# Buy in phase 1, sell when complete



## candyman (10 Apr 2006)

Wondering if anyone has any experience of this situation? Buy off the plans in phase 1 of a development, pay usual booking deposit. Wait a year for development to complete and then sell off the purchase and hopefully make a profit. 

Asides from the market turning against you, can anyone else see any holes in this? 

Would the property be considered second hand at time of sale even if no one has ever lived in it?


----------



## Carpenter (10 Apr 2006)

You are probably talking about doing a sub-sale, i presume?  Most standard contracts to purchase will prohibit you from doing this unless waived by the vendor.


----------



## candyman (11 Apr 2006)

I guess you could call it a sub sale. Is it possible to actually sell the booking contract to another party. i.e. Today I go down to my friendly estate agent and put 25k down as a booking deposit on a property. Tomorrow I sell the contract to the guy behind me in the que who wanted the property I have. 

Is this/can this be done or am I just talking madness....

cheers.



			
				Carpenter said:
			
		

> You are probably talking about doing a sub-sale, i presume? Most standard contracts to purchase will prohibit you from doing this unless waived by the vendor.


----------



## sloggi (11 Apr 2006)

sounds a lot like the kind of property i bought.  phase 2 was on sale at x price, but i found a phase 1 house on myhome being sold even though never actually lived in.  the guy selling bought at off the plans prices, or put a booking deposit down for thoses prices anyway, then sold at phase 2 prices.  but it was still a first hand house if you know what i mean.....

how it worked was, we got mortgage for phase 2 price and paid developer phase 1 price and paid difference to the guy who put down original deposit!  he walked away with bout €20k profit just for having the spare cash to put down deposit in the first place.  know of at least one other property in my block sold in the same way by the same guy and i remember at the time site manager saying the whole block had been bought in this way!  suppose its called selling your interest or something!!

sounds slightly underhand but i never really thought about it at the time, and mortgage company didn't think it wierd!  Unless things have changed radically in the last 3.5years you should be able to do it, but as i say, the advantage was that phase 2 went on sale after block 1 was fairly well advanced, hence show apt was available for viewing and hence price of phase 2 went up, so you'd have to be prepared to invest for about a year to make max profit!   HTH


----------



## candyman (11 Apr 2006)

sloggi - had the original buyer signed a booking deposit contract?


----------



## sloggi (11 Apr 2006)

dont know to be honest, but you'd imagine the developer wouldn't have gone on blind faith for a year or so!  He had a snag list completed etc so was proceeding as if he was buying the property!  we then got to do our own snagging.  it was a bit of a tripartite meeting when signings were happening!!  But we agreed price with the speculator and contracts issued between his and our solicitor.  we paid a booking deposit to speculator, but becasue of the speed of the transaction, we never paid a 10% deposit.  As i said above, the last transaction involved a payment to the developer and a separate payment to speculator!  Was very green at the time so never questioned the legalities of the transaction but assume our solicitior, though useless, was looking after our interests


----------



## bacchus (11 Apr 2006)

candyman said:
			
		

> Asides from the market turning against you, can anyone else see any holes in this?


 
If the development is done  in multiple phases, you may find it difficult to sell a Phase 1 House (second hand so SD applicable) as long as the developper is releasing new houses from Phase 2, 3, etc... as the latest are not subject to SD (or may not - see SD rules)


----------



## ashambles (11 Apr 2006)

This kind of speculation is usually known as flipping, it happens all the time, investors have made huge profits from the practice over the last 10 years or so. Flipping is easier and cheaper if there's no stage payments. 

If the markets turns you're in trouble - though you also will lose money if the market "only" goes up by a couple percent and reselling the property takes longer, due to agent charges and interest. 

The builders don't mind because it helps them fully sell out a unbuilt scheme and eliminates risk, also someone planning to flip a property isn't going to be on the phone to foreman every week trying to get every detail right.


----------



## candyman (11 Apr 2006)

sloggi - you didnt have to pay stamp duty did u?



			
				bacchus said:
			
		

> If the development is done in multiple phases, you may find it difficult to sell a Phase 1 House (second hand so SD applicable) as long as the developper is releasing new houses from Phase 2, 3, etc... as the latest are not subject to SD (or may not - see SD rules)


----------



## sloggi (11 Apr 2006)

nope no stamp duty...and that was before the new rule about any property up to €317k being outside the stamp duty loop for FTB!  so it wasn't considered 2nd hand so to speak!

it WAS just after the abolition of the FTB's grant...remember being quite bitter aboutt hat one!!!!


