Flipping property with squatters inside is a bet on a court calendar, not a renovation schedule. So the question is, would you buy a property with illegal occupants to flip in Australia? Not for the price of a vacant property. A buyer must buy only if a discount offset the delay, or buy under a contract requiring the seller to deliver the keys.
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This article addresses the problem of unauthorised occupiers and proposes a four level removal framework. The framework states that each level has a legal remedy, a time factor and an associated cost. Information sources are articles from law firms in New South Wales, Queensland, Victoria and Western Australia, and Real Estate Business and Wikipedia. Lawfirm blogs are a form of marketing and therefore should be judged on this basis. Court statistics for removals timeframes were not found. The timeframes and dollar estimates are assumptions and are therefore illustrative, and it is general information only and not legal advice. State law varies, so consult a solicitor before exchange of contracts.
Flipping Property Starts With One Question: Who Is Inside?
A squatter, a renter and a relative of a deceased owner may look the same from the road. But the law differentiates between them.
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A 2014 report from Real Estate Business on an eviction in Newtown, Sydney, makes the point. “The occupants said they had a written and verbal agreement similar to a tenancy agreement going back to 2001,” the report said. “A tenancy agreement can be oral, and does not necessarily mean rent, according to the NSW Tenants’ Union. The Tenants’ Union of NSW said a tribunal should make a ruling on whether or not that was a valid claim before the eviction occurred,” the report continued. “An illegal eviction incurs a fine of up to $22,000.” This story is from 2014, so be sure to check if the fine has risen.
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But once the occupant is able to establish a tenancy, you’re back to a tribunal case rather than a squatter scenario.
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Financial stress doesn’t change that. The Bondi Pavilion squatters, who were claiming an implied lease, discussed in our 2010 article, eventually lost in the NSW Supreme Court in 2010. The judgement was “hardship is insufficient to confer rights”.
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What About Adverse Possession?
Adverse possession is how you as the long-term occupant can register ownership of a piece of property. It is unlikely to be an issue in property flipping. According to Wikipedia, squatters are unlikely to use it. According to JJ Lawyers, the minimum period is 12 years in NSW and QLD and 15 years in VIC. According to Wikipedia, the period is 15 years in VIC and SA. According to SMR law, Queensland ‘s standard period is about 30 years with only about 12 years in exceptional circumstances.
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These sources vary, so it’s better not to quote any figure from any article, including this one. All durations are greater than most property flip durations. The cost of an occupant comes through time and attorney fees and not from lost title.
The Removal Ladder in Flipping Property: Four Rungs
An owner climbs the ladder one rung at a time. Each rung adds delay.
Rung | What happens | Route described in the sources |
1. Leaves on request | The occupant goes when asked | A direct request; trespass offences apply to staying after being asked to leave (NSW Inclosed Lands Protection Act, per Stacks Law) |
2. Formal notice | The occupant stays; the owner serves notice and negotiates | A written trespass notice; JJ Lawyers says police generally want a court order or evidence of a crime before they help remove anyone |
3. Possession order | The owner goes to court | Evidence of ownership and unauthorised occupation; sheriff or bailiffs enforce; Sydney Criminal Lawyers mentions an interim possession order from the NSW Supreme Court |
4. Contested | The occupant claims a tenancy or disputes the claim | A tribunal or court decides tenancy status first, then possession follows |
Stacks Law comments that police usually only get involved after the owner has tried to get rid of squatters but failed. This article is from 2010 and references a maximum $550 fine (this amount is now out of date).
I am again referring to the ladder. The first thing you need to know is that before settlement the buyer is not the owner. The seller goes up the ladder. The buyer, after settlement, climbs it.
Pricing Each Rung: The Flipping Property Discount Meter
Now, think of the sums rung by rung. The benchmark flip, by the way, is a guide.
One pays $600,000 for a vacant house. One puts $70,000 into renovations plus $14,000 contingency (20%). Selling cost is 4% of $780,000 ARV = $31,200. Six months holding cost of $1,500 per month = $9,000 Profit (before Stamp Duty) = $55,800.
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There is a cost of $4,875 for every month of delay ($1,500 for holding and $3,375 of interest on a loan for $450,000 at the hypothetical rate of 9%). The project does not begin until the keys are acquired.
Rung | Delay | Carry | Legal | Damage and clean-up | Total cost | Discount needed on $600,000 |
1. Leaves on request | 1 month | $4,875 | $2,000 | $3,000 | $9,875 | 1.6% |
2. Formal notice | 3 months | $14,625 | $8,000 | $8,000 | $30,625 | 5.1% |
3. Possession order | 9 months | $43,875 | $25,000 | $15,000 | $83,875 | 14.0% |
4. Contested | 15 months | $73,125 | $45,000 | $20,000 | $138,125 | 23.0% |
Consider the table a price list. If you pay the vacant-house price, rung 3 turns a $55,800 profit into a $28,075 loss. Rung 4 leads to an $82,325 loss. To keep the full profit, bid about $569,375 for rung 2, $516,125 for rung 3, and $461,875 for rung 4.
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Market drift is not in the table. At 0.3% per month, on an ARV of $780,000, nine months of market drift adds up to $21,060.
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A Short Scenario
Imagine the buyer, a hypothetical composite, finds a deceased estate listing on the market 12% under recent sales in the area. Each neighbor says they saw a light on at night. The buying dollar is getting reasonably attractive. But according to the table, rung 3 is an additional 14% out of pocket. The buyer is starting in the red before the tradesperson arrives.
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In turn, one cannot help but ask a question. If the handover hearing is in the ninth month, can we expect the lender to fund the tenth month?
