Property Flips
Property flips are a low cost option in property investing. A flip is when you
purchase a house, but you sell it straight after. For example, say you found a
house for $200,000 and it was worth $250,000 at market value but the seller
wanted it sold quickly. You purchase the house then contact a friend or
advertise the house to be sold for $240,000 (still under market value).
Someone agrees to purchase the house and once you have done settling you begin
the transfer to the new owner. This is called a property flip, as you can most
likely see why; you get a property and immediately flip it to someone else. This
can generate a quick profit for a small amount of work. In this example you make
a profit of $40,000, but be aware there are many more fees to take into account.
To purchase a property you need to take into account
·
$2,500 legal fees
·
About $10,000 in stamp duty
·
$3,000 in agent fees
This leaves you with about $24,500 left. After this take into account the
maximum capital gains tax of 48.5% and you have $12,617.5 in after tax profit.
It is still a reasonable amount but always remember to determine the fees and
tax you will have to pay.
Here are some other important tips to consider
·
Licensing Issues
o
Check with a professional lawyer whether you are allowed to
start selling a property before you purchase it. To do so, you might need a Real
Estate license in which case will cost money.
·
Capital Gains
o
Capital gains tax will be applicable to these transactions.
Make sure you consider the implications before proceeding.
·
Stamp Duty
o
You may find that stamp duty will be paid twice. Once by you
and once by the other buyer. You may be able to get around this such as buying
an option to purchase the property, but the legal aspects should first be
discussed with a lawyer.