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What successful investors don’t do + When a ‘flip’ becomes a ‘flop’ + Ugly suburbs turned beautiful

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Programs such as The Block might make house flipping seem straightforward and lucrative, but there are also a number of tax issues that house flippers should be made aware of.  Mark Chapman from H&R Block Tax Accountants looks at where house flippers stand from a tax perspective.

Of the over 2 million property investors in Australia, only 18% own two properties, and less than 1% own five or more.  Although any asset is an achievement, success to most property investors is really determined by their ability to continue purchasing real estate. Unfortunately, so many Australians save for their entire working lives to be able to afford an investment property, but very often once they achieve this, their progress remains stagnant because they aren’t sure of what to do next.  Zaki Ameer Founder of Dream Design Property tells us about his formulae for building a successful portfolio.

We make no guarantees in this show but one thing I can assure you of is that when our property markets are hot, some buyers lose their cool.  Many are now scrambling to get into the market, particularly in Sydney and Melbourne, because they were sure prices would soften.  Now they have a very bad case of FOMO or the fear of missing out.  When you do that you start to make mistakes like the ones we discuss with Michael Yardney.

We catch up with the head of Century 21 – Charles Tarbey – about the suburbs that are sometimes called the ugly ducklings but have the potential to be swans.  He tells us where they are and buyer’s agent Meighan Hetherington is along to share some wisdom about buying well and what happens with competing offers on a property.

We have some news about a new product called BONDSURE that will ease the rental bond burden for tenants and offers great protection for tenants, investors and agents.  It is proving to be very popular.

Transcripts:

When ‘ugly suburbs’ change and competeing with other buyers – Charles Tarbey and Meighan Hetherington

Kevin:  My next guest is Charles Tarbey, CEO and chairman of Century 21 in Australasia.

Charles, I want to talk to you about some of the suburbs around Australia that, well, were pretty cruddy but they’re now very, very much in flavor. You must see a lot of this. When I talk about these types of suburbs, I think of places like Paddington in Brisbane, Paddington in Sydney, even New Farm in Brisbane that weren’t so desirable. In fact, my Mom used to tell me that New Farm was one area that you’d never walk into. But, boy, hasn’t that changed?

Charles:  Kevin, New Farm was a spot that I had to be careful of, as well. My sister had a home in Darra, going back all those years ago – Darra/Goodna – and if you think about the areas around there now and you look at all the different developments that have gone on, it’s just incredible.

Kevin:  It’s great the way they’re gentrified some of these areas. Are there any areas that you know, because you get around Australia quite a lot, that are going through that process right now?

Charles:  Yes, absolutely. I had some people visit the other day and they were looking at buying investment property and so on and had their dollars out and talked about buying something for $1 million or $1.5 million in Sydney. I said, “Look, you know, you can still buy properties…”

People talk about Mount Druitt in Sydney, and Mount Druitt had its first million-dollar sale of a home last year, last January. It was all Commission homes. But people are moving in from overseas, and they think these areas are fantastic compared to the lifestyle ahead. So they come in and they do the same thing.

I said to these people, “Look, right in the middle of Sydney, in between the M4 and the M7 freeway are places like Hebersham, Dharrak, that are not far from Mount Druitt where you can still buy a home in Sydney for mid $500,000s,” and 10 kilometers north – not even that – people are paying $2 million dollars for homes.

I think a lot of people avoid these areas because they hear all these bad reports, but for me, that’s an indication of change, and if I were out there actively investing in residential, that’s where I’d be looking now. I’d being buying two or three homes if I could alongside of each other in anticipation of potential medium density in the future.

People, again, are investing very heavily. South West Queensland has got a massive amount of profiling in the New South Wales market. Every time you turn the radio on, Kevin, they’re talking real estate, they’re talking about investing in South East Queensland. I think that you have areas of Queensland, southwest of Queensland, that still have a lot of upside.

