How to Successfully Flip a House in Singapore

Back in ’07, house flipping was the express train to Moneyville. Stock brokers were flipping houses. Pensioners were flipping houses. My dog groomer, whose property knowledge doesn’t extend beyond 72 ways to de-stain a carpet, was flipping houses. Then came the government measures, which derailed the gravy train faster than a budget rail worker. But even with new regulations, is successful house flipping possible? I find out:

 

Upside down houses

I am a very experienced house flipper.

 

What is House Flipping?

Flipping is when someone buys a house, then attempts to quickly re-sell it for profit. While typical property investors wait years for property values to rise, a house flipper re-sells in weeks.

A house flipper secures the option to purchase (OTP), then transfers the OTP to a buyer who is offering a higher price. For example:

  1. A house flipper offers to buy a house for $1,000,000.
  2. The house flipper secures the OTP at $1,000,000. This costs 1% of the price ($10,000)
  3. The house flipper finds a buyer who offers $1,020,000 for the house.
  4. The house flipper transfers the OTP to said buyer. The excess $20,000, minus any legal fees, is the house flipper’s profit.

(And yes, the eventual buyer pays back the 1%).

But wait, isn’t there a Seller’s Stamp Duty? Yes, and a house flipper can bypass this:

 

Satay Seller

Satay? Ba Chang? District 9 OTP?

 

Seller’s Stamp Duty

Since 2011, the government has attempted to discourage flipping. This is done through the seller’s stamp duty (SSD). When you sell a property within the first four years of the purchase, the SSD applies as follows:

  • First Year – 16% (of price or value, whichever is higher)
  • Second Year – 12%
  • Third Year – 8%
  • Fourth Year – 4%

The SSD must be paid within 14 days once the OTP is exercised. As such, it is the eventual buyer who must exercise the OTP, not the house flipper.

I can’t stress this enough: If you exercise the OTP, you’ve bought the house. You will incur the SSD upon trying to sell it

 

Stamping documents

16% when I stamp it? What happens if I stamp it a few more times? HA HA!

 

The OTP’s Shelf Life

The cost of the OTP is 1% of the price. So the OTP of a $1,000,000 house is $10,000. This must be paid out of the house flipper’s pocket.

In order to flip, the OTP must also contain the words “…and/or nominees” next to where the house flipper’s name appears.

Once issued, the OTP lasts about 14 to 30 days. The more urgently the seller needs the money, the shorter the given time. Within this duration, the house flipper must find a buyer to transfer the OTP to. Otherwise, the house flipper must either exercise the option himself (buy the house) or forfeit the 1%.

Sounds tough?

It is. But there are still ways you can perform a successful house flip:

  • Take Advantage of Fire Sales
  • Flip During an Up Market
  • Flip When You Have Deep Pockets
  • Flip Properties With Scarcity Value

* There is also another type of house flipping, which involves the transfer of the title instead of the purchase option. I will discuss this in a future article. Like us on Facebook to get updates!

 

1. Take Advantage of Fire Sales

 

Garage sale

Are you saying we can only fire sale stuff we own? I hope the neighbours have a sense of humour.

 

Fire sales refer to situations when a property is sold below market value. This is usually the result of forced foreclosure by a bank.

Properties in a fire sale are sold below their actual market value. A house flipper could secure the OTP at the lower price, then transfer it to a buyer willing to pay market rates.

Watch out for outsized risks: If a property is going for $995,000, and the market value is $1,000,000, the risk is steep. The 1% OTP is $9,950, which outweighs the potential $5000 profit.

 

2. Flip During an Up Market

Kelvin Daud, who has flipped two properties, times his decisions according to the property market:

I watch for changes in the residential property price index. If the index rises by at least 2% – 3% between one quarter and the next, I might consider making a flip.

…you cannot flip when the bubble has just burst; that’s the danger.”

Kelvin stresses the dangers of attempting a “down market flip”. He mentions that, in a situation where buyers are waiting for the market to bottom out, it can be hard to find a good buyer in 14 days.

In general, ensure that you attempt flips when the property market is resting, or on an uptrend. Never try to flip when prices are going down.

 

3. Flip When You Have Deep Pockets

 

Piggy bank and hammer

If you have a bludgeoning object, I have cash reserves.

 

The biggest problem with flipping is the 1% paid for the OTP.

The simplest way around this is to have cash reserves when you flip. Should you fail to secure your buyer in 14 to 30 days, you can just buy the property yourself. You can then treat your purchase as a regular property investment; drop by sites like SmartLoans.sg, and get the cheapest home loan to reduce your costs.

Hey, if you got it in a fire sale or something, it’s still a good price isn’t it? 

Alternatively, your bank account may be so substantial that the 1% is irrelevant to you.

Property investor Charlie Sng didn’t think so:

I bought a property with the intent to flip. My buyer backed out at the last minute, because he unexpectedly got divorced and wanted to settle proceedings first.

Rather than forfeit the 1%, which was around $12,000, I went ahead and bought the property for myself. Today its value has appreciated, so I have no regrets. But if I had very limited capital, I would have cried about that $12,000.”

 

4. Find Properties With Scarcity Value

 

HDB with parking lot

You think $50,000 extra is steep, but this place is rare ok? The parking lot has a lot of shade!

