Building New Houses in New Estates and selling for a profit

HI Everyone

Wondering with all the hype of buying run down cheap properties and flipping them asap to make money if anyone has delved into building new budget style houses in new estates ( ie a cheap build without landscaping so not a turn key property ) My idea would be to live in them for 6-12 months and in that time finish them off ie landscaping etc etc in the hope of selling 12months later on down the track to make some kind of profit. Then I guess you would move on and keep the cycle flowing would probably need enough cash flow to be living in a property whilst building your second property so once you sell you move straight into your next house so always having accomodation in your own residence saving on renting inbetween and the hassle of moving. Just interested to see if anyone has tried this and what their views on it are?

Cheers

 

Edit: sorry thought you wanted to buy unturnkey not build them yourself.

The answer though is you can't do it very often or it will be seen as a profit making scheme - which is what you intend to do - if you want to keep using the primary residence exemption for CGT.

If you intend to do it to make profit and you repeat it to keep making profit then you pay CGT.

 

1 it won’t be cgt free after the first. As you are buying to make a profit.
2 not much saving in landscaping
3 where are you going to live between builds.
4 profits will be eaten by stamp duty and agents commission on each house
5 in a stagnant/falling market you could lose on the project
6 hard to finance a house not finished to councils requirements.

 

I will do all the landscaping myself. In nsw dont you just pay stamp duty on the land and if its a new build no stamp duty is payable. I would be living in the premises whilst finishing it off so basically it would be my PPOR I thought when you sell your PPOR you pay no capital gains tax or am I wrong?

 

You pay no cgt if you own it longer than 12 months. But not if it’s a regular deal ( ie you flip the house) even if you live in each house 12 months. Yes stamp duty only on land in your case. I wasn’t clear on how you would buy the land.

 

So if its a regular thing they make you pay capital gains tax I fail to see how this is fair if you live in each house longer than 12 months

 

Well you said 6-12mths so it would be soon on the radar of the ATO if you keep doing it.

 

Google ato and capital gains tax you will see they mention the word flip on the ato site.

 

The trouble with your plan is there is lots of competition from new houses in the same area that 'seem' cheaper most people buying new houses don't think about site costs, landscaping costs etc, etc, until after they are committed.

Also the display homes, which will be close by, with all their extras will make your basic house look fairly ordinary.

 

There is an overriding section of the Tax Act that states roughly that if the ATO believes any financial arrangement is designed simply to save tax then any profit IS taxable.

I reckon moving house every 12 months would be caught in that net, unless you could prove a very good reason for such frequent moves. And more difficult if the moves were within the same geographical area.
Marg

 

CGT won't apply as you will be doing this with the aim of selling for a profit. They will be trading stock and taxed on revenue account.
Don't forget GST too.

 

There is no 12 month rule for CGT like this, you might be thinking of the 50% CGT discount for assets held longer than 12 months. But this only applies to assets on capital account.

 

Of course you are exactly right, it becomes a business venture and taxed at your marginal rate.

 

In these new housing subdivisions, I dare say a large proportion of that market want to build their own house through a project home builder to suit there needs and aesthetic preferences. You have to ask, why would they want to buy your property when they could buy a vacant block of land in the same subdivision and build their own dream home for probably a similar price?

 

You would be suprised im in a fairly new estate at the moment and in my street about 15 houses about 4-5 are owner occupier the rest are project homes done by a certain builder and in the 3 years I have lived here have watched the investment properties change hands more than I thought possible. Still plenty of blocks for sale and building happening in the estate also. I think investors may just be to lazy and snap them up for investment properties plus you have the lag of 9-12 months building which is money tied up if your ready to invest. I did all the landscaping on our house and just finished off some basic things inside to save money. I have a rough idea on what all the investment properties across the road are worth as the builder I went with built them all and they fetch a suprisingly ok price. Our house has a few upgrades and is a bit bigger floorplan. The house and land packages are so basic these days the landscaping basically consists of 1 cheap as chips letterbox 1 plant out the front cheap fencing a cheap clothes line and cheap kikuyu grass turn key package if you love basicness.

Most of the IP across the road go for around 490 to 530K to build a similar kind of house in the estate on similar land size your looking at 470K unlandscaped probably just seems easier to snap up an already built one and start getting rent from day dot.