Property Development as a way to make money to reduce debts?

Lottiepots

Hi,

Not sure that this is the correct place to post, but the reason we are doing this ultimately is to try and reduce debts.

Looking for a bit of advice. As you can see I am in quite a bit of debt and my husband and I are considering buying a property in Glasgow around christmas time and developing it. We would be hoping to sell it on in early summer in order to make a profit and add this money to outstanding debts.

Please can anyone advise if they have done anything like this before, if you think it is a sound idea, and any tips would be greatly welcomed.

Thanks

smarmo

What are you going to buy it with and what are you going to develop it with. Both cost money and you seem to be in debt....???

Lottiepots

Yes i do seem to be in a bit of debt, aware of that.
I would still be eligble for a mortgage as we take home a decent salary and my parents have said they would lend us enough for a deposit.
I know there is obviously risk attached to this but we are trying to reduce our debts as quickly as possible and thought this seemed like a valid option. Just wondering if anyone else had thought about this or actually done this.

gixxer6_2

dont go the borrow to pay off route, this doesnt work i am a prime example, why not use the money your parents are going to lend you to reduce the debt and also the money you would be paying for a new mortgage would be better spent paying off your debt

lush_walrus

I think it would be a very bad idea to try to get a larger debt (even if it is temporary) to try to speculate on making money for an existing debt.

Property developing is hard work, takes a hell of a lot of investment money and either the skill to develop the property yourself ie as a builder or have indepth knowledge of the area you are looking to buy in, the prices that things will sell for when renovated, how much it will cost to do and have the money there to do it.

Personally if I was you I wouldnt do it, its a very competitive market, and despite what the programmes make it appear to be it is by no means easy money! Its great that you are trying to find ways to repay your debt but I personally dont think launching into developing is the way for you at the moment. Realistically, I think you will be very hard pushed to buy and sell in such a short period, without taking into account the time it will take to carry out the work. The property we have been working on we offered on over a year ago, and its only just going on the market now with work still to be carried out on it while it is being marketed. We brought with cash, and had cash available to do the work, if you dont then you will need to factor in the cost of the mortgage/loan payments, before you take into account all of the other costs such as potentially capital gains tax if you own another property, council tax (there are exemptions for 6 months but beyond that you have to pay), the costs of the work, the costs associated with buying and those for selling, all of which with a debt already become very difficult. And if you make the wrong choice you risk being further in debt than you are now.

It really is a lot of stress a lot of hard work and a lot of money to develop and even though I am in a good position in that I am an architect (so can design it) and own agencies (so get to know what is coming on the market) it is very very difficult at the moment to come across things which are worth getting involved with.

Lottiepots

Gixxer6,
Have you tried something similar to pay off debts and failed?
We are just considering everything we can because we are desperate to pay off all of our debts.

Lottiepots

Thanks for your response Lush Walrus. We do have expertise around property value etc in the specific area but realise this is variable.
After costs, e.g monthly morgage costs, fees, materials, labour and council tax etc. Are you still hoping to make a profit?

gixxer6_2

yes myself and a friend tried it and to cut a long story short we just about broke even, we all want to pay off our debts as fast as we can and if you look to the right people there is a way out, i have just started on a debt plan with a company called payplan who charge no fees and are able to talk to my creditors with an offer per month, after taking all my finances into consideration they have come up with a plan that will have me debt free in 7.1yrs, now this sounds along time and it will probably seem it, but i am looking at it in a different way in the fact that if i had borrowed more money from the banks it would mean just more debt and over a longer period of time, have a look around this site this is so much help and info and please think twice about property development

Lottiepots

Gixxer6,
Thanks for your reply I am managing my debts now, with a big thanks to this site, and hope to be credit card debt free my july '06. This will leave a an egg loan of roughly 13'000, i pay this at 308 per month and this is until 2010. The reason I was thinking about developing a property was to have cash available to pay towards egg loan so that we would be completely debt free by the time we came to buy a house (we rent at the moment).

There is no need for us to contact paypal as we are managing, just being impatient really because we want to get rid of the egg loan before we buy a house.

lush_walrus

Lottiepots wrote:

Thanks for your response Lush Walrus. We do have expertise around property value etc in the specific area but realise this is variable.
After costs, e.g monthly morgage costs, fees, materials, labour and council tax etc. Are you still hoping to make a profit?

Yes, we will be making a profit but we didnt have any mortgage payments, or EA fees (as its going to be sold by us), there arent any capital gains tax as its the only property in my name and I designed all of the changes and applied for planning permission myself so no architect fees, everything was brought at trade prices.

To be honest it is a very stressful thing to do, and finding property is hard, its been huge hard work and stress.

The property was a house in some senses as it was possible to move anywhere in it but had two sources of electric, two council tax bills, two kitchens, two bathrooms and a large plot of land on the side. So while the sale was going through, I set up the ownership of each part of land, set up leases etc ready to put through at exchange, as part of the conditions of the sale I asked for 3 months between exchange and completion and put the planning permisson in during that time. So infact have been working on it for more than a year, and when the flats are sold I am using the money to start works on the new build on the same plot.

I still think you shouldnt do it, it is scary enough when the money is available to pay for all the unforseen things that crop up and not need to make a profit (although of course anyone would be devastated not to). But if you do make sure that you have truely worked out the costs of the work, in preparation now you can start to source materials, good contractors etc and get a list together as you need to keep the time that it takes to a minimum if you have a mortgage as every months payment costs you money (make sure the mortgage you choose is interest only), try to get to know local EAs and get their trust so that they will think of you if something comes up.

Lottiepots

Your project seems really adventurous for a first time property developer.. we were thinking of something on a smaller scale. Perhaps a first time buyer flat to modernise. However, I do know this would reduce the amount of profit available to us.

We have researched it a bit but we could do so much more and agree that this should all be done prior to buying the property to reduce costs.

We are still undecided but we were thinking of buying around Christmas time so we still have some time to find out more.

Thank you for your views and I do appreciate your honesty. Good luck for selling your flats!