I think you even have areas further south when you go past Ipswich and some of those areas there that people seem to have forgotten. All you ever hear about is flooding or other issues, and again, for me, that’s definitely a green light, not a red light.

Kevin:  Good on you. Charles Tarbey there from Century 21. It’s always great to have you on the show, mate.

Charles:  Thank you, mate.

Kevin:  You talk about dodgy practices and sometimes with agents, and it brings to mind if you’re a buyer and you’re interested in a property, then you’re told by the agent someone else is interested and, in fact, they’ve made an offer and that you’ve got to be in competition with them. It’s called multiple offers. I do want to talk about that, and I’m going to discuss it with a buyer’s agent, Meighan Hetherington from Property Pursuit.

But just before I do that Meighan – welcome to the show – I just want to ask you about some of the tips that you have for buyers who may be going out and buying this weekend. What are some of your tip – whether they’re buying at auction or by private treaty?

Meighan:  I bet there’s a whole heap of people who would like to stop going to open houses on a hot Saturday, and the only way to do that is, of course, is to buy, but you don’t want to be that person – that wounded bull – who commits to a purchase that’s not quite right.

Kevin:  But what do you do? You’ve been looking for months, you find the place you like, and say hypothetically, it’s listed at $550,000. I get people who will call me and say, “Look, this thing is listed at $550,000. We think we’d pay $540,000 for it.” And I think, “Well, for goodness sake, for $10,000, if you’re going to own it for 20 years, buy it.”

Meighan:  I think it depends on your timeframe and the reasons for purchasing. Investors very much have to be very sharp on their purchasing, but they also have to realize that in a rising market, every six months is going to cost them more money. So it’s putting that head on of what are the compromises that I’m prepared to make to get into a property that are going to be right for me as an owner-occupier, as a homebuyer?

Some people try to have a very long-term view of what they’re going to do with a property, when in reality, we turn over properties about every five to seven years. So having a realistic expectation about how long you’re going to be there and what your life is going to be like while you’re there is a way to help you get across the line of not expecting everything to be perfect on the property for the rest of your life.

I think when you find something that looks right, it feels right, and do your research, be prepared to commit to making an offer and make that offer subject to all the right things that will protect you as a buyer. A discussion with the solicitor is going to help you get your conditions right and protect you.

But on the flipside of that, we’re still seeing properties selling with multiple offers of five or six offers on the first day, so you need to be very careful that you’re not being too smart about your offer and not getting yourself in the position to be the buyer.

What I mean by that is if you think a property is worth $540,000 and there’s a good chance that someone else is going to pay $545,000, would you really want to miss out on that property for $5000 or have conditions that are unattractive to the owner that would make you look like an option that they don’t want to take on?

Kevin:  Multiple offers, it’s always a difficult situation. Agents don’t like it.

Meighan:  The response from the buyers is very uncomfortable.

Kevin:  Very, very uncomfortable.

Meighan:  And I think some buyers think that agents are leading them on a little bit and playing them off against each other.

We actually get agents to sign a multiple offer declaration just in the same way as a buyer has to sign a multiple offer declaration. It’s very important, I think because the trust is established on both sides of the fence.

Kevin:  Isn’t that an indication, though, that you don’t trust them, that you’re asking him to sign that?

Meighan:  No, it’s an indication that they’re asking for a buyer to acknowledge there’s a multiple offer, and we’re asking for the agent to acknowledge that there’s a multiple offer.

Kevin.  Okay. That’s fair enough. Yes.

Meighan:  So if a buyer thinks that they’re being misled, let’s remove that. Let’s just make it a non-issue, and with that declaration, I think that’s a good way to remove that doubt.

Kevin:  So you get the agent to sign a declaration and then you get your buyer to sign a declaration saying that they understand that they’re in competition?

Meighan:  Yes.

Kevin:  Is it that their first offer may be their only offer?

Meighan:  That’s usually the way the multiple offer works, and what we encourage people to think about when they’re putting that number together is I say to them, “If I ring you and I say that the property went for $545,000 and you missed out, how would you feel?”

