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Discussion in 'Innovative Techniques' started by Reno Crazy, 21st Jul, 2015.

  1. Reno Crazy

    Reno Crazy Well-Known Member

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    Does anyone flip properties for a living?
    I'm in Metro Victoria and I have been renovating for a few years and have only ever sold one in a bull market and made a profit good enough to sell. The stamp duty/ reno cost (I do a lot of work myself except cert trades) holding cost/ selling cost/CGT just haven't made it profitable enough.
    I know Cherie Barber is famous for fliping but I just don't know how you can do it for a living. Especially funding loans, with sporatic income. And ideas?
     
  2. Tony Fleming

    Tony Fleming Well-Known Member Business Member

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    From what I've read the best way to make it work well is to buy the properties out right with cash so the holding costs aren't as high, get a better price due to a earlier settlement and you don't have to deal with the bank if its a really inhabitable property plus I'm not sure if the rules have changed but there used to be a break fee charge on the mortgage don't think that exists anymore though :p. Ive done numbers on many properties and the cgt and stamp duty are the serial killers in the profit margin. Would love to hear from someone that does it often even in todays market
     
  3. Reno Crazy

    Reno Crazy Well-Known Member

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    Yeah I have thought this would be probably the best way, without the bank and then the risk is all yours!!
    Exactly, I have done the same and the profit just isn't there. As idealistic as it seems to buy and flip houses I really think that the risks do outweigh the reward and that element of luck really has to be on your side.
    I too, would love to hear from people that are doing it??
     
  4. Chilliblue

    Chilliblue Well-Known Member

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    Also a good idea to remember that the ATO may treat your flipping as a business activity
     
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  5. Tony Fleming

    Tony Fleming Well-Known Member Business Member

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    When I was looking at doing it I worked out the safest way would probably be to buy outright. Use the cash as a bargaining tool quicker settlement, early access before settlement, no bank charges etc. Do the Reno and if there wasn't enough money generated to make it viable to flip there should(hopefully) have been enough equity to go to a bank get a 80% loan and get your original money back or close to and it can sit with your other properties until the tomes right to sell.
     
  6. Reno Crazy

    Reno Crazy Well-Known Member

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    This is where I would be interested in what you mean. CGT is 100% if sold within 1 year, but business tax I think is around 30%. So can you tell me would it be more or less of a cost to work it as a business, I suppose it depends on the profits made. I assume you have to set up a trust that owns the house and then you renovate it in your business name and you get paid from the trust. I'm just guessing so let me know???

    Again just another little risk, especially atm with APRA verses investors. :p

    From what I'm reading in other posts, subdivision is possible the only way to make $$$ in flipping.
    Reno the front house cut off the back yard? Sell both?o_O
     
  7. Travelbug

    Travelbug Well-Known Member

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    Cherie Barber buys top end houses and at times doubles the size. Structural reno's are what she specialises in for the big bucks.
    You need to look at decent priced properties. The lower priced one limits your ability to make money. Eg buy a $200K house and do a reno, you wouldn't make $100K. But on a $500K house, it's possible.
    We have done a few whole house reno's where we have increased our equity by $50K. we've kept them as they were CF+. If we would have sold them, we would have made a profit, but not much. But I'm talking $200K buy price.
    I think it's possible though. We plan on doing a few later.
     
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  8. MTR

    MTR Well-Known Member Premium Member

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    We have flipped a few and to be perfectly honest we made money but purely because the market was rising.

    If you are buying in a flat market, it comes down to how well you buy, cost of Reno, holding costs and how much work will you do yourself to cut costs.

    I am not too keen on this strategy, as I think too time consuming for average returns.

    If you go higher end stuff $1m+ this what my g/friend was doing, she made excellent profits, however higher risk, holding costs hurt, limited market when selling. If the market turns, or you can not sell it will hurt to hold at this end value.

    I pretty much moved onto developing because it was far easier, less work and greater profits.


    MTR:)
     
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  9. Paul@PFI

    Paul@PFI Tax Accounting + SMSF Business Member

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    There is no cgt on flipping. Personal marginal tax rate applies. Everytime. And also GST if its a new build...after duty its a tough call.
     
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  10. Reno Crazy

    Reno Crazy Well-Known Member

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    I think this is a good point that I would have to spend a lot more on the purchase price and make a decent change to the property.

    MTR do you know how your g/friend funded her projects?
    I do agree that it is risky and the only one property I sold made a decent profit but the market was a run away I could have done nothing and still made a good profit.

    See, I think this is my hurdle, I thought it would be a lot more work, risk and way more dollar$ to develop? I'm starting to think otherwise.
    Do you generally buy the block or old house knock it down and build new or do you just carve up a block sell off the vacant block and renovate the old house?
     
