Arty brought this idea to my attention today..I knew what it was…I just hadnt thought about it before.
Now Im thinking about it….because I see alot of dog boxes on the market that with just a little TLC can be worth much more! (in our household, a “dogbox” means the house is run down falling apart unlived in and overgrown….LOL)
How much more risk is involved with “flipping” the property? Do you have to hold the property for a certain amount of time? Is it a tax trap that bites you when youre not expecting it? Most of all Id like to know……how much trouble are you in if you cant find a new buyer?
Is this a thing, as a new investor, I should steer clear of? Any good or bad advice would be much welcomed [8D]
:þ
Pinky, it depends on what you want to achieve.
A ‘flip’ involves securing a property for a value (preferably a good discount on valuation) and then onselling it before you have to settle for a profit – taking into consideration stamp duties, solicitors, agents fees etc. If you cannot find a buyer, you have to settle on it, so you need to make sure you have the capacity to do that.
This technique is where a lot of people are getting into trouble. They are securing properties off the plan, with the intention to sell them before completion at a profit. When they find that a. they can’t find a buyer and b. they’re not worth what they paid for them, they’re in trouble because they need to finance them, and come up with a whole chunk of money to do so.
If you are planning on doing a tidy up and onselling, then there are several things you need to look out for. One good idea is to have a buyer lined up first, thus ensuring a sale. If you do not wish to settle it yourself, you would need to negotiate with the seller for access to the property prior to settlement to undertake the reno, and to show potential ‘occupants’.
Another strategy is to secure the property using an Option, which you can then onsell to the person who will sign the contract, and there is no stamp duty payable by you.
If you are handy, this is an option for you. I would recommend as a new investor that a good way to build your portfolio is something that Peter Spann calls leapfrogging. That is to buy this house that needs a clean up, settle on it, clean it up, and refinance to give you enough money to purchase the next one.
Be aware though that a lot of houses these days are going for a higher price ‘unrenovated’ than those that have had the money spent on them. Give the market a while to calm down, and then this could be an excellent strategy. the other benefit is that the rental on your renovated property is increased, and should make a far better return on outlaid capital.
This is long, I’m stopping now.
Cheers
Mel
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