I have 2 questions if anyone could answer them for me,
1: with all the stories of real deals in the book about people aquiring property and renovating then selling or renovating and subdividing then selling, wouldn’t they have then been hit with capital gains tax? also I noticed some people were flipping them within 3 months. You wouldnt then be entilted to the capital gains discount which would eat away a massive chunk of your profit?
2: How do these fulltime investors receive bank loans or mortgages on their investments to aquire the property’s if they don’t have jobs to show they can service the repayments? or possible repayments? how would you get the bank to lend you any money to buy a property with no job?
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This topic was modified 6 years, 10 months ago by
Ryan.
1. Correct – the tax environment in Australia isn’t conducive to property flipping in general due to the significant erosion in net profit from government charges and CGT etc.
Some people still get caught up in it after watching TV shows promoting the strategy, but they generally gloss over a lot of the important total cost figures to show the actual return.
2. They either A) have a job elsewhere to help them qualify for the loans or B) have been doing it for a number of years running it through a business structure to show the ongoing income. Generally banks will want to see circa 2 financial years worth of business returns to assess income, however by exception some will look at ~ 12 months.
Corey Batt | Precision Funding
http://www.precisionfunding.com.au
Email Me | Phone MeInvestment Focused Finance Strategist - servicing Australia-wide
G’day Ryan.
1/ If you purchase real estate with the intention of trading it then your profits are captured as ‘ordinary income’, rather than ‘capital gains income’. So if you buy a property with the aim of sub-dividing it and selling it, and you make a $100,000 in 15 months, then even though it is > 12 months, given your intention when purchasing it, the profit will needed to be added to your assessable income in its entirety as trading income. No CGT. The amount of tax you will pay will depend on the marginal tax rate applicable to the entity that purchased the property. Remember this: Be careful not to let the tax tail wag the investing dog.
2/ Having a job goes hand-in-hand with qualifying for a loan for investment purposes. This is the catch-22 of investing: you want to invest so you don’t need a job, but you need a job to qualify for a loan to buy an investment property. Managing the two is a reality for everyone. If you don’t have a job then you need to use private money lenders and/or JV partners.
Bye,
– Steve
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This reply was modified 6 years, 10 months ago by Steve McKnight.
Steve McKnight | PropertyInvesting.com Pty Ltd | CEO
https://www.propertyinvesting.comSuccess comes from doing things differently
Hi Steve,
Thanks for that. This will probably sound like a silly question but I’m new to the investing world. Can you please explain to me what trading a property means? I’m just a little lost on what you actually mean there.
Regards,
Ryan.Sure. Trading is when you buy with an intention to sell. Investing is when you buy with the intention of holding. That’s not to say you won’t sell, but rather you are not buying with the intention of fixing then selling in a short or medium time frame.
– Steve
Steve McKnight | PropertyInvesting.com Pty Ltd | CEO
https://www.propertyinvesting.comSuccess comes from doing things differently
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This topic was modified 6 years, 10 months ago by
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