Buying & selling within 3 months? Worthwhile?

[BigCol]

Hello,

Looking at whether it's worthwhile buying under market, renovating, then selling within 3 months of purchase & wondering how much profit will be left after I have to pay CGT.

Example:

Cost of Purchasing:
Purchase price: $125,000
Stamp duty: $3,056
Renovation: $15,000
Council Rates (pro-rata): $500
Body Corporate fees (pro-rata): $500
Legal Purchasing fees: $800
Building & Pest Inspection fee: $418
Sub-total: $145,274

Cost of Selling:
Advertising costs: $1,500
Legal fees: $500
Sub-total: $2,000

Sale Price: $180,000
Current taxable income: $120,000

Therefore is this correct?

Sale Price less selling cost = $180,000 less $2,000 = $178,000

Hence, $178,000 less cost of purchasing @ $145,274 = $32,726.

Hence: Capital Gain = $32,726 (no 50% exemption as selling within 12 months)

$32,726 PLUS taxable income @ $120,000 = $152,726 & I get taxed on total amount:

So basically it would be 37c over $80,000, or $32,726 x 37% = $12,108 tax to pay

Is this correct, or have I just lost the plot??

Factoring all of this in; total purchasing costs + selling costs + tax to pay = $160,000, so at $180,000, I'd clear $20,000 profit...hmmm...worthwhile? I guess if I did 4 a year = $80,000 extra...maybe...

 

[Melbournian]

if your intention is from the start to buy and sell from day 1- then you could be considered a developer and depending how intensive the renovations are and if you have a primary job (which is nominated when you do your tax returns - as it enables certain deductions based on professions) you could be liable for GST.

You could do it - however best is to rent it out for a year so at least you get the 50% discount off CGT.

 

[Belbo]

Just $20K, for that much work? Forget it!

 

[BigCol]

Hi M,

As the market is falling, I'm contemplating selling quickly & taking the money & run, so to speak. Waiting 12 months to get a 50% discount, will most likely absorb the 50% discount I'd get anyway.

 

[Melbournian]

i wouldn't renovate for anything less than 60-70K minimum. It's too risky a strategy. And if you fail to sell - u only putting yourself on the line.

It's a low return of effort and time for you calculations.

Just rent it out - for 1 year let your tenants pay your mortgage unless you really going negative

you still need to operate within the tax laws - if you have primary income job, you more likely as this being an investment (rental property).

 

[BuildingBlocks]

Add in holding costs too.

What if you don't get the expected sale price?

And this assumes that you sell it yourself rather than use an agent?

 

[BigCol]

Hi M,

When you say $60-70k minimum, what price property are you buying to achieve that sort of return? $500,000? What I'm trying to figure out is what % is that $60-70k based on? 20% profit? And is that $60-70k after everything, so nett profit I assume?

i wouldn't renovate for anything less than 60-70K minimum. It's too risky a strategy. And if you fail to sell - u only putting yourself on the line.

It's a low return of effort and time for you calculations.

Just rent it out - for 1 year let your tenants pay your mortgage unless you really going negative

you still need to operate within the tax laws - if you have primary income job, you more likely as this being an investment (rental property).

 

[Melbournian]

Hi M,

When you say $60-70k minimum, what price property are you buying to achieve that sort of return? $500,000? What I'm trying to figure out is what % is that $60-70k based on? 20% profit? And is that $60-70k after everything, so nett profit I assume?

yes that is net (after all the costs, agent fees and everything repayments have been added in)

it used to be 400K-500K although nowadays market is changing so prices having be slightly moving up. I am not sure which market you have a niche in but you need to know your buyers, your network if you're interested to pursue this path.

 

[Melbournian]

i am going to answer someone who PM saying he had a very expensive accountant. First things first - "business structure"

Doing a development(it is already a business like building an apartment block, or some 100 townhouses) as opposed to someone who rented out a property, did a comestic renovation and decided to sell for a gain. gaining the 50% off the CG is holding the rental property over 1 year. there is a significant difference in that. Company tax and personal income tax are two different areas.

As to whether the primary job - which is in some people's case different - that is the part of the determination of the initial intention to purchase the property. Obviously if you have full scale development it is a business itself (so it does not apply). or if you subdividing, it is different. Different jobs have different things you can depreciate which in turn is dependant on your job. A flight attendant can claim moisturing creams to depreciate as opposed to data entry operator.

if in doubt, get a ATO ruling or call the ATO.