Kevin:  Yes, how would you feel? Yes. That’s right.

Meighan:  “Work backwards and arrive at the number where you go ‘I would’ve have paid it.’”

Kevin:  And then you’re comfortable, aren’t you? You’re comfortable to walk away.

Meighan:  Then you know.

Kevin:  Meighan Hetherington is from Property Pursuit. You can find them quite easy at that website. Thank you so much for your time.

Meighan:  Thanks for having me, Kevin.

Kevin:  It’s been great having you here.

Meighan:  I’ve really enjoyed it.

 

The ‘blunders’ from the fear of missing out – Michael Yardney

Kevin:  One thing is for certain: when our property markets are hot some buyers lose their cool. Unfortunately some buyers are now scrambling to get into the market, particularly in Sydney and Melbourne, because in the past they presumed that prices would soften – which of course, they didn’t – and now they have a very bad case of the fear of missing out.

What are some of the blunders that happen that you should avoid if you’re looking at getting into the market? Joining us to discuss these, Michael Yardney from Metropole Property Strategists.

Michael, thanks again for your time.

Michael:  My pleasure, Kevin.

Kevin:  What are some of those blunders that we should avoid, mate?

Michael:  We are seeing a lot of them – you’re right, Kevin – because currently many investors and home buyers are getting exasperated. They missed out, and so what they’re doing is they buy emotionally. They’ve gone to one auction after another and missed out or they’re beaten to the punch at private sales, and so they end up over-paying for a property because their decision making is based on fear and not on solid research.

If it’s your home and if it’s somewhere where you’re going to live for a long time, it’s okay in my mind to over-capitalize a little bit or spend a bit more because you don’t have to treat that like a business; we know home buyers buy emotionally. But if you’re an investor, that’s not the way it works. Therefore, don’t buy emotionally, either over-paying or buying a secondary property just because you can’t find a good one, because it will always be a secondary property, Kevin.

Kevin:  I said in the intro, Michael, that many people were waiting, thinking that the market would soften. That is a bit of a mistake in itself – waiting for the market to correct – isn’t it?

Michael:  It depends where you are and in what parts of Australia. But if we’re talking about the hot markets that you talked about, interestingly last year, all the capital cities around Australia grew other than Darwin and Perth. We believe the markets are going to slow a little bit, but they’re not going to correct. They’re not going to go into reverse this year. Darwin and Perth may drop a little bit further but in the other areas, it’s highly unlikely that what we call investment-grade properties in our capital cities are going to undergo a major correction.

They’re going to continue to go up because there’s going to be an ongoing demand for them. So you’re right, Kevin; don’t wait for that correction. Don’t try to time it.

Kevin:  Michael, this fear of missing out, too, could also lead someone into making a very quick snap decision, which also could be a mistake, do you think?

Michael:  You’re right. It’s another way of dealing with it emotionally, isn’t it? Strategic investors and professional buyer’s agents buy without emotion. That includes at auctions, as well. So no, don’t make a snap decision. Base it on correct research and due diligence.

Kevin:  Michael, like you – maybe like you; I don’t know – but have you seen that guy in a lot of real estate offices who sits there with that big beard waiting for the market to correct, expecting a bargain, waiting, and hanging out for it?

Michael:  Kevin, I’m old enough to remember that picture in the front window, and I know you are, as well. Some of our listeners may not remember that picture. But yes, he grew old waiting, didn’t he?

Kevin:  He did indeed. And that’s a mistake, isn’t it?

Michael:  Another mistake is expecting a bargain in this market. It’s folly to wait for the market to soften – you’re right – but it’s equally irrational to expect a bargain if it’s a good property. I’d much rather outbid three other people at an auction and get an investment-grade property than actually say, “Hey, nobody turned up at the auction. Look at the bargain I got,” because you’ll wonder why. What do they know that I don’t know?

You make your money when you buy a property by buying the right property, Kevin, not by buying it cheaply.

