Wholesaling/Flips in Australia??

Hi Allan,

The biggest problem I have come across in my investigations into this is:

Double stamp duty eating up any profit – ie. the stamp duty you pay as buyer and the stamp duty your assignee has to pay. Each state has their subtleties about this, but as I understand it, unless there is the ‘look’ of a single transaction about it, a double stamping rule generally applies.

However, I belive that using options creatively would get around this, and I have good reason to believe they will – but the problem of ‘education’ remains – ie. will your vendors be happy to take up your offer of option when they know you will assign the option? After all, they will be selling you the property at a discount for a quick sale, generally, so using a contract that lets you out of a firm committment could be problematic! Chicken-and-egg stuff, it would seem… ;o)

Also, most states have rules regarding when you ‘become’ more than an investor in a transaction – ie. where does the definition of investor and agent blur? If you are ‘seen’ to be operating as an agent, you require the licencing or you can be breaking the law.

Hope that helps somewhat – I have’t done flips myself as yet, but I love the idea, hence the research.

Jason S

Kindest Regards
Jason S

Well said Jason.

There is some thought that the way around ‘double stamp duty’ is to buy an option over the property rather than the property itself.

So, a theoretical case study might be:

Jason finds a property in the market for $100,000. Looking for a win-win outcome he creates a call option to buy the property at $110,000 with an exercise date 6 months in advance.

The real estate market is booming (or the house increases in value for some other reason) and in five and a half months time the property is now worth $130,000.

Jason’s two choices are:

1. Exercise the option and buy for $110,000, then seek financing based on $130,000. 80% lend on $110,000 ia $88,000. 80% lend on $130,000 is $104,000 – so buy doing this Jason has less cash in the deal.

2. Sell the option for between $110k and $130k and pocket the difference.

There are a few concerns I have with this though…

1. This idea a bit of a legal minefield and I don’t know that anyone has successfully navigated it yet.

2. You may need a real estate agent’s licence to profit from property when you are not the owner.

3. There is no CGT 50% discount as you have held the property <12 months… as such, a large chunk of your profit may be subject to tax.

Please note, having never completed a flip… all I can offer is theory.

Bye,

Steve McKnight

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Remember that success comes from doing things differently.
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Steve

I beleive that you would not need a RE licence if buying and selling options as you would have an equitable interest in the property via ownership of the option.

ps. However, I am not qualified to speak on this matter!

Regards

Terryw

Terryw
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