Buy and sell in 12 months - Is this crazy enough to work?

Discussion in 'Investment Strategy' started by Rex123, 8th Jan, 2019.

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  1. Rex123

    Rex123 New Member

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    Hi all,

    I am wondering your thoughts on this weird situation. I have the chance to access a $20k payment though a work opportunity that may only be accessed for the purchase of a new home. I am also eligible to receive the QLD FHOG of 15k, and won’t be stung with stamp duty.

    I am late 20’s, no debt, never purchased a home, 70k in savings, Brisbane area. Heres the thing, I am not looking to invest in real estate as I have my sights set on the share market which is where I am looking to park my 70k in savings very soon.

    Now my dilemma is this - does it make any sense financially to take advantage of the 35k, purchase a home and live in it for 12 months (plus renting out a room if it is more then a one bedder), then sell after I have satisfied the the 12 month requirement? Or am i playing with fire?

    Thanks in advance!
     
  2. Shogun

    Shogun Well-Known Member

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    I am voting fire but keen to see what wiser people say.
     
  3. Propertunity

    Propertunity Exclusive Real Estate Buyers Agent Business Member

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    Buying and selling within 12 months and expecting a profit is unrealistic for an investment vehicle like residential real estate which has traditionally been seen as operating on a 7-12 year cycle.
     
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  4. albanga

    albanga Well-Known Member

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    Could you please explain more about this 20k?
    Is it like a bonus that can only be used for real estate? Or is it something you need to pay back?

    If pay back then definitely Not. I see no advantage in doing this as you will burn your FHB and even if you did make a small capital gain then any profit would be lost in selling costs, moving .etc

    If however it’s not something you need to pay back then it could be worth it. Basically your purchase costs would only be 1-2k because of the FHB and pending the purchase amount you wouldnt have LMI.
    I am unsure how much rent you pay but you may save on rent and as suggested if you could rent a room then you would be further ahead on cash flow than your current situation.

    Then after 1 year IF you still didn’t like the idea of real estate (I think you may change your mind) then you could sell it. Even if their is 0% growth you would still have the equity of the free 20k. Their may even be some small growth in Brisbane.
    After selling costs and then tax you could potentially walk away with 10-15k net profit.

    It’s not a huge profit and ofcourse if the market declines then you may make nothing or even lose money. But free money definitely needs to be considered.
     
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  5. New Town

    New Town Well-Known Member

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    Transaction costs ie stamp duty, sales commission and capital gains tax would likely evaporate all the free money.

    But I would do it myself because I can't say no to free money

    The likely outcome is that you stay there for more than a year which is probably better
     
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  6. Shogun

    Shogun Well-Known Member

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    You only get the first home buyers exception once. So to get max benefit house purchased would need to be just below cut off level? Other wise there might be a future loss
     
  7. Terry_w

    Terry_w Broker, Lawyer, Tax advisor, Debt Recycle advisor Business Member

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    Yes it is a good strategy if you can find the right property and add value. I had a client who did this and made a quick $50k
     
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  8. Gockie

    Gockie Problem solver Premium Member

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    I think the OP is taking a huge gamble. My sister used her FHB Grant to buy a cheapie in a Wagga suburb. No capital gains made in about 7 years and she also went for periods without tenants.

    Selling is a difficult and a drawn out process and you mightn't resell as strongly as you hoped. And thinking that a profit will be made after 1 year is not something i'd bank on.

    As it's new I can't see you doing any value adds to the home apart from establishing a nice garden.
     
    Last edited: 8th Jan, 2019
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  9. evalord

    evalord Well-Known Member

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    Why not just be happy with the $20k? You're already ahead by $20k for doing nothing.
     
  10. John_BridgeToBricks

    John_BridgeToBricks Buyer's Agent Business Member

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    Playing with fire.

    Flipping is a risky strategy, and only experienced guys can make it work. Typically real estate is not the sort of asset that has a 1 year time frame.

    You should still think about real estate with your money though and would be a safer bet than stocks in this environment. You have to live somewhere as well.
     
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  11. Rex123

    Rex123 New Member

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    Thanks for the comments gents!

    The 20k does not need to be paid back as long as I live in the property for 12 months. So if the property does not rise in value in 12 months, that’s no problem as I’m ahead 35k from day 1 (20k, plus 15k FHOG, plus no stamp duty)

    I just wonder if this 35k would bleed down to nothing in that timeframe considering additional costs involved - interest, rates, etc.