Kevin:  And Michael, real estate agents, I’m one of them; we all love them. But really at the end of the day, if you’re a buyer you have to understand that the real estate agent is there to help the seller get the highest price. They’re not your friend.

Michael:  That’s their job, and they’re morally and I guess legally obliged to do that. They work for the seller, and so therefore another way to protect yourself in this hot market is to have somebody to level the playing field – and I’m suggesting a buyer’s agent.

Now, sure, I’m biased, but I just know that over the last couple of years 53% of the properties we bought in Melbourne and a slightly smaller percentage in Sydney and Brisbane have been bought off- market because of our access to properties that the average buyer wouldn’t be able to find even in this hot market.

So level the playing field and get somebody to help you, Kevin.

Kevin:  That’s a good look at the blunders, Michael. Level it for us now and give us your summation on this point.

Michael:  The key is not to get discouraged if you miss out; it is just part of doing business, and you have to treat property investment like a business. Instead, keep looking for the right property. Don’t’ compromise. Learn how to negotiate. But the best negotiating tactic, Kevin, is the one where you actually end up with the property – that you own it.

I see some people trying to be smart, making low-ball offers, making silly offers because they read somewhere in a book that that’s the way you do it – you make 100 offers and you get one property. You’re not going to get a good one that way. The best tactic, as I said, is the one that actually secures you the property.

So be ready to be in the position to do that by having your finance in place, knowing what ownership structure you’re going to buy it in, and by having a good team on your side. The key is to be quick but not in a hurry, Kevin.

Kevin:  Good talking to you. Michael Yardney from Metropole Property Strategists.

Thanks, Michael. Talk to you again soon.

Michael:  My pleasure, Kevin.

 

Making rental bonds easier – Michael Wood

Kevin:  Queensland entrepreneur and lawyer Michael Wood launched an innovative new property-focused business late last year. We told you about it on the show. It aims to take some of the hassle out of renting.

The company is called BondSure. It’s been progressing really well in the very short period of time since it’s been launched. Over 100 real estate officers around Australia have signed up, and according to Michael Wood, they’re adding quite a few each and every week. Michael joins us.

Good morning, Michael.

Michael:  Yes. Good morning, Kevin.

Kevin:  What a great business this is. Firstly, tell us how it works. How does BondSure work?

Michael:  Basically, rather than paying their bond up front, it offers renters the choice to pay that off in installments over 6 to 12 months, and then the money is deposited by us with the Residential Tenancy Authority. It’s all the same for the landlord there.

But also what we’ve done is go a bit further. Not only the choice of installments rather than upfront cash, but we’ve introduced a new – rather revolutionary, I think – insurance product that protects that bond whilst it’s sitting there with the government.

Of course, the landlord still has priority if there’s any rent default, but what we’re trying to do here is introduce a product that protects the bond against increased cost of cleaning and accidental damage, two issues that often erode the bond for the tenant at the end of the lease.

Kevin:  Yes, we’ll talk in a moment about how many people don’t get their bond back or get absolutely get nothing at all back or even part of it. But just before we do that, why did you do this? Did you perceive there was a need for this to happen?

Michael:  Yes. My main business is insurance, and my Lloyds broker in London introduced the concept of actually having a landlord waive the right to a bond and just have an insurance policy. It’s being done in a very small way over in America.

The situation over in America with strata title is very different, so they approached me and said, “Look, Michael, could this work in Australia?” I looked into it, and I decided that given that we can have a couple of hundred different owners in one building – rather than like in America where often one person owns the whole building, all the units – what I thought was that rather than do away with the bond, let’s help the tenants and protect the landlord by still having that bond but then protecting it with an insurance policy.

Kevin:  That’s interesting, Michael. Could it work in a single house situation where the owner would be happy with an insurance policy over a bond?

Michael:  Most definitely. We offer it both for units and houses. The only difference there is another extra product that we have is a contents policy. There is a slight differential between units and houses, but otherwise, the pricing is all pretty much the same.

