Hi guys..I need some answers.
I want to try it at value adding, but have a few concerns that I hope some of you can clear up for me:
1) Markets- Sure, in a down market with few buyers a good price can be negotiated. However, say I wanted to renovate for profit and do the whole thing within a couple of months ( market being unchanged), I’m now on the other side of the coin and therefore might have to settle for a lower price because noone is interested in my pretty renovated property due to market conditions in the area.
Possible Solution ? Is it true that markets can vary significantly between states (e.g Frenzy in WA and slow in NSW). Also, can markets vary significantly within a state (e.g slow in central coast, but growth in dubbo/orange) ? Follow the market for value adding ? Is this strategy strictly dependent on market conditions ?
2) Tax- If selling within 12 months, I’m subject to full CGT. Is there a way around this (besides not selling and just refinancing to unlock the equity)…I want CASH [biggrin].
3) To test the market-I would go to auctions, speak with agents plus locals, drive around the area to see how many “for sale” “for lease” signs are up, compare prices etc. Personally, how do you guys test the market in a particular area ?
My biggest concern at this point is: Say I negotiate a great price, long settlement, and everything gets done on time and budget, but then only to find that once we place the property for sale noone is interested because noone is buying. Leaving me with huge interest and renovation bills. It’s kind of a “catch 22” isn’t it ?
From what I gather so far, its all up to how I structure the deal- really low price, really long settlement with early access, which to me, sounds kind of daunting as I share Steve’s view in creating win-win outcomes.
Suggestion, advice and personal experience and knowledge are much appreciated. Thanks in advance.
Arthur. K
Hi
Hopefully someone with more experience will answer your other questions, but with regards to tax on sale if you are renovating and selling within 12 months, there is no way around this. To get around this is called Tax Evasion and is very illegal.
You can structure it to minimise your tax by purchasing and operating through a trust or company. Best to see an adviser who has a full understanding of all your circumstances, ie marital status, income, etc.
If you make money through an investment or business venture there is nothing wrong with paying your legally required amount of tax.
Maybe think of moving into a property, living there as your PPOR, with no intention to sell unless the value of the property is too good to refuse. Then perhaps you may do the same thing again.I appreciate the time taken out to post a reply to my question. Just so that we are on the same page..I believe in and am happy to pay my due amount of tax…but if the tax eats away from the profit margin to the point where it becomes unfeasable to undertake the project…you know the rest. Lets just re-phrase ..”way around this” to “how can I minimise my tax bill”.
Cheers,
Arthur. K
mate there is no legitimate way to “minimise” tax in this scenario.
If you sell the place your taxable income is going to be:
Sale price – sale costs – purchase price – purchase costs – holding costs – renovation costs.
Your net profit will be the profit from the above – tax paid. You just have to treat tax as a cost. If you are on a high tax bracket, you may look at the option of putting the property in your partner’s name if they are on a lower income, or doing it through a company which will pay 30% tax, but then you have to get the money out of the company.
however…Maybe think of moving into a property, living there as your PPOR, with no intention to sell unless the value of the property is too good to refuse. Then perhaps you may do the same thing again.
Please read that last bit thoroughly, as it may give a possiblity of not paying any tax on the thing at all. possibly.I beleive you should always look at using trusts. If you had a trust set up, then you will always have the option of distributing the profit to the lowest income earner, and reduce tax that way. With a trust you can change the distributions each year as people’s taxable incomes change. And as a last resort you could always have the option of distributing to a company and capping the tax rate at 30%.
Terryw
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Hi Arthur
I have just launched my new business buying, renovating and selling apartments. I started it to cover my part time wages, work less hours and have less stress of idiot bosses.
I quit work and put an offer on my 1st property the next day. they had just signed up a new teneant, as I didnot want one I put an offer in matching their price with a 6 month settlement date. It was accepted. [biggrin] I then went and put an offer in on another with a 21 day settlement ( I had already established and equity line on our home so I had cash)
It settled 4/6/06 sold 24/8/06. I did all the work my self except plumbing/electrical. I also went on holidays fro 2 week during this
I have finished the reno and it took 2 weeks to sell with a profit (job profit of 30000.00 net after admin $25000.00 .
the one with the long settlement has already increased in value by a least 30000 [biggrin][biggrin][biggrin][biggrin][biggrin] I originally planned to make 20-30000 a year guess I am well on track
the 1st one I put an offer on settles monday.
I treat this as a business I set up a discretionery trust and I operate as a construction business (not company), I can draw wages equivalent to my part time job and will make contributions to super of about 30000.00 per year any thing left over gets distributed to any one I want.
One thing to check b4 you decide on what reno to do – to much reno can make the porperty a new property and subject to GST.
celeste
[Arthur K,
if you want cash and don’t want to settle for 12 months to pay only 1/2 CGT (if you don’t want to move in as your PPOR) you could consisder a put and call option. Say after 6 months you have finished the reno but don’t want to sell it until 12 months to pay CGT on half the profit, BUT WANT CASH NOW. If you are satisfied that it isn’t a rising market, or you are happy with the price you can get, you can enter a put & call option with an option fee. The option fee gives you CASH NOW. The put & call option is like an option which binds both parties -ie if the purchaser doesn’t exercise their option to buy, you can exercise your option to sell to them. JolieHi,
On the CGT issue: I do renos and spec build mainly and incur no CGT. I have an ABN and I am GST registered. I have no other “job”. Basically, any profits made from the renos are treated as income – and not as capital gain. My accountant basically told me that it is all to do with your initial intention. If you buy the property as an investment – say to rent it out – then you will get whacked with CGT. If you buy it to create an income then it comes under the income tax regime.
Your best route is to go and see an accountant who is familiar with property tax – and most aren’t so get a recomendation from another investor.
At the end of the day, it is all going to come down to your personal situation – so buy some advice.
Andy
hi
please help…..can anyone suggest a good accountant in perth – that understands property.
I have just resigned from a well paying job and hope to buy/renovate properties. I am interested to know more about how to structure this ie as income.
WE have a preapproved loan for investment purposes – does that mean we can not live in the house – ever. How do we structure the purchase so it is an investment – as we would like to renovate and live in for some short amount of time.
thanks
simoneHi all
It seems “chpropdev” has the same set up as me. You can do both under this set up. I do the buy, reno, sell (income) and I have one rented out for the 12 + months(investment).
My hold was a long settlement and the tenant still had 2 mths on their lease so I left them in there, when they move, I have my hubbies oldest step daughter moving in to rent. (So of course my intention when I purchased was as an investment,[wink2][wink2] that I just happened to reno later and sell.)
Celeste
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