Forums / Property Investing / Creative Investing / Onselling a contract for profit

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  • Profile photo of littleguylittleguy
    Participant
    @littleguy
    Join Date: 2006
    Post Count: 10

    Hi everyone,
    I'm fairly new to investing and I have a question regarding onselling of contracts.
    I'm negotiating a contract on a house at the moment and it looks like I could get a contract signed to buy at 180k or below. A qualified valuer has valued it at 210k as it is or 220k if it's tidied up and painted.

    Since I have no money I'm hoping to sign the contract and then sell the contract to someone for say 15-20k (so there's still value in it for the next person).

    Is this legal? (I'm in South Australia)

    Anyone with experience in the area?

    Thanks in advance

    Chris

    Profile photo of Jase and FlicJase and Flic
    Participant
    @jase-and-flic
    Join Date: 2004
    Post Count: 190

    Hi littleguy
    I don't know about SA, but in Vic you really cannot do it. The State Revenue Office would see it as 2 separate sales – 1 at 180k, and other at 195k. You would have to pay stamp duty on 180k, and the next buyer would pay stamp duty on 195k. This certainly takes the fun out of things

    But if you call a local solicitor who is good with property, they will know the SA laws for sure. Maybe you will be lucky.
    Either way, you have bought at bargain price, so you should be able to find a profit in the deal somehow. Good luck

    Profile photo of littleguylittleguy
    Participant
    @littleguy
    Join Date: 2006
    Post Count: 10

    Thanks Jase and Flic,
    Taxes sure are annoying aren't they. I thought that maybe if I sign the contract with my name "and/or nominee(s)" then the next person could be my nominee. I will take your advice and ask an expert.
    Cheers

    Chris

    Profile photo of fishmanfishman
    Member
    @fishman
    Join Date: 2006
    Post Count: 11

    I am in a similar situation here in melbourne. I can buy from a motivated seller / investor who needs to sell her place. She wanted 350 – I will offer 300, it is in need of a BIG clean up, new kitchen and bathroom, carpets, paint, etc My idea is to offer her less for it, maybe even 290.. with a larger deposit of maybe 20 -25% with a longer settlement (say 120 days if i can get it) boot the tenants out in 60 days, agree with the owner that I can have access from that time to start fixing it up, and hopefully get it back on the market before I have settled on the purchase – but not sure of the legality of doing this,….anyone have any ideas?

    Profile photo of XeniaXenia
    Member
    @xenia
    Join Date: 2002
    Post Count: 1,231

    There is a $20,000 fine in SA for doing this without a real estate licnense and also no one has to legally pay you because you do not have an agency agreement with either the purchasor or vendor!

    It breaches section 4 of the land agents act!

    People have done it before and rely on trust and honesty from the people they are selling to but legally there is a risk to be aware of!

    Profile photo of crashycrashy
    Participant
    @crashy
    Join Date: 2003
    Post Count: 736
    fishman wrote:
    boot the tenants out in 60 days, agree with the owner that I can have access from that time to start fixing it up, and hopefully get it back on the market before I have settled on the purchase

    who is silly enough to let someone who doesnt own the place start demolishing it at the owners risk? what about liability if you hurt yourself? what if a tradesman gets hurt on site? who do debt collectors chase?

    their solicitor would never allow it.

    Profile photo of HutchHutch
    Member
    @hutch
    Join Date: 2004
    Post Count: 137

    Hi Littleguy
    You can do it in but in a slightly different way. If your Vendor is motivated enough, you can get your agent or solicitor to draw up an Option agreement. This allows you first option on the property (at an agreed price & terms). It helps if the contract stipulates that you can have early access to 'freshen' the place up if need be. You can on sell your option in the property to a third party (at an agreed price & terms). Thus you will only have to pay stamp duty on the difference between your option price and your sale price
    ie:
    in your case the Option Price agreed $180k.
    On-sell the option to another buyer $220k after your term is complete.
    Stamp duty payable only on the $30k difference rather than the whole $180k because the title passes through you and is never in your name. This technique is legal and used alot to make a quick profit and is not fully understood by some RE agents, but make sure you get representation from your personal property lawyer/solicitor in your state.

    Hope this helps you.

    Profile photo of Misty1Misty1
    Member
    @misty1
    Join Date: 2004
    Post Count: 348

    Hey Hutch, what brilliant suggestions. I am a bit confused though…. can you pls clarify this:
    Can you purchase and onsell a house and land package??  Ie: I buy the land on an option, and onsell it without incurring stamp duty on the full price after build??
    Or, is there some way you may know of (or anyone) to avoid paying the full stamp duty, if I want to buy vacant land, build and sell it for profit??

    Profile photo of Misty1Misty1
    Member
    @misty1
    Join Date: 2004
    Post Count: 348

    After thought: Are we not able to send private messages to each other now like we used to be able to? Cos I'd really like to contact you Hutch to ask you more on this subject!

