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Flipping Properties

Discussion in 'Real Estate' started by Brendan, 14th Mar, 2008.

  1. Brendan

    Brendan Member

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    Hey guys, I am currently in the UK and the property development game is very ripe and there appears to be lots of people making lots of money, even in this stale - falling market.

    Ideally when I am back in oz I would like to try my hand at flipping a few properties, but after doing some figures, it doesn't seem as easy as in the UK.. primarily due to the fact our Stamp Duty costs are extremely high.

    Apart from buying a very undervalued property and cheaply renovating it to add value, the stamp duty costs make it extremely hard to turn a profit on even the most basic of developments.

    Maybe I need to think outside the box a little bit, but is there any way to offset the stamp duty cost when flipping properties, or be able to factor it into the development?

    Would love to hear your thoughts.
     
  2. Billv

    Billv Getting there

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    Brendan,
    In a rising market you can make good money.
    I don't know how to get around the stamp duty issue.
    I think the states promised to remove it but I don't know if they will go down that path.
    Cheers
     
  3. samaka

    samaka Well-Known Member

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    Get an Aussie girlfriend and get her to claim the FHOG - no stamp duty plus $7k cash. :)
     
  4. voigtstr

    voigtstr Well-Known Member

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    well you can do that once....
     
  5. samaka

    samaka Well-Known Member

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    Once per girlfriend!
     
  6. Brendan

    Brendan Member

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    I have already done that! I have used the FHOG on my first property... and made the crazy mistake of going 50/50 with another first home buyer so we can't use hers again :(

    I am still interested in trying to flip a few properties.. lets do some figures..

    Purchase Price: $200k
    Renovation Costs: $7500
    Legals & Stamp Duty: $10k
    Total Cost: $217,500

    Aim to sell for $230,000
    Profit of $12,500

    It all sounds a little to easy.. am I missing something? Do we have to pay CGT on the profit made?

    Can anyone else offer any advice?
     
  7. TryHard

    TryHard Well-Known Member

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    Looks good on paper :)

    but to be the pessimist ...

    Purchase Price: $200k
    Expected Renovation Costs: $7500
    Plus unexpected replacement of "x" and "y" - $1,000
    Blow out on electrical due to dangerous wiring not found at inspection, rewire switch box, replace main - $1,500
    Replace faulty gas HWS - $800 plus fitting $300
    Legals & Stamp Duty: $10k
    Total Cost: $221,100

    Aim to sell for $230,000
    Have to take $226,500 as best market will offer, too much else on market

    Profit of $5,400

    Less :

    a) less the cost of holding the property while renovating (finance establishment and interest costs), less
    b) Capital Gains Tax (full rate as no discount applies held less than 12 months)
    c) opportunity cost of whatever else you could have been doing to earn a dollar for the 8-10 weeks of mucking around

    Not sure its the best market to do quick reno in but maybe it depends what market you're in ?
     
  8. Saskatoon

    Saskatoon Well-Known Member

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  9. Brendan

    Brendan Member

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    Tryhard,

    Thanks I knew I should have added in contingency etc.. but was keeping it bare bones.. I guess I'll have to really do the figures properly when I am ready to get things rolling, thanks for the heads up!


    Saskatoon,

    I have read a few mixed responses about Rick Otton.. have you had any personal dealings with his company or the courses he offers? Have you had any success at all using his strategies?

    From the outset and what I have heard he just seems to be another spruiker who is offering the 'secrets' to wealth.

    If you have a personal recommendation and success from what you learnt from him I would love to hear it.
     
  10. TryHard

    TryHard Well-Known Member

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    Hi Brendan - I'm probably getting a bit risk averse in my old age :) so excuse the old sky is falling approach ;-)

    I have heard of a guy who did purchases of 2 bed units at Woodridge for $60K (pre boom, I guess this was 96 ish) and had a standard reno plan -

    a) repaint throughout (cheap and nasty using existing carpets as drop sheets)
    b) change all doors for flash panel type in gloss paint with new door hardware
    c) swap out cistern and pan for full porcelain (budget) dunny
    d) new stove in kit
    e) new carpets to replace the drop sheets

    Would take 2-3 weeks and a couple of ute trips. He would re-list at $110K and consistently achieve high $90's. The market at the time was first home owner, dare I say lazy and uninspired, and he capitalised on their naivety. Basically he used it to earn 4 or 5 times a trades income even after CGT etc.

    Don't think the current market anywhere supports such a profiteering approach, 'cos everyone knows property can be a goldmine in the right circumstances, even if they've been living under a rock :) My worry with such a project now, other than the much skinnier profit margins, would be how much competitor product might get dumped on the market when you're ready to sell.

    Anyway, its all fun :) I just tendered for a property we can't really afford which will just about finish me for a reno if we get it ;) So I really can't talk

    :D
     
  11. Saskatoon

    Saskatoon Well-Known Member

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    Hi Brendan, I'll clarify that I only meant to suggest Rick Otton as an ideas source. I did attend an early presentation (free?) of his some years ago, and spoke to him afterwards. The strategy of 'rent-to-buy' he was advocating at the time was legal in NSW & Vic, but not in SA, so I didn't proceed. As I remember, one didn't have to invest through his business, but of course that was the idea! Sorry, but I don't have any first-hand positive or negative stories.
    The 'sandwich' lease-option strategy that he is now promoting sprang to mind when I read your initial post.
    If you haven't already checked, there have been lots of threads on the Somersoft forum dealing with 'innovative techniques'.
    Terry
     
    Last edited by a moderator: 20th Mar, 2008
  12. reidy75

    reidy75 Member

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    Also need to factor in selling costs (agents fees, advertising, legals). And as you mentioned, tax. And as someone else mentioned, holding costs - you'd be looking at over $1k per month in interest/opportunity cost, so even if you had it back on the market and a purchaser found very quickly, you've probably got $3k interest expense as a minimum. Selling costs probably $5k??, so you're down to $4.5k profit, less tax, maybe you keep $3k??

    You'd want to be realistically expecting a much larger gain to make the risk worthwhile.