Can you conduct a BOE?

A fast back-of-the-envelope (BOE) calculation can help investors decide whether to proceed with a potential property renovation project or whether to walk away

A BOE will quickly show you if there's money to be made from an investment, or if you've entered a no go zone - that the property you're looking at is never going to make money.

Some of our best deals are those we've walked away from thanks to the BOE.
So what should you include in your BOE?
First, you need to work out the cost of buying and renovating the property. We advocate that your renovation costs should be less than 10 per cent of the purchase price.

When calculating costs, make sure you include stamp duties, insurance, bank interest during the renovation, contingencies in case of delays and marketing costs if you intend to sell when you're finished. In the latter case, you should also make allowances for tax.

You then plan what you'll do with the property. Let's say you'll add value by creating an extra bedroom under the existing roofline. You'll polish the floors, paint inside and out, replace the kitchen and re-tile the bathroom.

With that in mind, research the value of properties in the area of comparable standard to the project you intend to complete.

The BOE will tell you if you're buying a renovator or a ruin-maker..

Download my Property Analysis Tool for more detailed cashflow analysis.