Advice On Flipping Property and Investing as Main Source Of Income

Discussion in 'Investment Strategy' started by Cherrychan, 26th Apr, 2019.

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  1. Cherrychan

    Cherrychan Active Member

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    Hi all, I've been flipping property for a few years and doing really well. I make 3 times more from a flip than my full time job and am only working in order to satisfy the banks requirements in order to get home loans for each property.

    Unfortunately my full time job is slowing me down and I'm losing money by wasting time being employed in a full time position when I could be dedicating more time to flipping and property investment.

    What strategies have people in a similar situation used to move on from having to work for payslips and concentrate on property flipping/development and investment as their main source of income and still satisfy the banks requirements for loan applications?

    Thanks in advance for any advice and input.
     
  2. Sackie

    Sackie Well-Known Member

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    If you're looking to borrow money from a bank then there is no way around 'payslips' aka a job . You will need some sort of serviceability relative to the amount you want to borrow and your current debt will also be taken into account.

    Other ways to go about it are Jvs, where someone else provides the serviceability. The other obvious option - self funding projects . Also private lenders but youll pay through your teeth.

    I'm curious what kind of flipping you do and where if you'd like to share.
     
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  3. Scott No Mates

    Scott No Mates Well-Known Member

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    Now that the Sydney & Melbourne markets are heading south, is there any real money to be made in a flip?

    Is Perth turning the corner and presenting buying opportunities?

    Has Hobart topped out?

    Brisbane gathered any steam?
     
  4. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    The banks won't like it if your only source of income is coming from 'flipping' properties. But there are potential ways to recharacterise this income through companies and trusts.
     
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  5. Rolf Latham

    Rolf Latham Inciteful (sic) Staff Member Business Plus Member

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    And shield income type through lo and alt doc loans

    ta
    rolf
     
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  6. Westminster

    Westminster Tigress at Tiger Developments Business Member

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    Are you doing it in your personal name?
    Before I left my fulltime job I set up my structure with a Trust so that my developments would be owned and done in the trust and that would be seen as Trust income by the banks. Generally you'd need 2yrs tax returns for the trust for banks to consider it income but as Rolf mentioned there are also some lo doc loans which might also work.
    Congrats on making three times your normal salary on a flip. That is amazing! What area are you flipping in?
     
  7. Sackie

    Sackie Well-Known Member

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    Tis the 64 million dollar question.
     
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  8. Scott No Mates

    Scott No Mates Well-Known Member

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    Stamp duty alone on that will be horrendous.
     
  9. Beano

    Beano Well-Known Member

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    In that case we will shift the $64m question to NZ where there is no stamp duty :)
     
  10. TMNT

    TMNT Well-Known Member

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    any chance you could reveal a few figures (without revealing locations)

    eg purchase price, renos, sale price, holding time frame, type of reno
     
  11. KinG3o0o

    KinG3o0o Well-Known Member

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    for the same year ?
     
  12. diagnostic

    diagnostic Well-Known Member

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    taxable income would be high as well with a salary and 3x salary for that year.... some accounting structures here may be beneficial as above posts have mentioned?
     
  13. Cherrychan

    Cherrychan Active Member

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    Yes, I am doing it in my personal name as they have been my PPOR which has helped contribute to my high returns.There has been other factors too. I complete all reno work myself except where it is legally required to have a licenced tradesman. I lowball and purchase distressed properties using the old cliche of buying the worst house in the best streets. I don't want to give too much info away but I'm in a regional area which has been way undervalued for many years and is only now starting to plateau after a decade of booming, though renovated properties still gain top price and there is also a housing shortage in the area. As I'm in a regional area the home loans, repayments etc are all tiny compared to those of the major cities which makes it all so much more affordable with good returns still, for me anyway.

    Please bare with me, I'm only just now researching trusts and have no idea. I will seek professional advice once I understand how a trust may work for me in my situation. I think what you describe may be what I'm after. I just don't understand how I can get a trust to start generating income and get away from full time employment so I can concentrate on property investment. If I was to purchase a property, place it in a trust, flip, earn an income, rinse and repeat for two financial years would I then have enough income generation to use the trust as my main source of income to purchase further properties for investment, either hold, build units and flip other properties?

    Thanks for everyone's advice and input so far! I'm determined to get away from being a salary slave and giving my full time and attention to property investment as it's been so rewarding, not just financially, but I really enjoy renovating properties and creating beautiful homes from neglected properties.
     