----------



## monkeyboy (11 Apr 2006)

Some dangerous talk here...There is a similar thread here discussing this with more detail. 
Contracts usu cannot be flipped (sub sold) these days, Why would the deveoper let people compete with them for sale of their own development?
If you close and sell ( with no one ever living in it , unless primary res ) you are liable for stamp on purchase ( assuming you are already an owner and this is an investment ) and the buyer also for stamp and you for CGT on the gain.
If some one bought from some one who "flipped " and paid no stamp it is likely that the vendor was someone known to the developer.
The original contract can effectively be destroyed with consent of developer and a new one drawn between the new buyer and the developers mate.  Then it was effectively sold as new. as the first contract "never existed". 
Do all the research first hand before doing it.


----------



## Jeanne (14 Apr 2006)

candyman said:
			
		

> I guess you could call it a sub sale. Is it possible to actually sell the booking contract to another party. i.e. Today I go down to my friendly estate agent and put 25k down as a booking deposit on a property. Tomorrow I sell the contract to the guy behind me in the que who wanted the property I have.
> 
> Is this/can this be done or am I just talking madness....
> 
> cheers.


 
Have to say I am saddened to see your post. Whilst I am all on for entrepreuneurship (sp?) and 'making money' as well as 'askingaboutmoney' nevertheless with property prices so off the chart nowadays and many young people desperate to get on that ladder, it's sad to realise that there are those willing to do whatever it takes to make a fast buck.

Estate Agents (not all but a lot) are the lowest of the low in my book. Their behaviour, for the most part, is inexcusable. Just a personal opinion!

I'm sure many here will disagree with me (it's an open market, jump in if you see the chance and make your money etc) but what you are outlining doesn't seem right.

However, if it's legit and it's what you want to do....


----------



## bacchus (14 Apr 2006)

Jeanne said:
			
		

> Have to say I am saddened to see your post. Whilst I am all on for entrepreuneurship (sp?) and 'making money' as well as 'askingaboutmoney' nevertheless with property prices so off the chart nowadays and many young people desperate to get on that ladder, it's sad to realise that there are those willing to do whatever it takes to make a fast buck.
> 
> Estate Agents (not all but a lot) are the lowest of the low in my book. Their behaviour, for the most part, is inexcusable. Just a personal opinion!
> 
> ...


 
What the difference between doing this with properties or doing this with shares on the stock?
Shall we give money to FTB so that they can get on the ladder? why can they not accept that they can not buy, and simply rent like many other Europeans do? FTBs are so desperate to "own" (in 35 years!) that they fuel the market with their desperation and price themselves out. 

But are FTB really priced out or are they simply getting too fussy about where they want to buy/live.? D4 is not for everybody, full stop.

At the end of the day, buyers are responsible for the price increase , not sellers....


----------



## Jeanne (15 Apr 2006)

You make a good point that first time buyers are so desperate to purchase that they seem willing to almost sell their souls to own property thereby pushing prices ever upwards.  And there seems to be no voice of reason out there explaining how their 'logic' is really not in their best interest. 

But there are so many others willing to hop on the bandwagon to cash in....it's unsavoury. Is this what we've come to.....

Anyone care to predict if it will all come to a sorry end? The million dollor question.

 Maybe there is another thread on this.


----------



## CCOVICH (15 Apr 2006)

Try The Great Financial Debates section.  It's more suited to some of the issues raised here.


----------



## woods (15 Apr 2006)

Jeanne said:
			
		

> You make a good point that first time buyers are so desperate to purchase that they seem willing to almost sell their souls to own property thereby pushing prices ever upwards. And there seems to be no voice of reason out there explaining how their 'logic' is really not in their best interest.


It is not so long since the only single people that owned a house were those that had inherited one but now even the single people seem to think that it is a "must have". It is a catch 22 situation. As long as the price keeps going up every body seems to think that they must buy now and as long as everybody thinks that they must buy now, the prices will keep going up.
I agree that it is the buyers that are causing the problem. I never recall a time in my life when I went out and bid on more than one family home at the time. I decided which one I wanted and bid on that. If it did not work out then I went looking for another one. Todays buyers are bidding against each other on lots of properties at the same time and causing a false market.


