The Art of Flipping Properties
Flipping properties is not for the inexperienced property investor, but it is a strategy that holds a lot of interest for some investors. ‘Flipping’ has become one of the fastest growing sectors in the real estate industry and when the industry starts to pick up I see this as a very well loved strategy for the experienced real estate investor. What is ‘Flipping’? In most cases this strategy is used in conjunction with new developments and the reason for this is that an investor can often manage to negotiate up to 20% of the ‘full price’ of a unit or house and land package. It is a strategy whereby an investor negotiates and goes to contract on a property in the early stages of the development and then markets the property to sell it on at a full price with the settlement date being the same day as their original settlement date or even prior to that date. The intention is that that the Flipper can get back the 20%, minus costs of the deal. The process The investor negotiates a price and can usually get away with putting down only 5% deposit.
During the construction stage the investor may have to make a few small ‘stage payments’. Because there is no settlement as such there is no stamp duty duty to be paid and the investors invariably only has conveyancing costs and marketing costs that will not be recouped. The Flipping stragegy If an investor has chose to go down this path as a way to make money from real estate they will, over time, build a list of potential buyers (often buy and hold investors) and if they have done this the exercise of Flipping Properties can be a very profitable exercise. The Flipper makes their money from the decreased price they negotiated.
The buy and hold investor makes their money from depreciation, renting and capital gains and the developer makes their money from the fact that with properties sold they can get their finance to start the development and get a quick return on their money. If it all works out as it should, It is a win-win situation for all concerned.
Tags: capital-gains, construction, inexperienced, real-estate, settlement