    Profile photo of littleguylittleguy
    Participant
    @littleguy
    Join Date: 2006
    Post Count: 10

    Thanks for the great advice Hutch.
    That was really helpful.
    Cheers

    Chris

    Profile photo of YossarianYossarian
    Member
    @yossarian
    Join Date: 2006
    Post Count: 136
    littleguy wrote:

    Since I have no money I'm hoping to sign the contract and then sell the contract to someone for say 15-20k (so there's still value in it for the next person).

    Littleguy,

    With respect the experts above, do not sign a contract to purchase a property when you do not have the capacity to complete the sale of your own accord. 

    You need to be able the answer the question, "What happens if I can't get a buyer at the $ I need, in the timeframe I require?".

    If the answer is "Nothing I can't live with for 12 months", go for your life. If not, cease and desist.

    Yossarian

    Profile photo of HutchHutch
    Member
    @hutch
    Join Date: 2004
    Post Count: 137

    misty
    I would doubt it.
    I have done this several time on existing dwellings, NOT H/Land packages.
    But doesnt hurt to Double check with your accounant/lawyer.
    ta
    Hutch

    Profile photo of HutchHutch
    Member
    @hutch
    Join Date: 2004
    Post Count: 137

    Yossarian
    you are missing the point a little. you not signing a contract of sale, just an option to buy at agreed price/terms.
    (If you read my post you will see that I still suggest getting the help of your professional before signing off any deals).
    And of course we would all have a Plan B to purhase the property if the Option deal fell through. Otherwise most of us wouldn't be investing in property or on this forum.  (If we all did what everyone else is doing in the property market how are we suppose to get creative deals done and make a creative profit!).
    cheers

    Hutch

    Profile photo of blueheelerblueheeler
    Participant
    @blueheeler
    Join Date: 2007
    Post Count: 45

    Hi there everyone, just new to this thing. I've just seen all your great comments and wanted to add to this without offending anyone, The strategie soundz like 'Call Option Deed' which is legal and Developers sometimes use it to great effect.

    Profile photo of Richard TaylorRichard Taylor
    Participant
    @qlds007
    Join Date: 2003
    Post Count: 12,010

    Yes you are right Blue it is a standard Put & Call Deed however the explanation by Hutch was a little off and the facts not quiet correct in regards to costs depending on which State you are in.

    In Qld for example there is no stamp duty payable on the Option Contract at all.

    We use P & C Deeds for a lot of our developmments but unlikely to be accepted by the average mum annd dad vendor on a simple residential deal. 

    Richard Taylor | Mortgage Broker helping investors build their wealth thru property
    http://www.mortgagecapitalaustralia.com.au
    Email Me | Phone Me

    0-40 Properties in a decade with a unencumbered portfolio value in excess of $40M. Ask me for a copy of my API Interview.

    Profile photo of HutchHutch
    Member
    @hutch
    Join Date: 2004
    Post Count: 137

    Option Deeds or Option Contracts …..etc
    This is in Victoria…in which we definitely have to pay stamps on Options at some stage
    Different states in Australia use different wording for the same doc.
    I may not have explained myself in words, but I think we are all talking about the same 'end result' method. 
    As I said first up, check with your Legal rep in your state for clarification on Options the wording and its applications.

    good luck
    H

    Profile photo of littleguylittleguy
    Participant
    @littleguy
    Join Date: 2006
    Post Count: 10

    I checked with a local solicitor and in SA there is only stamp duty payable on the deposit when onselling the contract. So a small deposit will only attract a small amount of stamp duty, and I was going to absorb this stamp duty which would cost around $50 only.
    Thanks for your advice Yossarian, I did have a plan B and plan C in place. For the amount of work and financial outlay selling a contract looks very attractive to me, and a win win outcome is always good.

    Chris

    Profile photo of MooseheadMoosehead
    Member
    @moosehead
    Join Date: 2006
    Post Count: 42

    I'm interested to hear experiences of anyone who has a negotiated an option on a simple residential deal?  In theory it sounds great… especially for developments because you could get the approvals happening without having the holding costs eating away at you.  But I wonder how you would get an regular old vendor to agree to this.  What sort of option fee would be considered reasonable?

    Profile photo of crashycrashy
    Participant
    @crashy
    Join Date: 2003
    Post Count: 736

    I have a flip opportunity but not sure how it would work.

    I bought a house few weeks ago for 300k, sunset clause meaning vendor was free to take other offers, but must first allow me 3 days to go unconditional. new offer of 325k came in.

    can I flip this house to the new buyer?
    My solicitor has details of new buyer.
    Im in QLD, how would this work?
    How would new buyer go with building & pest, ie would they be allowed access?
    Is this ethical?

    Profile photo of TerrywTerryw
    Participant
    @terryw
    Join Date: 2001
    Post Count: 16,173

    Crashy

    You could on sell the house, but unless you have a option, you would need to pay stamp duty.

    Terryw | Structuring Lawyers / Loan Structuring Pty Ltd
    http://propertytaxbook.com.au/
    Email Me

    Lawyer, Mortgage Broker and Tax Advisor (Aust wide) http://propertytaxbook.com.au/

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