----------



## candyman (17 Apr 2006)

Jeanne - I understand and accept your points. The property market and the way it is going is sickening in many ways. Nevertheless property is a very real business and as such money can be made from it. My thoughts above are not original, I just wanted to gauge their validity from some intelligent people here on AAM. 

Thanks for the input all the same...


----------



## CCOVICH (17 Apr 2006)

Folks, this isn't a debate on the rights and wrongs (if any) of what the OP is proposing.

Keep any other views for The Financial Debates or Letting Off Steam please.


----------



## smurf (20 Apr 2006)

can we get back to the 'flipping' ... 

is it possible?
is is legal?
How is it done? (If it is legal)


----------



## candyman (21 Apr 2006)

smurf said:
			
		

> can we get back to the 'flipping' ...
> 
> is it possible?
> is is legal?
> How is it done? (If it is legal)



agreed. could someone maybe list the things that must happen for a successful "flip", i'll kick it off with...

1. house prices keep rising
2. there is a significant gap between phase 1 completion and phase 2?
3. prices go up between phase 1 and subsequent phases
4. ?


----------



## icecool (25 Apr 2006)

candyman said:
			
		

> Wondering if anyone has any experience of this situation? Buy off the plans in phase 1 of a development, pay usual booking deposit. Wait a year for development to complete and then sell off the purchase and hopefully make a profit.
> 
> Asides from the market turning against you, can anyone else see any holes in this?
> 
> Would the property be considered second hand at time of sale even if no one has ever lived in it?


 


Depends on where you buy and payment schedule. You need to have an idea of timing and buying marets to plan your exit strategy. I have done this before. Not in the UK or ireland though isn't vibale there anymore in my opinion.  I use a UK based investment company have mentioned them before but dont want to be seen to advertise.


----------



## smurf (26 Apr 2006)

Hi currently Looking at flipping seriously

purchase price (250) phase 1 deposit €15 ........ completion Dec 2006 current phase 2 price 300k anticipating phase 3 higher at approx 315 .... looking to flip and avoid paying SD .... what do I need to do next?


----------



## Luternau (1 May 2006)

If no stamp duty paid before flipping is the difference in price from original contract price also subject to VAT(as per all new property) ?


----------



## dave6 (3 May 2006)

I too want to 'flip'.  The purchase price for the property was €265K & i have paid €10K deposit.  It won't be ready until the end of the year.  Exact same property in phase 2 is €300K.  Can someone please outline the steps involved in selling on??


----------



## room305 (3 May 2006)

I'm assuming that you can only sell 'flipped' houses to FTB's. Otherwise the person purchasing the phase 1 house at phase 2 prices will be liable for stamp duty on the purchase. This will make it decidedly unattractive for the purchaser compared to the genuine phase 2 houses on the market, with no applicable sd.


----------



## CO'L (3 May 2006)

If you can get your original vendor to waive non sub sale clause in original contract then you sell to 2nd party through your solicitor. It is perfectly legal if you have permission from original vendor (estate agent) or if there was no clause saying that you may not do it.


I'm fairly sure thats it anyway


----------



## therave (15 Jun 2006)

sub sale is legal ... i asked my solicitor and a solicitor friend who knows about these things (obviously i hear you all say)

obviously you make money if the market keeps rising but if you can't get a buyer to take your property then you will have to buyt it because i doubt any builder will just let you pay a booking deposit and not sign a contract. they want signed contracts to get the money from the bank...also you are liable for CGT at the end of the transaction


----------



## Solutions (15 Jun 2006)

I am aslo keen on flipping my property, but am unsure how:
1. you can legally avoid the stamp duty & 
2. why you should be restricted to selling on to a FTB?

couls anyone please explain?


----------



## therave (16 Jun 2006)

you avoid the stamp by not actually owning the property at all..you do the inital work finding the property and putting on a deposit,then the auctioneer  (or you) finds you a buyer  and a new contract is put in place ,but i am not sure of the legal terms/phrases....

also there is no need to flip on to a FTB anybody who wants the property will be ok.and they will have to pay a stamp unless they are a ftb


----------



## ClubMan (16 Jun 2006)

therave said:
			
		

> you avoid the stamp by not actually owning the property at all..
> 
> ...
> 
> and they will have to pay a stamp unless they are a ftb


 This does not make sense to me. Why, if the property was never previously owned, would a non _FTB _pay _SD_? I suspect that even if such a transaction is technically feasible and not classed as tax evasion, _Revenue _could feasibly determine that it falls foul of their anti-avoidance rules.


