Property flippers - how they do it!?

LurvinOZB on 26/04/2017 - 22:27
Last edited 26/04/2017 - 22:28

Was watching Aussie Property Flippers, awesome show.

I can imagine the stress of a gamble, the course of the reno, the surprises (good and bad) during the demo, the managing of budgets, the risks of not being able to make ends meet, the sale of the property and so much more!

How do they do it as a full time job?!?? Am not wanting to do such a courageous job but the experience must be a whale of fun, ups and downs. Loads of questions so do chip in with your experiences!

  1. How are they able to borrow money from the banks when they are not "typically" employed and not pulling regular income. I was thinking even if they were to find the down payment, how do they even meet the servicing part (I assume the lenders would be strict on this)?

  2. Why do they set a firm reno timeframe and stress when it's slightly over their initial timeframe set for the reno project?

  3. The episode earlier one couple gotten a Sydney Hills property for $850k and it was sold for $1.315m. Flipping is their job so assume no income other than profits. The end result shows a profit of $275k so that leaves $190k for the reno cost and tax. Assume they own their own property so this $850k property is subject to CGT; don't they need to pay CGT? Even if their MTR is 32.5% (which isn't really possible since I remembered vaguely the last few flips they had made a profit amounting to $500k). Even if the reno are considered expenses which could be tax deductible, does the profit of $275k add up?

Great show following on from MKR!!

Home & Garden

Comments

  • cloudy on 26/04/2017 - 22:42

    should probably include some stamp duty, and real estate agent costs. That would chip around 50k off that profit I'd imagine, maybe more.

    If you flip for a living, you get no CGT, its all income.

    • Euphemistic on 27/04/2017 - 06:08

      This is a common misunderstanding. CGT is just income tax. When you sell an investment it is income.

      The advantage of CGT is the 50% discount you get if you hold your investment for over 12 months, but that doesn't really work When the idea is to flip property quickly.

      Sure you can skip CGT if you are living in the property, but who wants to consistently live in a renovation? We are over it after near 18months renovating our home, and that's without moving and starting again.

      • LurvinOZB on 27/04/2017 - 11:45

        "CGT is just income tax" <— Isnt the treatment of CGT different from MTR? Without CGT, 100% of the profit derived from an investment sale turns into 100% taxable income on your MTR. With CGT and based on eligibility against set criteria, one may be eligible to only get taxed 50% of the profit as opposed to earlier.

        Is "CGT just income tax"? I think there are two different things?

        Am no accountant, but these are just my basic understanding. Feel free to share your wisdom =)

        • Euphemistic on 27/04/2017 - 13:41

          OK I probably oversimplified. Sell an investment and after you have taken out the costs of that investment you are left with profit. The profit is income for an individual. You then pay tax on your income, some of which might be a wage and some a 'capital gain' profit.

  • mskeggs on 26/04/2017 - 22:52
    +8

    I worked with a woman who did this. It was her hobby initially. She ended up leaving to do it full time a few years ago.
    I think her partner kept a normal job to help justify the mortgage etc.
    They would move from house to house as their principle residence, so they didn't pay CGT, and each reno took something like 18 months.

    It is a lot easier to do when the property market has been on a crazy upswing. And a lot harder when it is on a down swing. She managed risk by living in the properties, so if they needed to hang on to it for a while till prices rose further, she could go get a normal job to tide them over.

    • LurvinOZB on 27/04/2017 - 11:55

      It would be a challenge to do that with kids I would imagine.

  • Cluster on 26/04/2017 - 22:59
    +11

    Any renovation 'reality' TV show has to be taken with a grain of salt. Many of these shows have multiple workers on site (sometimes not videoed) and they work for 'free' (the producers pay them).

    • Diji1 on 26/04/2017 - 23:12
      +6

      Indeed, the aim of the show is to sell advertising space after all.

      • altomic on 27/04/2017 - 00:31

        did you see that great bathtub they installed from The Melbourne Bath Company?

  • [Deactivated] on 26/04/2017 - 23:49
    +2

    in the last 5 yrs you could probably buy a property do nothing and flip it for a $200k profit anyway.

    • [Deactivated] on 26/04/2017 - 23:58

      only 200K?
      you mean 200k per year

  • captobvious on 27/04/2017 - 00:03
    +1

    I've done this a few times buying a set of units on a single title, get them strata titled and flipped for a profit without doing too much. Did hit a hurdle once with electrical and parking but was not much to rectify vs roi. Sometimes its all about finding the right contacts, having a bit of capital and know how.