  11. MTR

    MTR Well-Known Member Premium Member

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    Hi RenoCrazy

    My g/friend was using second tier lenders and JV, but she is actually not doing flips anymore, for reasons I mentioned above and moved onto developments. With current climate its going to be much harder for investors to source finance regardless.

    I basically build new, however have cut up blocks and sold off and also put plans and permits together, no build just sold to builder.

    Developing - it really depends on the project, size and of course how much money you have etc.

    I think most would start with smaller projects and just keep learning and with experience you get better at it. What you don't understand employ the professionals that do, this is what I do.

    For example if you are doing a development at rear of a property then it will be easier I expect to source finance. Lower risk if you are renting the original house and then sell that off and then build at rear using the proceeds of the sale.

    It could be as simple as buying corner block and cutting it up into two lots and selling one and building on the other.

    I have posted 2 projects, have a look at Spearwood project, do a search, that was a 3 villa development which I sold, you can view the numbers.

    I would also read some of the posts by Rockstar on SS he has numbers, seems to have a low risk strategy from what I have read and been developing for some time. Westminster's posts on her developments and there are others that you may want to read.

    All the Best.

    MTR:)
     
    Last edited: 24th Jul, 2015
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  12. Reno Crazy

    Reno Crazy Well-Known Member

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    Thanks MTR, so impressive your Spearwood project you must be very proud!! :)

    I have read some your posts and Westminsters and I am in awe.
    I do want to develop and I am keen to. I just want to let the dust settle with APRA plus my buy and holds are only breaking even so it would need to be a small lower risk development to start with. Until I was more confident.

    I notice that you had mentioned Thomastown in a previous thread, at the time I was really?? Thomastown??
    I know that the area very well and I hate be a snob but it would not be where I would want to live and then I realised the emotion that I was letting get involved!!
    There are definite growth drivers the fruit markets at Epping may have big impact when they open, it did for Footscray. So you have definitely given me food for thought.

    I will have a look through SS too over the weekend.

    Thanks for your words of wisdom.;)
     
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  13. MTR

    MTR Well-Known Member Premium Member

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    @Reno Crazy
    I guess I purchased land in Thomastown at right price there is around 20% profit in the deal, just started building.

    I sold plans and permits in Broadmeadows Melb some years ago now and this is a rough area in Melb, paid $597k, $20k for plans and permits 12 months later sold for $907k to a builder, most of the local would have given this a miss


    MTR:)
     
    Last edited: 24th Jul, 2015
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  14. Reno Crazy

    Reno Crazy Well-Known Member

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    Yep leave all emotion at the door!! Great return.

    I think pure flips unless they are high end as you (@MTR ) and @Travelbug have suggested wouldn't give enough return. As you guys have said I would have a higher buy in cost to achieve a satisfactory ROI.

    Thanks for all your input it is helping me to develop (like that ;)) my future strategies!!
     
  15. beachgurl

    beachgurl Well-Known Member

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    I did a flip nearly 2 years back now. Way too much work for the relatively low return on a cosmetic flip. Wished I'd had my crystal ball back then as I would've been much better off holding for 12-18 months.
     
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  16. Reno Crazy

    Reno Crazy Well-Known Member

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    At least you had a go!! Think of it as an education that money cant buy ;)
     
  17. Perp

    Perp Well-Known Member

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    By 100%, it means 100% of the normal rate - not a 100% tax! :eek: If you hold more than one year - and are not in the business of flipping (amongst other criteria) - you may qualify for a 50% CGT discount.

    So if your personal marginal tax rate is 35%, and you make $100K profit, if you held for more than a year and this was not a flip, you may qualify for the concession and only pay half tax, i.e. $17,500 instead of $35,000.

    If you are in the business of flipping - which the ATO can determine retrospectively - you're always up for the full tax, i.e. $35,000.

    You also haven't even mentioned what I consider the biggest downside, which is that (in most states) it's illegal to do without a builder's licence. (Yes, even if you get tradies in to do specialist work. Builders do that, too ;). In fact, that's what a builder is - a project manager of construction work.)
     
  18. DaveM

    DaveM Adelaide Buyers Agent & KFC Strategist Business Member

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    One method I know of ppl using is to flip as PPOR's. Move in, reno, sell, move into next one.
     
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  19. Perp

    Perp Well-Known Member

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    Hope they declared the profits and income and paid full rate CGT, as that's running a flipping business. It would be an awful shock to get audited and have to pay it down the track. :eek:
     
  20. DaveM

    DaveM Adelaide Buyers Agent & KFC Strategist Business Member

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    The people I know that do it live there for a year or so and do extensive renovations/extensions so its not a move in for 2 months then sell it. They do it at the higher end of the market and have made good money.

    Where is the ATO legislation re running a flipping biz so I can read up?
     
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