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  • Profile photo of LP670SVLP670SV
    Member
    @lp670sv
    Join Date: 2012
    Post Count: 2

    Hi everyone,

    I have recently begun my foray into real estate by  marketing for lease/option deals. Being young I have little to no money and there is no possibility of me obtaining finance so I am pursuing more creative strategies. What I have found when speaking to sellers is that while they may be motivated, most (understandably) require at least a portion their cash upfront.

    Basically I wanted to try and capitalise on these leads by negotiating a discount and then flipping them to another buyer. It seems like flipping/wholesaling is popular in the US but there is little discussion of it here in Aus. Is flipping not as popular here because of differing attitudes towards real estate and sellers' reluctance to accept a discounted price for their property? High prices and a lack of cash buyers? Or are flips more common here than I assumed?

    I was also considering flipping properties to retail buyers with deposit finance in the event that I can't find a cash buyer or negotiate a steep discount. I am aware of the difficulties of obtaining financing on a flipped property but from what I have discussed with other investors this strategy is possible.

    Any thoughts/advice would be appreciated

    Dan

    Profile photo of Richard TaylorRichard Taylor
    Participant
    @qlds007
    Join Date: 2003
    Post Count: 12,024

    Hi Dan

    No flipping is a regular used strategy by developers especially if they have a few deals on their plate.

    Course still can be a dangerous method of buying especially if you can't actually settle.

    Remember if you are flipping you are still going to incur Stamp Duty etc so we would probably look at a Put & Call option strategy as S/D is exempt in many States.

    Of course either way you are still going to incur some costs including deposit, legals etc.

    Either methods still relies on the Vendor accepting the terms of your contract / option.

    Cheers

    Yours in Finance

    Richard Taylor | Mortgage Broker helping investors build their wealth thru property
    http://www.mortgagecapitalaustralia.com.au
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    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 Paul DobsonPaul Dobson
    Participant
    @pauldobson
    Join Date: 2003
    Post Count: 1,196

    Hi Dan

    As well as the processes Richard mentions above, if we wish to flip a property, we control it with a Call Option that contains what we call a 'Higher Price Clause'.  This Higher Price Clause, in short, allows us to flip the Option at a price of our choosing, without the new buyer knowing what we got the property for.  Good luck.

    Cheers,  Paul

    Paul Dobson | Vendor Finance Institute
    http://www.vendorfinanceinstitute.com.au
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    An alternative way to finance your home.

    Profile photo of PrimePropertyInvestorPrimePropertyInvestor
    Member
    @primepropertyinvestor
    Join Date: 2012
    Post Count: 48

    Hi Dan, 

    It is a good strategy and at certain point I remember how it is to be in your shoes.

    You have to accept that there will be deals that falls trough and there will be deals that will help you to break trough. 

    I agree with Paul's advice – control every single flip with Option – we call it as 'Lock Out' agreement, it will make your life a lot more easier if you are doing flips. 

    And well done on choosing flips as a strategy to build up your deposit and get on property leather.

    All the best!

    Profile photo of Jacqui MiddletonJacqui Middleton
    Participant
    @jacm
    Join Date: 2009
    Post Count: 2,539
    PrimePropertyInvestor wrote:
    property leather

    ?

    Jacqui Middleton | Middleton Buyers Advocates
    http://www.middletonbuyersadvocates.com.au
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    VIC Buyers' Agents for investors, home buyers & SMSFs.

    Profile photo of LP670SVLP670SV
    Member
    @lp670sv
    Join Date: 2012
    Post Count: 2

    Thank you for the replies everyone. Are you all flipping to cash buyers or jumping through hoops and flipping to an investor with finance? From what I understand most lenders will not finance a transaction which includes an assignment fee/spread created via a flip.

    Can this problem be avoided through the use of an option and then charging the end purchaser a separate assignment fee (which is not included in the sale price on the contract of sale)?

    I have also read that it is possible to register a caveat on the property once I have signed my option with the seller. Once I have found an investor to purchase the property I assign the option at a higher price, and then charge the seller the spread I have created in return for removing the caveat so that the transaction can go ahead. This seems like a better strategy given that the end buyer will be unaware of the price I obtained the property for.

    Are these two strategies feasible for allowing me to flip a property to an end buyer who requires finance to purchase the property? It might just be my inexperience but it seems unlikely (to me) that there are large numbers of investors who are actively purchasing properties for cash that I can flip deals to.

    Thanks,

    Dan

    Profile photo of Tony FlemingTony Fleming
    Participant
    @the-dark-knight
    Join Date: 2008
    Post Count: 396

    I have a few questions about flipping as I’m considering changing my current style of investing which is buy and hold positive cashflow property but its not making me as wealthy as i’d like to be so my few questions are and sorry if they are outdated i read into flipping many years ago and im sure some laws etc have changed:
    1. If you sell within a year of purchasing the property you are taxed 50% of the profit?
    2. Can you apply for loans with no early repayment fees as you plan to flip?

    Thanks Tony

    Tony Fleming | Triumphant Property Group
    http://www.triumphantpropertygroup.com.au
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    NSW Buyer's Agent specialising in Western Sydney-Blue Mountains-Orange-Albury

    Profile photo of CatalystCatalyst
    Participant
    @catalyst
    Join Date: 2008
    Post Count: 1,404

    You are not taxed at 50%. The profit gets added to your income and that is the rate you are taxed at.

    If you HOLD for MORE than 12 months you are taxed on 50% of the profit.  (not taxed 50%)

    Profile photo of Paul DobsonPaul Dobson
    Participant
    @pauldobson
    Join Date: 2003
    Post Count: 1,196

    Hi Tony

    Read above a bit more regarding flipping using options and other legal paperwork.  These methods should not involve GCT.  Of course, don't believe me as I'm not qualified to make such a statement, i.e. check with your accountant or other relevant professional.

    Cheers,  Paul

    Paul Dobson | Vendor Finance Institute
    http://www.vendorfinanceinstitute.com.au
    Email Me | Phone Me

    An alternative way to finance your home.

    Profile photo of TerrywTerryw
    Participant
    @terryw
    Join Date: 2001
    Post Count: 16,213

    buying with the intention of selling for a profit would not fall under cgt provisions but just ordinary income tax.

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

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

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