Kevin:  I said in the intro that about a hundred offices around Australia have picked it up. What sort of reaction are you getting from them? Because I would have thought that this would be fairly popular with agents.

Michael:  Yes. We’ve been really, really pleased by the support they’ve shown. The first thing is is the landlord still protected? Which of course, the landlord is. The money is sitting there with the RTA, and as I said, the landlord always has priority if there’s a rent default.

But the big thing is there are often disputes, and I’m sure landlords agree that it’s a bit of a hassle at the end of a lease to be arguing with a tenant over what is damage and what isn’t. That’s one of the main reasons that not only did we introduce a product that is to protect against damage – such as damaged carpet, damaged curtains, damaged fittings – but also the increased cost of cleaning, because we didn’t want arguments about what is damage and what is cleaning.

Yes, we’ve been very pleased, and also it helps them with their rollover of leases. We can be notified, and as an insurer, we pay it. It’s above a small excess, just to ensure that they do still do maintain the premises as they should.

Kevin:  I’m keen to talk to you about how many people don’t actually get their bond back. I read with interest a New South Wales story, of course, that based on the Rental Bond Annual Report there, they suggested that 35% of tenants received some of their bond back, while one in ten received absolutely nothing.

Michael:  It’s anywhere between 35 and 50%, but generally in the 40%s.

Kevin:  It’s a great product. If you want to know a little bit more about it, BondSure is the name. Is the website just BondSure.com.au?

Michael:  That’s right. It only takes a few minutes, and you don’t have to hand over your bank statement because we do a full credit check, which again helps the landlord. But it’s only taking a couple of minutes.

Kevin:  Good on you, Michael. Lovely talking to you, and thank you very much for your time. Congratulations on what you’re doing, as well.

Michael:  Thank you very much, Kevin.

Kevin:  Michael Wood there from BondSure. That website again is BondSure.com.au.

 

Why most property investors fail – Zaki Ameer

Kevin:  Did you know that there are currently over two million property investors in Australia? Though the number may seem quite significant, statistics reveal that the majority struggle to maintain or even grow their success after initially entering the housing market. In fact, only 18% of those investors own two properties, and less than 1% own five or more. This highlights the challenge that many people face when they’re trying to build a property portfolio.

Zaki Ameer, who is the founder of Dream Design Property, has a very effective theory and practice on building your portfolio. He’s learnt that through bitter experience. He joins me to talk about his experience.

Zaki, thanks for your time.

Zaki:  Thanks, Kevin, for having me.

Kevin:  Tell me about your experience and why are those statistics so wide? You’re going from 18% only ever owning one property and 1% five or more. Why is there such a big chasm?

Zaki:  I feel like in my years of property experience and now probably seeing about 1100 transactions go through for our clients, there seems to be a trend, and the one that strikes out is about being selfish. What I mean by that is that most investors say they’re investors but they’re actually investing with their heart or their emotions and they aren’t able to look at it from a completely factual point of view. They might be looking at the numbers but they’re still deciding with their heart or their emotions as opposed to complete logic.

And if you somehow find a way to surround yourself with people who can make strong investment decisions purely on numbers, I believe you’re in it; you’re going to be a part of that top percent.

Kevin:  Yes. Zaki, it’s interesting, that point. This is a bit of a mindset, isn’t it? You have to look at property investing as a business and take out the emotion.

Zaki:  That’s correct, which leads to my second part about impatience. I’ve seen many, many friends or families or clients, etc. in the community who buy a property and within a year, they go, “It hasn’t gone up in value, so that was a bad decision.”

Again, that comes back again to mindset and being completely aware that property is a long-term investment and in my take, at least a minimum of seven to ten years and maybe even more because you can’t predict. How is anyone ever going to predict? We can only rely on data, but no one can make an accurate guess. You have to be in it for the long run. If values go down or go up or whatever, you just have to stick it through.

