All Topics / Creative Investing / Onselling before settlement??

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  • Profile photo of mrpropertymrproperty
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    hi , I was wondering if anyone could give me some advice , I have just purchased a property with a three month settlement , am I able to onsell this before the settlement date ?? If so do I have to pay stamp duty? What pecentage CGT do I have to pay ?? any info would be greatly appreciated.

    Profile photo of LinarLinar
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    Where is the property?

    Profile photo of Colleen WelshColleen Welsh
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    yes you will have to pay stamp duty and 100% CGT as it is under a year (contract to contract.)  We nearly did this last year and it would have been profitable but held on to it for longer (after settlement) and have recently sold.  We were in an up market then and our settlement period ended up being over a year because of a subdivision which had to go through first .  Now it may not work for you depending on the area, it would need to be a fast growing area and you would have had to have bought well and be sure of getting your required sale price. best wishes.  Colleen.

    Profile photo of Richard TaylorRichard Taylor
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    Did you go to Contract or sign a Call Option over the property ?

    Richard Taylor | Australia's leading private lender

    Profile photo of mrpropertymrproperty
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    the property is in melbourne , Caulfield  , i brought it at auction ie contract , i believe i bought around 30k less than market value and in 3 months i believe it may be worth a little more , are there any ways around the stamp duty ? and paying CGT ?? Collen when you say you have to pay 100% CGT , does that mean if I made 30k profit I would pay 30k in tax????

    Profile photo of Scott No MatesScott No Mates
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    The only way around paying stamp duty on the purchase price is to purchase the property as an 'option' – you pay SD on the option price not the purchase price.

    As for cgt, you pay at your marginal rate of tax ie $30K x mrt (less if you hold it for one year or longer).

    Profile photo of elkamelkam
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    Hello mrproperty

    That's assuming the $30K your talking about is net profit?.
    If you think you can sell the place for $30K more than you paid for it then you're talking about gross profit.
    From this you need to deduct the buying and selling costs (including stamp duty) and then add this amount to your normal income. As Scott said, you will then pay tax on this at your top rate. 

    Always good if you can reduce your normal income for the year by, for example, prepaying interest on another investment loan you may have or contributing extra to your super. Even though you lose the use of it except within super for many years at least that way you will see it again one day instead of it disappearing for ever into the coffers of the ATO. Your accountant should be able to help you here.

    However, I have 3 properties in Caulfield and Caulfield Nth so am familiar with the prices. I think SD will eat away a lot if not all of that $30K. Do your figures carefully as I am not sure you will make enough to make it worth while.

    Caulfield is a good area and should continue to have good CG in the long term. 

    May I ask what you bought, where and for how much.
    Of cause if you'd rather not say, no problem.   

    Cheers
    Elka

    Profile photo of mrpropertymrproperty
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    ok , I think I get it  , so if I purchased a property as an option how do I do this ??? Assuming I find a property for 300k  and I feel it is worth 320k , Do I purchaes this property as an option with say a 90 day settlement , find a buyer for 320k and onsell it before settlement or on same day and avoid paying stamp duty , is this correct?? Have any of you guys done this? , if so could you give an example  , just I have looked at apartments for eg  and seen the exact same size and condition sell 3 months later for an extra 30 to 80k , Elka I purchased just off Hawthorn Rd 2 bed villa unit unrenovated but in good condition with lock up garage 430k

    Profile photo of Richard TaylorRichard Taylor
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    Mr P

    In simple terms you would enter into an Option with the Seller which gives you the right but not the obligation to execute an contract down the track. For the priviledge you make a Option payment which is deducted from the end sales price.

    Assume you thought the property was worth $350K but you signed a Call Option and paid $5K to buy the property at $300K.

    During the option period you try and find an end buyer and agree to nominate this buyer in the purchase contract on expiry of the option. Your new buyer pays you $45,000 for the option.

    At the expiry of the option you now nominate the new buyer as the purchaser on the contract and he in turns settles with the vendor.

    You collect the $45K and your buyer pays the stamp duty on his $305K purchase.

    In some States you will pay stamp duty on the $45K but not all.

    The fee of course will need to be added to your Taxable income for the year.

    I have done this on many ocassions here in SE making a 7 figure profit on 1 particular property.

    Richard Taylor | Australia's leading private lender

    Profile photo of mrpropertymrproperty
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    ok thanx Richard I think I almost get it lol , So if I sign a call option for say 5k and I am unable to find a buyer does that mean
    i have to settle on the property or do I just lose the 5k?

    Profile photo of elkamelkam
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    mrproperty wrote:
    Elka I purchased just off Hawthorn Rd 2 bed villa unit unrenovated but in good condition with lock up garage 430k

    Sounds good. I assume on the north side of Glen Huntly Rd. otherwise it's Caulfield South. The last year the prices in this area have done very well. I had bank valuations done on my properties Dec. 06 and Dec. 07 and the difference was about 30 – 35% extra. However I assume the market has stablised a bit now but should still do well in the long term.

    Thanks for the info. 
    Elka 

    Profile photo of scott8aflscott8afl
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    Qlds007 wrote:
    Mr P

    In simple terms you would enter into an Option with the Seller which gives you the right but not the obligation to execute an contract down the track. For the priviledge you make a Option payment which is deducted from the end sales price.

    Assume you thought the property was worth $350K but you signed a Call Option and paid $5K to buy the property at $300K.

    During the option period you try and find an end buyer and agree to nominate this buyer in the purchase contract on expiry of the option. Your new buyer pays you $45,000 for the option.

    At the expiry of the option you now nominate the new buyer as the purchaser on the contract and he in turns settles with the vendor.

    You collect the $45K and your buyer pays the stamp duty on his $305K purchase.

    In some States you will pay stamp duty on the $45K but not all.

    The fee of course will need to be added to your Taxable income for the year.

    I have done this on many ocassions here in SE making a 7 figure profit on 1 particular property.

    So what your saying is you purchase the option for $5K to buy @ $300K then you onsell that option for $45K telling the buyer that the sale price is $350K. so the buyer is essantially borrowing 90% instead of 100% of the purchase price?

    Have I got this right or is there more to it?

    Profile photo of mrpropertymrproperty
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    Elkam it was Pyne st which is one street from glenhuntly road on the north side , i thought it was either caulfield or caulfield south!

    Profile photo of elkamelkam
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    Good. That's the  " better side of the track ".

    Actually we are practically neighbours. One if my IP's is in Sylverly Grove.

    Good luck with the unit.
    Elka

    Profile photo of mrpropertymrproperty
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    Elkam am i correct in saying this is Caulfield South ? Would you expect 100% growth over 7 to 10 years?? ps as a fellow neighbour when i move in , if you need to borrow any sugar or eggs you may knock on my door .lol

    Profile photo of elkamelkam
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    As you will see in the link below you are definitely in Caulfied despite the confusion of some REA and even Melways index ( the book not the online site)

    http://www.id.com.au/profile/Default.aspx?id=133&pg=101&gid=130&type=enum

    Thank you for your kind offer re sugar and eggs but since I actually live OS now it's a little too far to travel 

    BTW the city council site is worth an explore. Lots of good demographic data.

    Yes I still expect the prices to double every 7 – 10 years in this area. 

    Cheers
    Elka  

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