Exchange of contract

I understand that the basic concept being to by and then onsell property before the settlement period is up and collecting the difference in sale prices, but can someone explain the process in a little more detail. In particular anything to watch out for and what happens when you bye and then sell a property and there is a gap between selling and buying settlement periods?

Cheers.
 
What basic concept are you asking about?

The term "exchange contracts" in Australia relates to our property laws. The vendor and the purchasor each sign a contract, their solicitors "exchange" the signed contract so that each party now holds a contract signed by the other party. This triggers the sale of the property and the lawyers and bankers do their bit.

Some property traders attempt to "flip" a property through buying (exchanging contracts) and immediately re-marketing and selling it (exchanging a new contract). If the purchase contract has a long enough settlement time it is possible to have the sale contract settle on the same day.

This is difficult (not impossible). Stamp duty must be paid on both contracts (potentially at the higher rate) in most (all?) states. Capital Gains Tax normally applies.

If you don't sell the property before the purchase contract is due you must settle on it. If your sale is delayed tough luck, you may find yourself in breach on your first contract.

Most lawyers will try to talk you out of this sort of flipping of properties. It's a minefield.

If I missunderstood your question please rephrase it and We'll try to help.
 
Flipping

My understanding is that standard flipping involves buying a propety (exchanging contracts) for $XXX with purchaser specified as "John Citizen and / or nominee", and then nominating the actual buyer prior to settlement. In this case the buyer pays $XXX to the seller and pays you $YYY finder's fee. There is only one sale and one stamp duty to be paid. The $YYY fee is included in your taxable income and shall be added to the property's cost base for CGT purposes by the buyer. Could practising flippers confirm or deny this?

Say cheese :p ,

Lotana
 
Re: Flipping

That is how flipping is described in the US and in books. There are issues in NSW and other states.

Specifically and/or nominee contracts still incur double stamp duty as the government sees it as two transactions. The exception being when John Citizen controls the nominee (say a trust or company).

Traders show their gains as regular income. But you need to establish that you are conducting a trading business. One trade does not normally qualify on its own, there must be other evidence of carrying on a business.

Flippers in NSW normally use options; buy off-the-plan; or pre-arrange a finders fee with their purchaser (and never sign the contract). Finders fee recipients need to watch out for REI licensing issues (that I don't know about).
 
Sorry, I'm not a flipper- but perhaps I've missed something.

I have been in the situation where, after exchange and before settlement, I've tried to change the name of the person owning the property (my wife).

That was not possible.

EXCEPT if I had nominated (with the consent of the vendor) to put in a clause at time of exchange, to change the name of the buyer before settlement (something like a clause "or nominee" at excahnge time).

And I've used the same as a backup in case the family trust did not get set up intime.

So I assume thisis the same way a flipper can set up a deal.
 
Hi steverm,

Is the property in S.A.? Not sure if the laws are any diff there, but I have bought of the plan in two states and have had two completely different scenarios to deal with. In Vic the contract I signed had "and/or nominee" already type-printed into the contract before I signed it. Obviously they saw no problem with this. In Bris. the vendor refused to even consider this clause in the contract. My own solicitor even warned me that it was virtually unheard of for this to occur in QLD.

Am unsure of state by state laws, but would have to agree with paulzag here - be prepared for paying your own stamp duty, CGT, and sundry other costs. Always ensure you can settle in the worst case scenario.

Jamie.
 
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