Ever heard 'Flipper'?
How can a real estate investor make a lot of money? There are many ways but this is one of them. Let's start with basic knowledge. The strategy that many investors use to make quick money with real estate is by flipping. Flipping means, you buy a house and sell it quickly to get a profit. Some also cann it short-term investment.
This is basically what some flipper practices. Usually, investors will buy houses at a very low price from developers. And they will sell it back after the project is completed at a higher price. You may wonder is it possible? How do they get a low price? By buying in bulk as a team and get discounts or mostly cash back.
After project complete or almost complete, investors will find a buyer who is willing to pay the price of the house they target. We all know, developer sells price is projected 5 years ahead. It doesn't make sense [refer below CKHT explanation]. As for profit %, it depends on the difference between the buying cost involved and selling price.
Sounds interesting and easy to do, right? It's actually yes for those who understand well the cost involved, and the nett profit received but what are the cost involved? Some of the costs to bear are:
Real Property Gains Tax (RPGT) or CKHT
If you sell real estate before reaching the 5-year period, you have to pay tax to the Government. You can refer to the RPGT payment below. But during covid for example, there were almost 2 years no charge for CKHT.
In addition to the booking fee and down payment, there are other costs that you have to bear such as:
- Home loan installments, Insurance (if you buy the period coverage more than 5 years)
- Legal costs (Some projects, developer will cover this legal fee)
- Stamp duty (Exempted only for first house buyer)
Back to the question of is it logic to sell at higher price a unit just completed at higher price than purchased price? The answer is yes! if you are are the early purchaser of the project. For example a project in Kundang Rawang, the initial selling price 360k++ during 2020. Coming to 2023 what is the selling price one of the first owner? 460k. that's 100k difference or 28% increase.
Does it sell? yes for 450k or 25% in just 3 years (of course there are CKHT imposed @ RM 27k but there are still RM 63k. Excluding cash back if any! It really depends on the location of the projects, attractions, initial price so you just need to do a bit of research or you are just lucky and blessed. Example a project in Nilai Negeri Sembilan. Completed in late 2021 but still not possible to sell even at the selling price.
Just for sharing another short term property investment but in Sub Sale back in 2020 but not sure can be categorized as flipper or just a lucky purchase
The property is an abandoned Medium cost apartment RM 55k in Nilai.
Buying cost:
1. House Price = RM 55k (as is condition) [worth to note, any outstanding bill is under old owner]
2. Legal fee (lawyer) = RM 2.3k
3. Valuation fee = RM 800
4. Repair cost = RM 10k +- including grill, new wiring, new paint, windows, door, toilet and table top.
Loan approved + Insurance = RM 75k+- (Buyer applied for 80k loan margin but approved 90%)
= RM 360 monthly (BLR was before covid issue)
TOTAL COST OF BUYING = 2.3k + 800 +10k = 13.1k
A. Cash back received during purchase = RM 17k // RM 72k (approved loan) - 55k (price)
(as you can see there are no agent fee to buyer, so don't be afraid of using an agent if you are buying a property)
B. Hidden saving for going in early without have to pay rent: 800 (previous monthly rental) x 9 months = RM 7,200 (almost can cover the cost of repair but this saving depends on house owner consent)
TOTAL SAVING + CASH BACK = RM 24,200
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Then after a year and a half, owner sold it for 99k.
Selling Cost:
5. Loan balance = 75k (due to moratorium), no charge of early termination (depend on contract)
6. CKHT = 0 (No charge because during covid period)
7. Lawyer cost = RM 1.5k (contact us for recommended lawyer, low cost and fast)
8. Agent cost = Owner offer agent for 5k (standard rate is RM 3,180), so it end up selling fast in just 3 months due to higher than standard rate
TOTAL COST OF SELLING = 6.5 k
Selling Profit:
B. Profit = 24k (Sell 99k - Loan balance 75k)
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OVERALL PROFIT / SAVING
A + B = RM 48,200
2+3+4+6+7+8 = RM 19.6k
Nett = RM 28,600
Before | Repair in progress | Selling
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