    But keep in mind, in those 12 months I would be paying into it instead of paying rent, plus renting out a room potentially...
     
  12. Terry_w

    Terry_w Broker, Lawyer, Tax advisor, Debt Recycle advisor Business Member

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    Run the numbers
     
  13. wylie

    wylie Moderator Staff Member

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    How much rent are you paying now? How much would repayments be on the house you buy?
     
  14. hammer

    hammer Well-Known Member

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    Where do you live now? If you're renting, will you be better off with a PPOR?

    I'd be doing the math on a long term, (cheap) PPOR to see how it stacks up.

    If things look ok in a long term situation then if you decide to flip it after a year and it doesn't work out you won't be any worse off.
     
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  15. kierank

    kierank Well-Known Member

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    ... and ladies!!!!
     
  16. willair

    willair Well-Known Member Premium Member

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    quote..
    I am late 20’s, no debt, never purchased a home, 70k in savings, Brisbane area. Heres the thing, I am not looking to invest in real estate as I have my sights set on the share market which is where I am looking to park my 70k in savings very soon.

    What companies do you think you will invest the 70k in..That would have bought over 1000 units in CBA just a short time ago --returning over 9% ..But as you have 2 choices and it's your 70k then read all you can within this site,and join commsec --not advice in any way..
     
  17. Codie

    Codie Well-Known Member

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    IMO nothing wrong with the strategy at all.

    The issue lies with the FHG being for a “new” home, and most the places where your deposit/budget will allow is buying in estates where land supply is still huge and in the 12 months time, may only be 1 stage ahead with land prices $5k higher..

    If your were purchasing a block middle/inner ring Brisbane & using the FHG to build a new house in a good suburb, then I’ve seen good $$ made this way. But your looking at $500k for the block alone and $350k - $400k for a decent build.
     
  18. John_BridgeToBricks

    John_BridgeToBricks Buyer's Agent Business Member

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    As Terry says above, "Run the numbers".

    As part of this process, I would also suggest doing a 5 and 10 year forecast which compares buying/holding to flipping. Ie what is the opportunity cost to you of $15k-$35k in 1 year, vs potentially say $350k in equity in 10 years. This is the real question that only you can answer, IMHO.
     
  19. Brendon

    Brendon Well-Known Member

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    From a longer term point of view once you've lived in the property for 12 months it remains CGT free for 6 years. So after your initial 12 months you've got the option of renting out for a period of time.
    If the property goes up in value you've also got the option of taking a loan against the house to put into shares.

    I did a similar thing around 7 years ago, although I only got no stamp duty. I figured I'd only lose selling costs if I had to sell and if I could keep it I might make some money on it. It didn't really move in price for 5 years but then went up almost 50% in 2 years.

    Personally I think once you move in and get a housemate (or possibly 2) you'll realise it's great being in your own place especially if it's cheaper than renting and you'll have more cashed saved (or borrowed against the house) to invest in shares.
     
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  20. albanga

    albanga Well-Known Member

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    As I said in my previous post if the 20k is only available if used for a purchase of a home and is non repayable then straight away your 20k in profit. So OP has said this is the case.
    This means if he doesn't take the offer then he never gets the 20k.

    OP then said he does rent so he is already making a weekly committed repayment. I am unsure where he lives but im going to stab in the dark and say single in late 20's he will probably be inner city in a nice apartment. Lets assume $350 a week.

    Where his 105k (70+20+15) will get him without LMI is around say a 350k purchase which means roughly a 250k loan. Assuming a 4% interest rate (rates are lower) on P&I, that's roughly $300 a week.Add in property ownership costs and lets call it square.
    If OP can then rent a room and get even $100 a week then he is another 5k up.

    So after 12 months and assuming 0% growth and lets not even throw in the 5k rent he is approximately 15k in-front. He then pays some selling costs and might end up with 10k net profit. As far as im aware and Terry let me know if i am wrong, but their is no CGT as he didnt make any actual gain. The 10k net profit is just turning that 20k payment(deposit) that was for a property only, into cash.

    This calculation is rough but assumes no capital growth and no room rental.
    If he rents a room and gets even 2% growth we are edging closer to a 20k net profit.

    Personally I am unsure why a lot of people consider this risky. Yes its a lot of mucking around for 20k, but consider how hard or how much OT you need to make 20k net.

    NOW obviously you have to put this up against just taking your 70k now and investing into shares.
     
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