Hi there,
I have been flipping property in NZ full time and have been told that in the Australian market this is virtually impossible because of stamp duty, cap gains tax, income tax and agent fees eating away at the profit margin. So buy reno and sell within a few months is not an option? Just wanted to see if other people are doing it in Brisbane and weather I have been miss-informed
Thanks.
I wouldn't say it's impossible, and there are certainly people that do it. It really depends on how you value your time and what a satisfactory ROI is for you.
Let's say you buy a place for $300K, spend a month and $20K renovating it, and sell it again for $360K (which I would think would be optimistic).
Your costs would be:
stamp duty $9K
REA commission $8K
CGT $3K
Holding costs (3 months) $6K
Profit = 360 – 300 – 20 – 9 – 8 – 3 – 6 = $14KWhilst that may seem like good money for a month's work, your price doesn't have to drop too much below the estimate of $360K before you make nothing, and you also couldn't do one every month unless you have enough money to hold several simultaneously. Too much risk and hard work for too little reward, to my way of thinking. If you hold it and refinance to move on to more properties, it may make for a great long-term investment strategy, but flipping isn't my idea of a fun job. (And flipping is a job, not investing.)
It is possible, but difficult. I haven't done it myself, but some of my clients have purchased propeties considerably under bank valuation – one guy I was talking to this morning paid $180,000 with the value at $250,000. Another purchased for $40,000 for cash with a valuation soon after, for mortgage purposes at $120,000. etc
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
Thanks guys,
I had sort of resigned to the fact that buy and hold was to be the way forward in the Australian market. In the past in NZ it has been common to turn a net profit of 30k on a 300k property by buying well and doing cosmetic make overs then using this as deposit money for buy and hold rentals. The other thing to consider i guess is if you manage to flip 5 properties in a year as opposed to holding them after Reno you would probably get even more out of them by way of capital gain as long as they are purchased in the right locations.
It can be done in Australia, but you must really know your areas correctly, prices, resales val, what buyers want.
Also set up your structure correctly and seek the best tax accountant you can afford.Set up one structure for holding assets, and another for trading.
The money is really made when you buy- as with any country, and what you can create.
We have prob done about 25 in 3 years in OZ, and 8 in NZ. I am in the marketplace 5 days a week solid on the road, on phones, auctions, mortgagees, ads in papers, call agents a few times per week.
Also you must make your offers very strong, solid and quick. Make sure you get a good team of people around you, the best advice possible from builders, and a switched on finance broker that takes action.
We do this as a business and some deals may give a small profit and others a larger one- we look at it all on an overall annualised basis.
You must go emerging areas, high rental demand areas also- so if you cant sell for the margin you need, then you will rent out and hold.
There are people out there doing it I run into them regularly at Bunnings, auctions, paint shops, renovation materials auctions- many are families, dad/ sons, mum/ dad, sisters, mum/ daughter- we love it and have learnt a lot, get to be with each other most days rather than stuck in an office or battling traffic, if we wish to go to the beach or sleep in we can also, and then just work later at night.
Goodluck- and yes it can be done!!!
Thanks Kylie,
That was a great post, sounds like structure and enterty wise things are similar to NZ, but possibly from an asset protection point of view rather then tainting? And its good to know you can still buy well in a rising market!
If you don't mind me asking where are you based?
Regards
Sam.
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