"Flipping" houses in Perth

[Nix]

Just a curious thought......for the entrepreneur out there - is there an opportunity to "flip" houses in Perth? i.e. buy a fixer upper or a house that you can add some value to, effect the alterations and then resell for a profit? As the housing market is so bouyant, is this a real opportunity?

We currently do this as a sideline where we live (one house a year or so) and it works really well for us....just curious as to whether the opportunity may be a bigger one for us if (when) we ever get to Perth....

Just curious...

Any opinions . thoughts....?

Nix

[Lindy-Lee]

I have noticed that even though the condition and size of the house does affect the price, it is more about the size of the block of land. Land is very expensive here in Perth.

Lindy-Lee

Edited June 19, 2007 by Lindy-Lee

[DesertDaisy]

There are also restrictions. If you fix up a place as an owner-builder (i.e. not get contractors in) there are legal requirements that you then live in the house for 3 years once complete - its to do with the guarantees on building alterations.

[Nilo]

Hi Nix

This is where the "every state is like another country" comes in! It is very doable in Queensland and a lot of people are doing just what you suggest.

We will be buying and fixing and selling as soon as we receive our PR visas. (on a 457 at the mo)

I have done extensive research and as LL says the property/land is where your value lie. Although having said that, you will find houses that need a new kitchen, garden sorted out, a lick of paint, floors sanded etc. For a more reasonable price. The trick would be to fix is as good as you can for a cheap as you can without any major structural changes and then sell it for a proffit.

My advice is get here and do your calculations. It might even be better to invest in a few properties and rent them out. A lot of people do that as well. You are not penalised for investment properties and can even get a loan catering for exactly that, where you just pay interest and not capital. You are then also able to claim the interest back on your tax!

Hope this helps a little.

For some insight in the loan products available Google RAMS it's an non bank, home loan company. There you will find calculators for repayments, how big a loan you can get on your salary etc.

It has been reported that Brisbane will have a property boom in the next 3 years. We will be jumping into the market asap.

Oh by the way you will also be able to use the equity you gained from the one property to buy the nexts etc.

Good luck

Nilo

[Mara]

I have not seen anybody mention the dreaded "capital gains tax". If my information is correct, you have to live in the property for at least a year for it to be considered your private home, on which there is no capital gains tax. If you rent it out, sorry folks, but you will be paying captial gains tax on your profit. I am pretty sure this is country wide and not a state thing.

[Bob]

Yup . . you're dead right, Mara.

Taxation is a Commonwealth (or Federal) government domain, so it will apply Australia-wide, whether you're doing a house up in Perth or Sydney, Melbourne or Brisbane.

Capital Gains Tax is one of the forms of Taxation that the Australian Tax Office ("A.T.O.") has up its sleeves.

When I was building in Tasmania in the 1980s, you had to live in a house for at least 12 months for it to qualify as a "residence" and therefore not subject to C.G.T.

I dunno if it's still that way, but it would pay to do your homework on lots of different angles, or you'll find yourself running into a bureaucratic nightmare.

In South Australia in the 1990s, an "owner builder" could do all the work himself and sell the house as a finished residence, but there were so many "quick fix" guys cashing in on this, that they'd fix houses up on the cheap, hiring unqualified labourers to do tradesmen's jobs and end up with a house of disasters that the new owner would have to remedy. Then they'd do the same to another property . . . and another . . . leaving a trail of "disasters' behind.

The South Australian gov't now requires owner builders who are not builders themselves, to employ a tradesman with a builder's certificate to do "substantial" work on the property, e.g. all the brick laying or carpentry, etc. and the tradesman / builder will sign a form to state that the property has been built to standard.

Usually if dodgy work has gone on before in that house, a tradesman / builder will be reluctant to work on the project if he has to put his name on the overall project.

This is "lifting" the quality of work, overall, on a property.

This law has been in all municipal councils now throughout South Australia since 1999.

Other States may still allow "cowboys" to quick fix homes and sell as a finished property, but I'd be checking houses out in the States, still allowing that sort of building practice to go on, with a fine tooth comb.

This angle would need to be looked at if buying a home that needed a lot of structural work done to it.

If you just need a new kitchen put in, a lick of paint all over the house, a cupboard or two put in, the garden landscaped, the carport fixed up, etc. you could 'live' in it for at least 12 months, whilst doing all this yourself (nothing major going on structurally) and flog it off for a few bob more next year, sticking the profits in your back pocket, tax-free!

Smart move.

Edited June 19, 2007 by Bob

[Dedrei]

Also just regarding the CGT issues...

