit flipping a home they bought in 2018 for $900,000 and sold just this month for $1,391,000.

But is it as lucrative as it sounds?

On the face of it, they bought for $900,000 and sold for $1,391,000 – a $491,000 profit.

But you have to factor in $50,000 in stamp duty, at least $150,000 in renovations according to the photos, and $40,000 in agent fees on the way out – those items add to $240,000 and reduce the profit to $251,000.

You have to pay capital gains tax on that. That means another $60,000, taking the profit down to $191,000. 

Still, a pretty reasonable return.

But then as an investor you have to factor in a period without rent to do the renovations and some holding costs – those items would have to be at least $30,000.

All up my best guess is they have netted about $160,000 in 3 years.

The rate of return would vary depending on how they structured their finances. You would have to think they’d be putting in a 10 per cent deposit, their stamp duty, some purchase costs and the renovation costs – somewhere in the vicinity of $300,000.

For some people that’s a good return on investment, for others it might be a little low to justify all the stress, anxiety and uncertainty of something as all-consuming as a renovation. 

We tend to think you need to know what you’re doing and, regardless, make sure you consider all the ‘below the line’ costs like taxes, holding costs and costs of sale when considering a venture like renovating and flipping.

The other thing worth considering is whether you’d be better off renting the property out and simply using the equity as deposit and costs on another property to grow your portfolio.

Alternatively, if you’re an owner occupier then you avoid the tax and a period without rental income – meaning you make about $250,000. Even better if you’re a builder and can do some of the work yourself.

We talk about these things in a bit more detail in this book and this webinar should you be interested in exploring further.

 

Interested in knowing more? Check out the weekly podcast we do at The Double Shot Podcast.

 

James and Alex