----------



## Solutions (16 Jun 2006)

I would agree, however is there any way to be sure, before completing the transaction?


----------



## therave (16 Jun 2006)

Clubman, if you are not a FTB then surely you have to pay stamp duty on any property that you buy .when you pay your deposit and 10% and sign contracts you are committing to buy but your contract with your purchaser then negates your contract and mentions that x amount is payable to you and the balance (the agreed price you have with the builder) goes to the builder...
it's definately not tax evasion .the one part of this type of transaction  i am not up to speed on now is the floor area plan certificate and where it comes into the transaction,maybe it's nothing but then again in the past i have heard it mentioned in the transaction..
flipping/ sub sale is legal and all a matter of timing and a good estate agent.the only illegal part of this is if you are liable for  CGT and don't pay it..
also if you buy in phase one at 250k and phase 3 is selling at 300k then the agent/builder has done all the work for you and you could slip your place in at 295k..
i would recommend a very good solicitor if you are even attempting this.


----------



## ClubMan (16 Jun 2006)

therave said:
			
		

> Clubman, if you are not a FTB then surely you have to pay stamp duty on any property that you buy .


No - non _FTBs _are exempt from _SD _on the purchase of a new property under 125sqm and effectively exempt from _SD _on new properties over that up to some limit (due to the way that the chargeable consideration is calculated). The issue here is if/how a new property being "flipped" is actually a new property as far as the ultimate owner occupier buyers is concerned. I have my doubts that it is but I don't know the answer. 


> when you pay your deposit and 10% and sign contracts you are committing to buy but your contract with your purchaser then negates your contract and mentions that x amount is payable to you and the balance (the agreed price you have with the builder) goes to the builder...
> it's definately not tax evasion .


Seems to me that this is not a normal owner occupier sale (by the person initially contracted to buy the property but who "flips" it on to another owner occupier buyer) and, as such, the proceeds would not be exempt from _CGT _and may, in fact, be assessable for other taxes. Maybe the ultimate buyer is safe in that it is a new property but the seller may have tax issues. Also even if no evasion is involved here otherwise legitimate avoidance can be deemed unacceptable if it falls foul of the Revenue anti-avoidance rules.


> the only illegal part of this is if you are liable for  CGT and don't pay it..


And possibly other taxes (e.g. _VAT_, income tax etc. perhaps?)?


> i would recommend a very good solicitor if you are even attempting this.


Definitely!


----------



## Glenbhoy (16 Jun 2006)

I have to concur with Clubman, imo unless the developer waives the no sub-sale clause in the contract then stamp duty would have to come into play - cgt may not unless the vendor already has a ppr.


----------



## therave (17 Jun 2006)

thanks for clearing up the SD question. as i had said i was unsure of this and also i did say that there was a question of the floor area.
the property of course would be a new property in a sub sale scenario but obviously not if you have to buy it and then flip it on.the reason it would be in a sub sale scenario is that you do not complete on it but your buyer is the one who becomes the reg owner,not you.
a sub sale is not a normal owner occupier sale,the builder and his solicitor must agree in the contract that a sub sale is allowable in the contract to you.
maybe my wording on CGT is incorrect in my previous post,i contacted the revenue when i did this and CGT must be paid but this is the only tax payable no VAT OR INCOME TAX, you are hopefully going to make a profit and therefore CGT tax is payable.
i don't think it matters if you have a PPR residence or not in the sub sale scenario as any gain would be a taxable one because you will never actually buy the property.I'm not a solicitor but i do work very closely with mine when i invest and i take advice from some friends who are solicitors .i have no legal training and i am only imparting what  information i can here, it's up to anybody interested in doing this to ask their own legal advise


----------



## Glenbhoy (19 Jun 2006)

> a sub sale is not a normal owner occupier sale,the builder and his solicitor must agree in the contract that a sub sale is allowable in the contract to you.


Therave, your answer makes a lot of good points and and seems pretty logical, the only thing i have an issue with is the above - why would a developer allow this, unless he was trying to pay off a mate at a low tax rate - what's to  stop him giving a couple of apartments to subbies in part income - it's win, win for everyone - cash flow wise for the builder and tax efficient for the subbie (assuming that revenue don't deem this as part of his trade - which they probably would'nt).


----------