    Start small if you want to get into it.

    • Cluster on 27/04/2017 - 02:12
      +2

      Blind Freddy could have made money on Sydney/Melbourne apartments and units from 2012 to 2016. People were throwing themselves at anything half decent. It's great that you've made a healthy profit, but with almost daily warnings that the market is overheated and bordering on irrational (especially on apartments) it's risky territory to play in today.

      • captobvious on 27/04/2017 - 11:00
        +1

        Any investment has a risk factor. I welcome the fall in prices it is to be expected at some stage. Thats when buying at lows and selling at highs are possible.

  • Euphemistic on 27/04/2017 - 06:04
    +4

    These shows help the property market stay crazy. Everyone thinks they can buy a property, paint it and make a profit pushing up the prices of property for flipping.

    The risks are high, but the rewards are there is you manage the risk. I considered doing this year's ago when my job sucked, but couldn't risk no income with little kids.

    The other reason for the shows is to keep the people at Bunnings etc employed to sell you DIY stuff, and also to keep tradies employed when you realise that you've bitten off more than you can chew.

    The TV shows always make out that they aren't going to make any money, but somehow it comes good. That doesn't happen in real life - things go bad.

  • jellykingdom on 27/04/2017 - 09:28
    +3

    "Why do they set a firm reno timeframe and stress when it's slightly over their initial timeframe set for the reno project?"

    …Because the TV shows like to add fake tension? Thats why I never watch shows like the Block. I love the renovation aspect but 90% of the show is all about the bickering, arguments with tradies, arguments between husband and wife etc etc

    • LurvinOZB on 27/04/2017 - 11:50

      I could understand if they include the calculation of loan interests against holding on the property for too long, or perhaps even trying to time the exit based on seasonality, but just couldnt get my head around why the tension and stress on missing out the deadline.

      Do agree its the dramatization that adds to the appeal of the program, but suspect there may be more than just that aspect.

      • jellykingdom on 27/04/2017 - 12:09
        +1

        I think you'll find that professional property renovators have a rough deadline that they want to meet, though I'm not sure the basis - maybe interest-related, maybe flip it ASAP and sell, maybe flip it ASAP then rent then hold >12months, maybe renovate >12months so you get the CGT discount?

        • LurvinOZB on 27/04/2017 - 12:12

          Adding into the mix … mentality of moving on to another project so there is financial continuity, hence the need to stick to timelines.

  • maximum on 27/04/2017 - 09:40

    They live in the property so they don't pay capital gains but whenever they go to buy the next property it would have gone up - relative to the property they were flipping. Constantly living in a renovation would be a nightmare, especially when you leave just when it is all nicely done. It sounds good but you are 18 hours a day work rather than a guaranteed wage for 7 1/2 hours. I know what I'd choose.

  • ChickenTalon on 27/04/2017 - 12:11

    These shows are pedalled on quite a lot of false logic. But they do create a good headline: Property investor makes 150,000k in 18 months!!!!!

    The markets have been moving upwards. If you flip flip flip all you've been doing is realising the capital gains and a lot of work, you could have been making these anyway by doing nothing + earning a rental income. Often there is little advantage to buying and selling once and flipping a bunch of times. You're just realising the gains at each flip. Currently, the original property is appreciating without needing to devote any time and money.

    A simple example, Sydney (assuming this is all for investment)
    1 property. Buy for $500,000 and after 4 years of 13% growth will be worth $815,000 + renting it out at $450 p/w is a further $93,600
    V's
    1 property flipped every 12 months. You need to make $408,600 out of your flip flip flip strategy. While paying stamp duty, legal fees, estate agency selling fees and busting your ass. That's NETT 100k per flip every 12 months.

    • jellykingdom on 27/04/2017 - 12:20

      Don't forget "Gen Y Investor under 25 owns 18 properties", thats a pretty popular one!

  • LurvinOZB on 27/04/2017 - 12:16

    On a side note: - anyone watched MKR yesterday?

    Tim/ Kyle and Amy/ Tyson were all so sure they would be "dancing" in the finals, completely discounting Val/ Court. Good upset for the underdogs! Even I was surprised thinking it would be the four dancers in the finals!

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