But the other problem, as you’ve seen probably in the Sydney market also, is when the values do go up, they go, “Oh, wow. I’ve made a gain. Let me now just sell it.” And then they miss the concept anyway of having holding for the long term and holding that asset to appreciate over time.

Kevin:  It is a bit like running a business, though. You have to have nerve and be very, very careful about who you talk to. Do you think sometimes we can over-analyze the market, Zaki?

Zaki:  Correct. I think it comes also with technology and social media. Everyone becomes an expert, unfortunately. It’s so easy to get opinions from people who’ve absolutely done nothing, and you rely on their advice. By relying on somebody else’s opinion, you get more emotional and then you make bad decisions. They all go hand in hand. It’s just about being self-aware to stop all the looking at things, take a step back, and let things be.

In my take, if you have a property that can be rented and is hopefully somewhat neutral or maybe slightly positive, just let it be and let it just do its thing over time.

Kevin:  Because if you continue to look at something and analyze it too much, you actually do become paralyzed. You become very fearful about moving ahead, don’t you?

Zaki:  That’s correct. And you just stay in the same position. Many clients, I’ve heard that they’ve had hundreds of thousands of dollars saved up or from a property they’ve sold or from an inheritance, and they’ve done absolutely nothing and it’s just sitting in the bank I guess for the bank to invest that money.

Kevin:  You make another very good point, too, earlier in our conversation about not doing it alone –in other words, building a good team around you, Zaki.

Zaki:  Correct. That’s why I think if you’re going to buy quite a few properties – and I mean anything above two in my take – modern property investing, I look at it as a property investing business for yourself. You want to surround yourself with the correct people.

Whether it’s an accountant or a depreciation provider or a pest and building report or a lawyer, all of them need to be qualified, not just in degrees but also having the results so that they have the experience, which is far more important than just education, and that they can advise you from their own experience in these matters. It’s very key to take advice only from people who have done it before.

Kevin:  You’ve made some very good points in our very brief time together, but I guess it can all be underscored with the comment about getting the right mindset and how important that mindset is to becoming a successful investor.

Zaki:  Yes. And it reminds me of back in the day, in 2007, when I was getting into property, I didn’t read any books on real estate per se, but I’ve read tons of books on mindset and the correct attitude and when things go wrong. I feel that’s probably 95% of what you need and the other 5% you can learn.

Kevin:  Great talking to you, Zaki Ameer. Zaki is the founder of Dream Design Property. How do we reach you? Just through your website, Zaki? Is that the best way?

Zaki:  Yes, DreamDesignProperty.com.au is the best way.

Kevin:  Wonderful. Zaki Ameer, my guest. Thank you, Zaki. Talk to you again soon.

Zaki:  Thank you, Kevin.

When a ‘flip’ becomes a ‘flop’ – Mark Chapman

Kevin:  Recent figures released by the Australian Bureau of Statistics suggest that a record-breaking $18 billion was spent on renovations in the quarter up to September last year. Whereas the bulk of this spend would previously have been attributed to private renovation, this notably high figure is undoubtedly inflated by house flipping, which is a process whereby individuals buy a property, renovate it, and then sell it on for sometimes a tidy profit – not always, but sometimes.

Programs such as The Block, which we’ve talked about before, might make house flipping seem pretty straightforward and lucrative, but there are also a number of tax issues that house-flippers should be aware of. So, let’s take a brief look at where house flippers stand from a tax perspective. Joining me is Mark Chapman, who is the tax communications director for H&R Block tax accountants.

Mark, thank you very much for your time.

Mark:  No problem.

Kevin:  House flipping, as I described there, is the process of turning a property over fairly quickly, so would I be correct in saying that capital gains tax is going to be the first obstacle you might come up against?

Mark:  Certainly, tax in some form is going to be an obstacle. Depending on how frequently you flip – in terms of whether it’s a one-off thing or something that you’re almost doing as a way of life, as a business – you’re either going to be paying capital gains tax or you’re going to be paying income tax.

Kevin:  What are some of the other problems you see flippers come up against? What should they be aware of?

