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Trading
Trading is a strategy which involves buying and selling property in order to generate lump sums of cash.
Investors typically undertake trading to:
- generate an income
- pay down debt
- generate cash for deposits to purchase further properties.
Trading can take many forms including (but not limited to):
- new building (building from scratch)
- flipping (buying at one price and on-selling at a higher price)
- subdividing (dividing a large piece of land into separate smaller pieces and selling separately)
- lease options
- renovation (making improvements to on-sell for a higher price)
- assignment (getting a property under contract then on-selling the contract).
--Perry 00:01, 29 December 2007 (NZDT)
Business Structures
Obtaining professional advice is critical before undertaking any trading activities to ensure the correct business structures are in place. This may involve consultation with a taxation and structuring expert, accountant and lawyer. There is no one-structure-fits-all due to the differences in people's business activities, investments and personal situations.
Key issues that an appropriate structure will protect against include tainting, taxation and asset protection.
--Perry 00:04, 29 December 2007 (NZDT)
Tax Implications
Property trading generates a profit which is treated as income tax and is therefore taxable by IRD. Inland Revenue are currently targeting property traders in New Zealand. Some people are buying property with the intention of on-selling it again for a profit, or have established a pattern of trading but may not be paying the appropriate tax.
GST also applies to property trading transactions.
--Perry 00:29, 29 December 2007 (NZDT)
Risks
Property trading can generate significant rewards, but there are significant risks that go with it. The major risk to traders is changes in the market. For this reason, traders require a detailed knowledge of any market they are trading in, as well as an understanding of property cycles and the potential issues at different points in the cycle.
Each particular trading strategy also has its own risks.
--Perry 00:33, 29 December 2007 (NZDT)
Successful Traders
Property trading is not for everyone. Some have tried it and found it difficult, whilst others have been highly successful. Successful traders tend to have strong negotiation skills, a higher risk tolerance, and enjoy the challenge and process of trading.
PropertyTalk Forum members include several successful traders who are willing to give advice to people considering trading. Many of these traders are self-taught but are willing to share their knowledge one-on-one, through online discussion forums and seminars.
--Perry 00:41, 29 December 2007 (NZDT)
Related links
PT Discussion on trading for a newbie
Property trading articles from Garth Melville of Company Solutions[1]:
