Strategy: Buy Sell Buy These days borrowing capacities are limited. Many people can only manage to borrow for 2 or 3 properties before their borrowing capacity taps out. One method for those good at adding value is to buy, hold briefly and sell. Once sold use the proceeds, after tax, to pay down non deductible debt and then buy another replacement property. This is a form of debt recycling and can improve borrowing capacity because of the reduction in non-deductible debt. It would be relatively costly because of the transaction costs but if you are making a profit and are limited in how many you could borrow to buy this doesn’t really matter too much. Even if you make $20,000 after all costs and taxes that is $20,000 more than you would have. If you kept the property long term it would have grown more, but you are buying a replacement property in its place which will also grow. A slight tweak of the strategy would be to buy the second property in a company structure. This way the profits could be paid out in the form of dividends and a future lender will not realise the income comes from property profit. Lenders generally do not want to take profit from the sale of property into account in servicing because they consider this one off income. But when the income is dividends from a company they will not necessarily know where the sale proceeds come from (they might if they look deep enough at the company financials though). Care should be taken that if a property is sold the servicing is enough to buy a replacement. And the taxation aspects need to be considered. If you are doing something like this CGT will not necessarily apply, it may be straight income with no CGT discount.
This is something I have been mulling over and acting on in part for the last year or more, it is why I started that finance thread where it was pushed off track enough that I still do not know if is a viable, realistic option. I would like to keep the flippers apart from more permanent holding. The part where they won't take this as income, surely they could be convinced to do so, if the person doing this also does any repairs, mods etc and say they intend to keep doing it, I thought they would like a few loans closing off and then new ones starting
I'd say it'd be dicey even through dividends. You need to supply the company financials along with the company tax returns to use dividend income. It'd be hard to hide IMO. Lenders won't use capital as income.
Yes there could be a good chance they would pick it up. But there are ways to structure around this. A simple method with a couple would be to have company with spouse B as director and shareholder even, and Spouse A doing the borrowing for the next project in company B. Using different lenders each time.
