Property Renovation...Is this still a good time???

stokelass

Hi

This is my first time to this site and I hope someone can help me make a very important decision. My husband and I are thinking of trying to buy property (probably at auction) and renovate it for a quick turn around and then try to sell it again. I am not working at the minute as I am a full time mum so this would effectively become my job. We have no debts other than our mortgage (£80,000 on a £200,000 house). We were thinking of using the equity in our own house to provide the deposit for the development property, and then try to get a mortgage to actually pay for the rest. Can anybody tell me if they have any experience of doing this kind of thing? Can we get a buy to let mortgage even if we plan to sell the property quickly? Is there a better way around this? Also, what would be the tax implications of doing such a thing...Would I need to be classed as a self employed property developer??? Any help would be greatly appreciated.

Thanks in advance

Oh One last thing...Do people still think that this could be a good way of making money with all of the uncertainty going around??

Hope you can help...Cheers

WHA

If you buy with the intention of selling for a profit, you are in business as a property developer which is a trade. You need to advise HMRC that you have commenced a trade and will be liable to income tax and NIC on the profits - profits being sale price, less purchase price, less associated costs of purchase and sale, less costs of renovation and any other direct overheads such as interest, bank charges, accountants fees, stationery, telephone calls to builders etc, mileage for travelling around suppliers, etc. You would't get any of the capital gains tax reliefs and allowances as by being a property trade you are liable to income tax and NIC and not capital gains tax.

If instead, you intended to keep and rent out the property, or keep it and live it in, then a whole different set of rules apply and you'd be liable to capital gains tax on the eventual sale less all the usual capital gains tax reliefs.

That is why most property developers keep the property once developed. Live in it or rent it, and re-mortgage it to buy another property - by doing so you can defer the eventual tax until finally sold and get more reliefs and exemptions by carefully planning and timing of the sale of your property portfolio.

david29dpo

i use BTL on my developments then sell them. no problem. depends on how many you do a year with regards to CGT.

gallygirl

You can get development mortgages where I beleive you don't pay anything till property is sold - they come at a premium of course. Need to google as I don't know any suppliers.

The question of CGT is a long way off. You ahve to get a house fit to sell 1st. If buying at auction would you get a full survey done beforehand? You could spend 100's and then lose at auction - repeated many times over, but you MUST get a survey done. And how would you know what the renovation would cost? Unless one of you is experienced in the building trade you are likely to WAY understimate the costs - e.g. how much does it cost to rewire a whole house? £500? £2000? £5000? And would you know if it needed rewiring in the 1st place?????

Have you any experience of renovation? Do you know your joists from your cornice, or are you already choosing colour schemes? Anyone can renovate a property, but whether they can do it in a profitable manner is a different matter. The Property Ladder is a classic example - 3 yrs ago full of people who didn't know what they were doing but blundered through and still made a large profit - but only in a rising market. Now people with the same level of experience are losing a LOT of money as the market is no longer rising.

I'd suggest if you don't know the building trade you leave well alone. It coudl cost you your home if you get it wrong. Sorry to be so negative.

stokelass

We have renovated three properties in the past but these have all been our homes. That is, we lived in the first property for 8 months while we did it up, the second property took two years and we have now been in our present property for three years. We never did any of this to make a profit as such, we just enjoyed doing it and ultimately got the homes we wanted. We only moved because of work commitments and then the start of our family.

We never actually bought at auction though, and I must admit that it is a bit of a scary thought! But it doesnt seem like the same kind of profit can be made for buying through an agent. I think we could make a good go of doing this kind of work because we are good budgeters, and we would do most of the work ourselves, I am just not sure if now is still an ok market to try this kind of thing. Im not so convinced that BTL would work becasue we could loose a fortune if the market collapsed...??

gallygirl

OK, change of advice if you've done it before - & still want to do again!!!!

You need to have a realistic budget in place before deciding if worthwhile - I live in the mids & in all honesty the houses needing renovation are not a bargain - house price + buying/selling costs + renovation costs usually equals if not exceeds selling price. No doubt there are some gems out there - but you need to be v lucky to be the only one to spot them!

clutton_2

""we would do most of the work ourselves,"" - this is one of the bits that worries me - if you are a mum and your partner at full time work, doing it yourself will cost you a lot of money in the long run, whilst you pay high premium mortgage rates, while you do slow, spare-time refurbishment.

theGrinch

the two pieces of advice I would give are...buy at the right price and buy at the right price. your ultimate profit is not made by the price you sell at or the renovation itself, your profit or loss is determined by the price you buy at.