  14. Cherrychan

    Cherrychan Active Member

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    Hi TMNT, as I stated in my last post I'm in a regional area that has been showing great growth over the last 10 years. It was really undervalued and is only just starting to plateau a little recently, but that is part of the cycle for this area as I have observed for over 10 years. Properties have NEVER lost value, only stagnated then boomed again. Renovated properties always make massive profits and there is a housing shortage. I actually am hoping it will stay stagnated for a while or even drop in value a little, as it would keep purchasing and loan costs down etc.

    Purchase prices are very low. I buy distressed properties in fairly good areas and lowball hard. I do live in them as I renovate and stay around a year or two at max. The time doesn't affect the final price though generally, I can still easily make a years worth of my current wage after a 3 month reno. Generally I double the purchase price, at worse I add another 80K of value. I do ALL the reno work myself, landscaping, roof spraying, interior painting etc except for what is legally required to be completed by a licenced professional, eg. electrical. Type of reno is mostly cosmetic, though I do gut and rebuild kitchens and bathrooms. I don't do additions to the houses etc but do remove walls to open up living areas.

    For my next investment I am planning on buying a property with a large yard that I can build units in on top of doing a reno.

    I really hope I can figure out a way to get get away from my full time job and concentrate on property. I might even just move to a part time position.
     
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  15. Westminster

    Westminster Tigress at Tiger Developments Business Member

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    The downside of moving to a trust structure for you will be that you won't be able to do these capital gains free anymore as they won't be your PPOR. However there will be a lot of items you can claim which will reduce the tax paid on the profit.
    I'm not an accountant but I'll try an explain it so it make sense to you. You set up Trust A with a trustee. You are director of Trust A. When it goes to purchase a property the bank can ask for a Directors guarantee and you can use your income to help provide that security. You do the renovation, sell, pay tax on profit and then buy next one. After awhile the bank may not need a Directors guarantee as it can see lump sums and income in Trust accounts that show it can service its own debts then you can quit day job.

    From the ATOs perspective there is only so many flips you can do in your personal name before they see the pattern and decide you are doing it for income/profit not an isolated renovation to improve your own home. So it's probably time to get some advice about how to go forwards.
     
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  16. Willy

    Willy Well-Known Member

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    How much value would you be adding if you paid tradesmen to do all the work?

    There's a difference between adding value and creating yourself a job. If your hands on involvement to cut out tradies is the key to your returns then you're just tying yourself to another job in a way.

    Which is fine if that's what you'd rather be doing.

    Willy
     
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  17. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    The situation wouldn't be CGT free if done in the personal name either because this is on revenue account and the main residence exemption wouldn't apply. However, some may fall through the cracks initially.

    You can't be a director of a trust, only of a company. You mean a company would be set up with you as director, the company would then become trustee of a trust. The company borrows money from a bank using the property as security with the director giving a personal guarantee. Personal guarantees will always be needed when borrowing from a bank, even where all the income is coming from the trust and there is no other income.

    The main reason behind the trust in this situation is to try and disguise the income. If a bank knows you are buying and selling and generating income from this they either won't lend or will only do so under commercial loans.
     
  18. Cherrychan

    Cherrychan Active Member

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    So are you saying that any disbursements from the trust couldn't be treated as an income to satisfy the banks requirements to gain home loans? i.e I receive a disbursements equal to my yearly salary from the trust each financial year and then go as guarantor? Or am I still going to have to have a full time job? So I might have to establish a development company or something similar? I don't mind paying tax. I will still earn enough to live on comfortably paying capital gains though of course I'd like to reduce the amount I pay but I do want everything above board and legal. My main purpose as stated is to get away from working for someone else and concentrate on my own business.

    Thanks again everyone for your advice and input.
     
  19. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    normally only income could be seen as income and not disbursements.
    If the income is from the sale of property then they are not going to count this under residential lending as it is seen as a one off.
    But this could be disguised...

    You won't be paying CGT, but income tax.
     
  20. Cherrychan

    Cherrychan Active Member

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    Disguised. That's interesting. I was thinking when I sold my next PPOR I could funnel the money through the trust for two years as an income, but then I'd have to show where or how this income was being generated? I'd love to hear more about how this could be disguised, whether you want to PM me or comment on here further. Thanks for your help.