Corrected at 1730 to adjust (upward) the renovation figure. Many thanks, Steven Shaw for pointing out my error.


Toby Johnstone is out again in the SMH recording how two brothers wasted nearly two years of their lives and endless toil renovating a Cleveland Street Chippendale terrace. It sounds like a profitable venture but even a cursory inspection tells a different story.

Let’s go straight to the numbers.

*Assumptions: ‘late 2010’ is set at 30/9/10; selling agent and advertising is 3% of sale; interest is calculated at 7.5% pa on the whole outgoings ($916,315) save agent costs at the end, for 18 months.

* Disregards: Land tax; building permits; property selection; labor contribution of the flipper couple; legal costs.

It can be argued my interest calculation is altogether too sweeping, that outgoings would be in stages: deposit, settlement and building costs would accrue progressively.

I seek to put a figure on the ‘opportunity cost’, the price one pays for undertaking this project rather than another. The story says one brother works in corporate finance and the other has a small building company. Both undoubtedly made significant non-cash contributions to the project. However – a big however – this skilled labor needs to be accounted for as part of that high interest expense. The brothers would have stumped up cash or guaranteed loans, and were obliged to stand behind the substantial cost overruns. A mere 7.5% pa interest cost on all this is a gross understatement.

So, two years and $100,000 down the gurgler.

Almost anything the Pearce lads could have done instead would have been more rewarding than this.

Don’t Buy Now!