Mark:  I guess the first issue is that probably the best way to do this actually is to move into the property while you’re flipping. If you don’t actually have anywhere else to live and you’re basically in a process of moving from one house to another, you buy the house, you move in, you renovate, and then you sell, and then you repeat the process, you’re actually probably in a pretty good position from a tax perspective because you can potentially take advantage of what’s called the main residence exemption for capital gains tax.

The house that you’re renovating becomes your main residence, which means that you can then sell it capital gains tax-free at the end. You obviously need to actually physically live in the house; you can’t have a main residence anywhere else. But if you’re doing it that way, that’s actually really tax-effective.

Kevin:  It effectively becomes your principal place of residence. Is that right?

Mark:  Yes, that’s right. You basically live in the house whilst you’re renovating it, then you sell, and then you repeat the process.

Kevin:  It might make sometimes for a very unhappy partner, if you’re moving your partner every six months or so.

Mark:  Yes, that’s right, especially if you have a young family, although some people do that. You can see that kind of thing on TV all the time with these home makeover shows. And from a tax perspective, that’s the best way of doing it. Not necessarily the best way from a settled lifestyle perspective, though.

Kevin:  Mark, is there a timeframe from when you first purchase to when you move in and how long you need to live in it before you can actually flip it?

Mark:  No, it comes down to the fact of whether it is your main residence or not, so whether you actually live there, whether it’s the place you’re actually living, whether it’s the place where you’re registered on the electoral register, getting your bills, etc.

If it’s actually your main residence, then there’s no minimum period. The longer you stay there, obviously the better from a tax perspective, but if it is physically your house, then you are covered by that exemption.

Kevin:  How many times do you see people go through the process of doing some flipping? Because as you rightly say, on programs like The Block, it looks so easy, and they potentially make hundreds of thousands of dollars. They come to you after the event and say, “Well, that wasn’t really all that worthwhile,” because they didn’t see this coming. How often does that happen?

Mark:  It is one of those things that people go into without considering the tax aspects. I think particularly with the advent of all these home makeover shows like The Block, it’s something that’s become a bit fashionable, to get into property. People think that there’s easy money to be made there because they see rising house prices in Sydney, Melbourne, Brisbane, all the capital cities – well, most of the capital cities.

And it may well be that there is a good profit to be made there, but you have to be aware of two things. First of all, the tax on the profit that you make in terms of the renovation and the flip, but then there’s the other cost; every time you buy a house, you have to pay stamp duty, and that’s something that people don’t take into account.

You may be paying $30,000, $40,000, $50,000 in your stamp duty just to get the process started, so you have to make a profit at the end of at least that much just to cover your stamp duty, never mind all the other costs and so on that you’re spending.

Kevin:  It says a lot for making sure you’ve got a good tax accountant on board before you even start the process, doesn’t it?

Mark:  Yes. I think the main thing is before you get into this – and this is the same with any kind of business transaction – it pays to sit down, talk to somebody who understands tax, and just work out what the tax implications might be, what additional costs that might impose on you.

And if you factor in those costs and it still looks like you’re going to make a decent return on the investment, then go for it. But if you add in the tax, which you may not have previously considered, and it doesn’t look like such a good investment, then it’s better to find that out before you start rather than halfway through – or worse still, at the end.

Kevin:  Even a bit of due diligence along the way, too, because stamp duty does vary in different states around Australia, and there’s actually quite a big variation, isn’t there?

Mark:  Yes, exactly right. I don’t claim to be a stamp duty expert, but you’re absolutely right; completely different in every state. So if you do get into the process of flipping houses in other states, then you’re definitely leaving yourself exposed because you can’t assume that stamp duty in your place is going to be the same in another state.

Kevin:  Mark, great talking to you. Thank you very much. Mark Chapman is the tax communications director at H&R Block tax accountants, and you can reach him at their website.

Mark, thanks for your time.

Mark:  No problem. Thanks very much.

 

 

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