If you buy investment properties in your personal name/joint names you qualify for a 50% discount on your capital gain. ONLY when you have owned the property for more than 12 months. You don't pay CGT on your main residence if you were to sell it, as this is exempted from CGT.

So for example you made a profit on a sale of an investment property of $100 000 and you had it for more than12 months, you will only be taxed on $50 000. This $50 000 is not taxed seperately, it gets included in your personal tax return and gets taxed at marginal tax rates.

If you purchased this through a company you are not entitled to the 50% discount. But the gain is taxed at a fixed rate of 30%, which is the company rates.

So best is to speak to your accountant before purchasing investment properties, so as to asertain the best structure for you to buy the investment properties in. So they can assess all elements involved and decide on the best tax effective route for you.

Cheers

Dedrei

[Bob]

Capital Gains Tax rates depend on your overall income and are levied at the same rate as Income Tax.

Income Tax rates in Australia for the 2007 / 2008 financial year (1st July 2007 to 30th June 2008) are:

0 to $6 000 tax free for residents (permanent or temp) of Australia

$6K to $30K @ 15%

$30K to $80K @ 30%

$80K to $150K @ 40%

over $150K @ 45%

there's also a 1.5% levy on income for Medicare.

Now . . . if you earnt $60K in wages during the financial year, you'd be in a 30% tax bracket . . . . that is every dollar over $30 000 you'd be paying 30 cents in income tax to the boys and girls in the Tax Office.

If you got another $50k dollars worth of profit out of shares or sale of property, etc. your total income for the year would be 60 + 50 = $110K

You'd be levied Capital Gains Tax on the 50 Grand of profit as if you'd earnt it all at work.

Therefore your next few dollars over your $60 Grand earnt at work would be taxed @ 30% until you reach $80K, whereupon every dollar over that figure would attract 40 cents in the dollar tax.

If you hold your property or shares for 1 year and 1 day, you only pay half the CGT

Under Australian tax law, you're treated as an "investor" rather than a "speculator" and are therefore entitled to only paying half Capital Gains Tax.

[Nilo]

And for paying your taxes the Australian government gives you:

Quality schooling!

Medicare!

Safe parks!

Safe walk ways!

Decent public transport!

etc! etc! etc!

We do not mind paying our dues!!

If my memory serves me correct in South Africa you will be paying 42% from R1 and not from $150 000 and over. This country ROCKS!!!

I also want to mention that if you do buy an investment property you would probably have to "pay in" for the first year or so and that should stop you from being taxed on proffit. At the end of the day investment properties are a long term investment. One should also not pocket the proffit but buy more property. If the house you bought has got equity (gained value) you could/should use that to buy another and another.

It IS a win win situation. Pay your dues it keeps this country going. I don't mind sharing if the government looks after me.

Nilo

[JJV]

If my memory serves me correct in South Africa you will be paying 42% from R1 and not from $150 000 and over.

The marginal rate of 40% only kicks in for taxable income in excess of R450 000 (2007/8 tax year)

[Nix]

Fanatastic replies !

Thanks to all. I think some homework is in order, but it all looks pretty standard - in any country in the world, the government wants it's share. We are currently flipping properties in Aruba, and the the tax structure is the Dutch tax structure and fairly well defined. But as has been stated above, we are reinvesting our capital gains and slowing building that way....and our accountant has to manage how the profits are presented annually.

For me, I think once we land, we need to see the size of the OPPORTUNTITY.

You have all been fantastic, THANKS!

Nix

[loksie]

Hi

Net een ding wat julle vergeet het, van die deposito, seelreg en kostes wat nodig is. Hulle gee tot 98% lenings, maar dan betaal jy versekering vir alles oor 80%. Dit is `n eenmalikge bedrag, maar kan duisende $ beloop!

Ek het na baie navorsing besluit om eerder te begin bou. Jy betaal dan darem net die seelreg op die grond, en spaar so darem `n paar $. Sal dan sien of mens nie geld kan maak op daardie manier nie.

Dit het ook in SA gewerk!

[woodag]

. . . It might even be better to invest in a few properties and rent them out. A lot of people do that as well. You are not penalised for investment properties. . .

I'm not sure exactly what you meant by that, but besides the Capital Gains Tax that others mentioned, there is also the matter of Land Tax. Unlike the CGT, Land Tax is different depending on what state the property is in. Where I am in NSW you don't pay Land Tax on your principal place of residence, but you do pay it on investment properties over a certain land value. Land Tax in WA at least is similar but the thresholds and rates are probably different.