The Contract Decides Who Climbs the Ladder in Flipping Property
Responsibility for this reverts from the seller to the buyer once the settlement has occurred, and will be governed by the contractual agreement. According to the legal association Attwood Marshall, if a contract provides for vacant possession and the property remains occupied, the seller will have breached the contract and the buyer will be entitled to bring it to an end and claim damages or specific performance.
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According to the legal association No Borders Law Group, which also attends to legal issues in Queensland, there are four options if the buyer has an issue with a current tenant: ending the contract, filing an action for damages, talking directly to the occupant to strike a deal or continuing the tenancy. Sprintlaw says the remedies all depend on the term of the contract. Negotiating an extension with a holdback or a reduction in the price, and getting a signed variation not just verbal confirmation, is suggested.
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People should get confirmation from a solicitor as to their understanding. When a person signs a contract having knowledge of the tenants and the contract takes the property “as is”, the remedies may be restricted. Prior to exchange of contracts, one should ask whether vacant possession can be made an essential term, whether a holdback is feasible and what effect on the deposit.
Damage and Finance When Flipping Property With Occupants
According to a 2016 piece by Real Estate Business, the common scenes left behind by squatters are “broken or missing doors and windows, punched-in walls, burnt carpets and graffiti.” Malicious damage to carpets and blinds may be covered by landlord insurance, while damage to the building could be covered separately by building insurance. Rent loss coverage can also vary from one to fifty-two weeks. While aimed at landlords, a flipper might experience varied terms with insurers, and written confirmation should be sought.
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As for funding, no lender policy on this issue has been published. A prospective purchaser should not presuppose that the lender will fund the later stages of a possession claim. This should be confirmed in writing before contracts are exchanged.
Self-Help Is the Fastest Way to Lose at Flipping Property
Abandoning a property by changing the locks may appear to be a quick decision but has the potential to be highly legally problematic. Sydney Criminal Lawyers warns that a property owner may be committing theft by holding onto a squatters’ possessions. The Newtown case shows how a tenancy assertion can turn the owner into the defendant.
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It also sets out legal steps property owners can take – locking and checking the property, serving a trespass notice or applying for an interim possession order. All these steps take time and should be factored into the property’s cost. A rushed removal may cost more than taking it in stages.
How FlipSync IQ Supports Flipping Property With a Delay Clock
The delay with removing squatters is a holding-cost one, and should be calculated as such. Flip Sync IQ’s deal analyser performs an ARV simulaton with incremental reductions to maximum purchase prices and immediately reverse-calculates the floor. Now, holding costs are increased to include the delay months, and we see the impact that reduction has on the floor, while margin protection still exists.
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Time doesn’t wait when it comes to holding costs. So, if one rung is nine months, it’s burnt out before the contract is signed. Once settled, receipts, invoices and staged payments are entered against the budget with red and green variance indicators for clarity. A full record, with dated photo logging and site check-in history is generated to provide for solicitor. Permissions are role-based and viewers can be given to solicitors or accountants.
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Should one buy a property with squatters in it for flipping purposes in Australia? FlipSync IQ cannot answer the legal question. It answers the price question, and the price decides the deal.
Flipping Property With Squatters: Should One Buy a Property With Squatters in It for Flipping Purposes in Australia?
A profitable flip with squatters depends on the purchase price reflecting the time delay: Rungs 1 and 2 could deliver a profit but the third rung will wipe out profit at the typical unoccupied property price point. The fourth rung will probably result in a serious loss. Because it is not known at the start which rung will be encountered, an offer at the third rung or a vacant possession should be demanded from the seller.
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Is buying a property with squatters in Australia as a flip a good idea? Only if your contract has the seller removing squatters or the purchase price is based on the nine-month rung. If you think of the question as a pricing question, you hold the upper hand. Buyers should begin a free 7-day trial of Flip Sync IQ and use the ladder analysis on any occupied property before seeing a solicitor.
Frequently Asked Questions
Can squatters legally claim a house in Australia?
Legally, property could be acquired by adverse possession, although it takes many years of uninterrupted exclusive residence. Sources vary in the time period from about 12 to 30 years depending on the state. As Wikipedia states, it’s not a common strategy for squatters; flipping a house generally takes much longer than a few years so owners are more worried about a delay in clearing title.
Can I change the locks or throw out belongings myself
No. Sydney Criminal Lawyers says keeping a squatter’s possessions could be a theft and the Newtown instance shows how a claimed tenancy could cause legal points of unlawful eviction. You should use written notices, call the police, have a court order and seek the advice of a solicitor first.
What if the contract says vacant possession and someone is still inside at settlement?
According to Attwood Marshall, “this may amount to a breach of contract by the seller, to allow the buyer to rescind the contract and recover damages or specific performance”. 2 Sprintlaw notes “whether there is a remedy for the buyer will depend on the language in the contract.
Do police remove squatters or does a court have to?
According to JJ Lawyers, police will need a proper court order or evidence of a criminal offence in order to take action. According to Stacks Law, police will usually act when an owner has tried but been unable to remove a squatter; an occupant declining to leave will usually require a court order.Â
Can I get finance or insurance on a property with squatters?
There are no published lender policies on this. According to Real Estate Business, landlord insurance will usually cover malicious damage and, in some policies, lost rent. This may be different on property flip policies, so you may want to get written answers from lenders and insurers before exchanging contracts.
How much discount should I demand for an occupied property?
The price should just be sufficiently discounted at the rung that we cannot exclude. For our would-be $600,000 flip, this would be a rung 2 5.1% discount and a rung 3 14.0% discount. (Some of these figures will obviously be individual-specific; use your own delay, interest, legal and damage calculations.) This dictates the key question for those of you interested in flipping or losing: should you buy an occupie property in Australia for flipping purposes? Yes, only if the price compensates for the rung.
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