Flipping Property With No Money in Australia: True Costs

This article acts as a rate board. Each section shows what is being given, what is being received, the rate on that particular reference flip and when the trade becomes no longer tenable. The sources utilised are Feasly, Bankwest, Collings, Finder, ASIC, Lexis Nexis, Fortune Builders, Smart Asset and Texas REIAs. This list of Texas REIAs outlines "subject-to" deals but doesn't speak to the need of lender consent therefore those deals are not considered within this article.

The Flipping Property Exchange Board: One Reference Flip

The statistics below are based on a single property. The values are estimates, based on Collings' assumptions about costs of buying and holding property.

By way of example, the profit itself is already out of scope in as much as it is based on a $82,200 profit - Stamp duty has been ignored for the moment since it differs by state and is deducted from the stated profit. That pool of profit is all that can be traded since each component is trading that same profit.

Flipping Property Counter One: The Non-Bank Private Lender

The investor then provides a first mortgage on the flip, generally with a personal guarantee. The investor has received a large share of the project cost, although not the whole thing. The rate on the reference flip, which supposedly reflects the current short-term private senior interest rate for the period, is whatever the bank bills per annum 10.75% to 14%, with establishment fees of 1% to 3%. Senior lending to cost ranges from 70% to 80%. At 70% of $696,000 the loan is $487,200. Six months' interest costs range from $26,187 to $34,104 and fees are between $4,872 and $14,616; total range: $31,059 to $48,720 (38% to 59% of the profit pool). If the investor cannot fund the gap, then the lender has given away the property's $208,800 profit.

This is a big problem. Feasly says that most private lenders will want to see 20% to 35% of the total cost in equity. For this flip, it would be $139,200 to $243,600. The lender's money is the cheap money. Feasly, a software seller, offers indicative figures on development lending, so ask your lenders about cosmetic flipping.

Almost all of the establishments have at least some sort of guarantee, Feasly observes. Settlement can take anywhere from four to eight weeks.

Flipping Property Counter Two: Equity in a Home You Already Own

You hand over: a mortgage over your own home. You receive: the deposit and They then give the mortgage on their current home and the deposit and gap payment to Counter One. Bankwest claims that it is usual for a bank to lend 80 per cent of a house value in the form of equity, in other words, $720,000 of a $900,000 house. This means a loan on the house of $500,000 leaves $220,000 in usable equity to cover the gap and buy the next house, $208,800. Assume a 6.5 per cent interest rate and six months of interest on the loan, is $6,786. However, when the flip hits the road block, the return is impossible because banks warn that because the home is used as security for both loans, if one becomes a problem so will the other.

This is cheapest on the board, although it involves your own house. Although it is not "no money" it is using money you already have.

Flipping Property Counter Three: The Profit-Share Partner

"Hand over some profit and control plus his entire project paid for no interest." However the profit split is 50/50 or 70/30 or an 80/20 the capital partner. So a 50/50 profits stake he gets $41,100; a 70/30 capital partner gets $24,660 and an 80/20 capital partner gets $16,440; developer fee of 10 to 15 per cent of 96,000 dollars i.e. 9,600 dollars to 14,400 dollars; not possible when only a verbal agreement.

Chamberlain goes on to say "A lot of U.S. partners expect you to bring value to the table (such as a deal or friends in the industry)." Fortune Builders also agrees on this from a U.S. perspective: "We see a lot of the following being stated as reasons for not being able to work with someone: verbal agreement, unequal effort, no plan to exit, risk appetite doesn't match."

It does matter which entity is selected. Collings states, "Partnerships are unlimited personal liability, companies subject to 30% tax and lose 50% individual capital gain discount. A unit trust has predetermined benefits for strangers. You should have a property lawyer and accountant prepare agreements before any money changes hands."

Flipping Property Counter Four: The Vendor's Own Finance

Seller handsover a premium and small deposit and takes sale without bank. Deposit is typically in the range of 2-5%, premium is 3-7% (above market). E.g. for a $600,000 property deposit is between $12,000 - $30,000 and premium is between $18,000 - $42,000. Or 22-51% of profit pool. When a payment is missed the whole process breaks down.

However, Finder says "The majority of borrowers shouldn't be looking to vendor finance". Terms finance - the title sits with the seller until the final payment or refinancing. For a flip - the title passes to the buyer, so the sale proceeds must first pass through the seller. The seller also has the potential to levy harsh penalties, including loss of payments.

This option only covers the purchase, all renovation & holding costs will still need to be financed.

Flipping Property Counter Five: Mezzanine and Preferred Equity

Feasly says mezzanine tranches average around 14% to 22% per year and preferred equity at 15% or more. These offerings diminish the cash equity a lender must front, with a price hike in return. On the $208,800 gap, six months costs between $14,616 and $22,968.

This counter is usually sought after when the remaining four counters are not.

Flipping Property: Two Counters With a Legal Sign on the Window

Two Popular U.S. Routes Require Legal Advice in Australia Prior to Implementation

On-Selling a Contract: Wholesalers can make between five and ten percent when assigning a contract to a buyer. The equivalent in Australia is a nomination. A 'purchase' 'clause' in Lexis Nexis says that sellers will generally have a common law right to nominate, but warns of double stamp duty depending on territory, the intricacies of GST and restrictions on foreign investment. There was no information regarding licensing, so check with a solicitor before signing.

'Pooling friends' money': An 'investor pooled scheme', as defined by the Australian Securities and Investments Commission, (ASIC) involves investors pooling their money and a manager managing the pooled money. Investors have no control over how the fund is managed on a day-to-day basis. Property schemes are an example provided by ASIC. If you want to raise money from many people to flip a property, check if the proposed scheme qualifies for this definition with a solicitor.

The Total Bill for Flipping Property With No Money

Now add up what each route leaves you from the $82,200 profit pool.

The cheapest route is not the lowest rate. It is the smallest total you hand over.

As a point of note, the cheapest route is not the cheapest rate, it is the lowest amount spent. The debt stack may get you $10,512 and the 50/50 partner $41,100 without risking your home. The vendor route looks good as it simply pays for the purchase, but it does risk losing it all. Please note all of the above do not take into account stamp duty, your time, or other guarantees you may sign.

How FlipSync IQ Supports Flipping Property With No Money

Like anyone else who asks for money, your deal finder needs proof that it can be done. The deal analyzer in Flip Sync IQ performs an ARV simulation based on stepping MAX PP, and quickly back-calculates a ceiling with margin protection. No other holding costs are calendar based and any extra week is pushed to the partner.

Investor Package Report allows you to submit deals to private lenders and financial partners. It includes recent comparable sales, custom CMA data, placeholders for before/after photos and predicted equity splits & ROIs. After the flip is financed, the ROI dashboard shows predicted versus actual returns. Permissions by role can lock the financial modules for trades and open for partners with view only or edit privileges. Partners get the relevant info, trades are not given access to the financial details.

Flipping Property With No Money: Read the Rate Before You Hand Over the Asset

Flipping property without cash is basically a matter of one thing: pricing. For the 'reference' flip, the very same profit pool of $82,200 can deliver from $10,512 to $64,200, depending on the asset transferred. It's vital to compare the totals first before delving into the headline numbers.

Flip property without cash also requires a lot of documentation: partner agreement with a written agreement, a solicitor must examine or invert it, or and money with the offer should be available for listing it on sale here. Therefore the offer to the board and the board for the first time, then for each counter can calculate the price of flip a free trial Flip Sync IQ.