 

There are opportunities to flip besides fire sales. One of these is when especially scarce property appears on the market. An example would be a unit in a desirable condo, which is otherwise sold out.

How can you tell when a property is scarce? A lot of homework. It involves knowing the district inside out, and tracking the property market every day. And frankly, if you’re not doing this, you won’t be one who spots that scarce property when it goes up for sale.

Charlie Sng says:

Make sure there are no properties nearby that are too similar. For example, in Punggol right now, there are several new developments that are close to the upcoming mall. More than one such development is within walking distance.

This removes urgency in buying any specific unit just because it’s close to the mall. I think you would be hard pressed to flip a property under such conditions.”

 

 

Is It Worth Trying?

 

Man bungee jumping

Risk assessment: Like an extreme sport for mathematicians.

 

If you have the money and the contacts, it’s worth trying to flip some properties. Hey, it’s fast money. But for those who can’t afford to forfeit the OTP, don’t even try.

Likewise, flipping is not for people who lack contacts in the property market. 14 – 30 days is a very short time in which to sell a house. You should have five or six prospects lined up even before you get the OTP; if you don’t, just put it down and back off.

Image Credits:
snigl3t, alex.ch, billsaturnowht_wolf9653, taxbrackets.org, psalmi76

What do you think of house flipping? Comment and let us know!

Get more Personal Finance tips and tricks on www.MoneySmart.sg

Click to Compare Singapore Home Loans, Car Insurance and Credit Cards on our other sites.



More From MoneySmart
Loading...

Editor’s note:Yahoo Philippines encourages responsible comments that add dimension to the discussion. No bashing or hate speech, please. You can express your opinion without slamming others or making derogatory remarks.

  • Billionaire finds wreck of WWII ship in Phl
    Billionaire finds wreck of WWII ship in Phl

    Microsoft co-founder Paul Allen says he has found the Japanese Navy’s biggest warship at the bottom of the sea in the Philippines, 70 years after US forces sank it. Allen posted a photo on Twitter on Tuesday of the World War II battleship Musashi’s rusty bow, which bore the Japanese empire’s Chrysanthemum seal. The American billionaire, who has also pursued space exploration, said his luxury yacht and exploration ship, the M/Y Octopus, found the Musashi one kilometer (1.6 miles) deep on the …

  • US ambassador recovers from knife attack praised by N. Korea
    US ambassador recovers from knife attack praised by N. Korea

    The US ambassador to South Korea, Mark Lippert, was recovering from surgery Thursday after having his face and arm slashed by a knife-wielding activist in an attack applauded by North Korean state media. The United States condemned the "act of violence" which saw the ambassador rushed to hospital where his condition was described as stable after two-and-a-half hours of surgery that included 80 stitches to a deep gash on his right cheek. During the assault, Kim screamed a slogan in favour of …

  • Miriam bucks house arrest for Enrile
    Miriam bucks house arrest for Enrile

    Sen. Miriam Defensor-Santiago believes granting Senate Minority Leader Juan Ponce Enrile house arrest, while former President Gloria Macapagal-Arroyo remains under hospital detention, will violate the equal protection clause of the Constitution. “That’s already a violation of the equal protection of the law,” she said. …

  • 8 of 10 cities most at risk from natural disasters located in Phl – study
    8 of 10 cities most at risk from natural disasters located in Phl – study

    Eight of 10 world cities most exposed to natural hazards are in the Philippines and more than half of the 100 cities most exposed to earthquakes, storms and other disasters are in four Asian nations, according to a research. The study, published on Wednesday by risk analysis firm Verisk Maplecroft, analyzed the threat posed by storms, floods, earthquakes, tsunamis, fires, volcanoes and landslides in more than 1,300 cities. The study found that the 10 cities most at risk are Port Vila in …

  • New Moro rebel group emerges
    New Moro rebel group emerges

    A radical Muslim cleric trained in the Middle East and considered one of the leaders of the Bangsamoro Islamic Freedom Fighters (BIFF) has broken away from the terror group to form his own band of jihadists who are now reportedly providing sanctuary to bomb expert Basit Usman and at least five foreign militants, the military said yesterday. Armed Forces of the Philippines (AFP) spokesman Col. Restituto Padilla, citing reports from the field, said the Justice for Islamic Movement (JIM) was …

  • World's oldest person wonders about secret to longevity too
    World's oldest person wonders about secret to longevity too

    TOKYO (AP) — The world's oldest person says 117 years doesn't seem like such a long time. …

  • Ohio mom, boyfriend guilty; child emailed teacher for help

    PORTSMOUTH, Ohio (AP) — A woman and her boyfriend pleaded guilty to raping her young children and were sentenced to prison on Wednesday, a year after one of her daughters emailed a teacher for help and said she and her siblings were being chained to their beds, deprived of food and sexually assaulted. …

  • Ex-crew recognizes photos of sunken Japanese battleship
    Ex-crew recognizes photos of sunken Japanese battleship

    TOKYO (AP) — A former crewmember on a Japanese battleship that sank during World War II said Thursday he recognized photos of wreckage discovered this week off the Philippines by a team led by Microsoft co-founder Paul Allen. …

POLL

Should Aquino be held accountable over the Mamasapano operations?

Loading...
Poll Choice Options