No Money Down, Flip - Renovate As Deposit

Hi Everyone

I've known about Rick Otton for a while and have watched his career from a distance over the last 10 years. He seems to be one of the true property gurus that consistently follows through, backs himself and his students and makes money in all markets.

One of his ideas seems attractive to me at the moment. Buy a house, negotiate and extended settlement, find a tradey who wants to buy a house but who has no deposit, the tradey renovates the property and adds enough value above the purchase price, there is sufficient equity in the property now so the tradey's bank will lend him 90-95% of this, I get the difference between the original purchase price and the new bank lend of 90-95%.

Has anyone done this or know how this would work in practice? I'd love to hear about your experiences, thoughts and does it work? I'm in WA.

The challenges to overcome that I can see and queries I have, far from exhaustive obviously:
- what if the tradey can't increase the value enough and finance falls through for him. Do I need to settle on the property?
- Entering into a purchase contract that allows me to back out if the tradey isn't successful but doesn't allow the seller to back out, because now all of a sudden their property is worth $80k more and they haven't done anything
- Finding a seller willing to let the above happen to their property (full disclosure obviously)
- Finding the tradey who can deliver on his promises
- Do I pay stamp duty on the property or is the tradey buying the property from the seller?
- Do I pay CGT or is the tradey buying the property from the seller?
- Do I need to enter into a wrap agreement as back up in case the tradey can't deliver?

Thanks!

 

I think you need to be realistic with these sorts of things. It is possible in theory, but....

Yes you will pay stamp duty and income tax on the profit, if you can pull it off.

 

Good points.
I did not think Rick O was still around?

I think Rick O was using this strategy in USA successfully, he also operates a business teaching this stuff, but I have yet to meet any investor who has done this successfully.

 

No money down - brings to mind the classic Lionel Hutz scene from the Simpsons

 

Haha yes I know it's a long shot.

My hands are tied for the time being, serviceability and equity are fully tied up but I don't want to sit on the sidelines for the next 3 years. Knock on 100 doors and 1 will open.

Has anyone had any experience with his "payments", which I assume is some form of wrap? I'm not too keen on getting involved with wraps but I can definitely get on board negotiated payments over a longer period.

 

Here's some WA experiences for you.

RICK OTTON BANNED - Real Estate News

 

From seminar to success story… to getting fined in the Supreme Court of Western Australia: How it happened

This too.

 

I think the stuff your talking about sounds sexy in theory but most likely a disaster in practice and quite high risk. Personally I wouldn't waste my time or money with this approach in OZ.

 

Which market are you thinking if doing this in @fancypants ? How sure are you that it will keep rising?

I went and saw a "flip" on the weekend. Someone had bought an old house,. Gave it a quick makeover and put it quickly back on the market. Problem was they did this as the market turned.....

This "flip" had gone from asking price of 500k to 380k and was still on the matket THREE years later......

I'm sure it's an amazing strategy in the book, but it works both ways.

Be careful.

 

Rick Otton has been teaching in the UK since April 2015 when ACCC issued prosecution for misleading conduct in Aus - he appears to be in Greece at the moment looking for property bargains. He seems to focus a lot on persuasion techniques Rent-to-buy selling techniques to convince sellers and buyers to enter into very unfair agreements. While the Federal Court heard the ACCC case 9 months ago, no decision has been handed down yet.

 

Seems this idea expects others to take responsibility, either the tradie or the vendor, except you.

Saying to a vendor, well, we will rip your place apart, if we add enough value we will proceed with the contract. If we don't, or if things go pear-shaped, well we will leave you with a huge mess (and possibly an uninhabitable house), back out of the contract and there is nothing you can do about it???

How can you guarantee that you will add $80K of value? Who is paying the $80K?
Marg

 

Federal Court decision handed down today in misleading & deceptive case against Otton - Judge says "Despite claiming that Mr Otton had been successful financially "in following these ideas and strategies", there was almost no evidence that [Mr Otton and WBH] had used the strategies, let alone used them to make money," 'Buy a house for $1' claims deceptive, misleading: judge

 

Rick Otton found guilty of deceptive conduct

 

I would not care who you are/were, your not doing renos on my house, when you own it you can dozer it if you like, but I am not carrying risk for you and someone else.

Any decent solicitor would knock this one on the head too, not too mention your very likely breaking your mortgage contract if your using finance.

This one does not pass go, so no 200 hundred for you....