How can we raise money for potential second home/property development business?

LaDiva_2

googler wrote: »

It sounds like you should be asking your bedresting friend all the questions rather than us. Pin her down and quiz her. Sounds like she won't be able to run too far.....

How did she raise the finance for her first purchase?

I have asked her in regards to raising finance for her first purchases-her father funded them.
I was given the impression that he no longer has a financial tie to her business, but did with the first 4 properties.

I'll be visiting her again, however given the fact she's said she's looking at not committing to anything anytime soon I didn't want to come on too strong and bombard her with questions.

I do apoligise if it seems like I am cluttering up/bombarding users with questions. I have figured over time that there are many different people on this forum, including those not in my social circle who are in a better position to give their opinion. By no means do I wish for anyone to give their personal trade secrets away which I doubt anyone would. I was looking for information on how property developers went about raising money on purchases when they didn't have someone around to basically pay for the properties.

I'll try and answer all the other questions.

RedLady, heck we don't think it's easy, we're just weighing up if it would be a time to consider our first project. We've viewed the property, and have booked a further viewing with a rep from a building firm who recently did a lot of work near to where I live.

Of course we've looked at the fact if the property is still on the market maybe there is something fishy in the property, so we've contacted a structural engineer, and hope to get everything checked before we buy.

PoppySarah, we are saving, what I was attempting to ask is can my husband purchase a property based on just his income if I was able to previously or would it be frowned upon by mortgage lenders.

Again, apoligies if I've asked the wrong question in the wrong forum.

puddy

have you viewed it, have you quizzed the estate agent about an issues with the house without making it look like you think its a bargain

im just not sure why it would be 60k when it is 'worth' 100k?

motherofstudents

Did you mean it is for sale at 60k but after doing work on it, it will be worth 100k ? If that is the case it would make sense but otherwise I can't see how something which is worth 100k would sell for so much less. I wouldn't criticise you for having a go, I'd love to do it. I think the most important thing is to buy the property at the right price to start with and then be very strict with your budget when you are doing the renovation. It's a risky business and you need to do plenty of research. Good luck.

LaDiva_2

When we went to view it we didn't show any sign of the fact we thought it was a bargain. In fact I made it seem like the property was far from a bargain and the only thing going for it was the local primary school which is a 5 minutes walk away (at this stage I was researching the area and felt it was best to play down any potential interest).

I did quiz them in regards to current owner. The current owner previously let out the property to a solicitor, they were the tenants for over 25 years. He (the solicitor) sadly died 4 years ago, and since then they have not been able to find a long term tenant so have decided to sell as they current owner is looking at selling his current portfolio, starting with the properties in the area as prior to the solicitior being a tenant a GP was a tenant (for 5 years) and the owner felt there was no longer a long term demand from clients he prefers (there is now a large PCT in the area, and not many smaller GP branches around) and felt that after so many years he wanted to simply retire with money to spend. I didn't quiz to why he was looking at selling it cheapily and quickly, I was a bit concerned it maybe for personal reasons and I may seem noisy. I did ask if the current owner had anyone who could look after his portfolio and he said immedicate family was no longer in the area. I didn't ask anything after that, thought I maybe crossing the line.

The things that I've noted which maybe contributing factors to a low price are:

the property is quite close to a greenway (this doesn't put me off, however I am looking into this. Saying that all the other properties are close to it, so I maybe imagining it).

the garden is very small-however the property is 5 minutes walk from a lovely park which has a park ranger from 7:30-3:30pm daily

smaller businesses are moving away, whilst larger well known companies/retailers are moving in

there are more rental properties and flats in the area (the city centre) now than 18 months ago

the house is in a regeneration area (which I have looked at and from what I've been reading this is a good point-I've looked at the council plans for the area, bidding for funding, and funding that has been received by the area over the last year/24 months). Could long term development in an area put off potential buyers.

the local school primary school is great-outstanding Ofsted reports, and is very popular with families who live on the outskirts of the area however the local high school leaves a lot to be desired (reports on the ofsted website confirmed what I've heard from parents/former students)

there was recently a gang related murder in the area, crime generally in this area is lower in this part of town. A murder is a big thing, looking into the story (I can only comment on what I have read) the gang member lived in the area, the gang was from outside the area. Again, I am wondering if this would put someone off.


Thank you for everyones input.

LaDiva_2

motherofstudents wrote: »

Did you mean it is for sale at 60k but after doing work on it, it will be worth 100k ? If that is the case it would make sense but otherwise I can't see how something which is worth 100k would sell for so much less. I wouldn't criticise you for having a go, I'd love to do it. I think the most important thing is to buy the property at the right price to start with and then be very strict with your budget when you are doing the renovation. It's a risky business and you need to do plenty of research. Good luck.

A new kitchen and bathroom is required (unless we go for the 70's retro look), as well as a gate to the side of the property. It needs a good scrub down and decorating throughout. Whoever purchases the property will need a few gallons of resolva to combat the little weedy friends. So yes motherofstudents, in essence the property once modernised will be worth 100k.I do hope that makes sense. We've looked at kitchens and bathrooms, the fitting of them and think we maybe able to pull off both for under 7K. Decorating is something we're now looking into.

Just waiting to find out if there is any structural issues lurking in the property.

The more I read about the business, the more risky it becomes. I keep adding to the research rather than just looking over things.

redlady_1

So if they cant find a long term tenant what makes you think you will be able to? And if you budget £7k for a bathroom and kitchen (finished to a good standard I assume) then I would double it to be sure. The tradesmen are going to be your biggest hurdle I would say. Do not expect a quick turnaround as you will be just another client. All those TV progs are toss. They have subbies who work solely for those companies or employ their tradesmen themselves.

A gang murder??!!! :eek: Er, yes, I would say that would put people off!!

puddy

well that makes more sense, it would seem from what you say, the property is on at 60 but needs substantial refurb, possibly more if it hasnt been touched since the 70s, therefore it WILL be worth 100k if you put it right but its not 'worth' 100k now, its worth 60, hence the price

redlady_1

Another thought, if you are going to renovate and then sell, this could take 6 months or even a year. What are you going to do if the property crashes in price? Who says it will be worth £100k, you or an estate agent?

Good luck if you take it on

tesuhoha

Property development is particularly risky right now. There is an excess of property on the market and very few buyers. What you have to think about is how much are the contractors actually going to cost, is there any structural work involved? How long is it going to take and how long to sell. Are you actually going to make enough profit for it to be worth it after paying interest on the loan? The renovation will cost more than you think it will and will you definitely be able to sell for £100,000? What it is worth and what it will sell for are two different things.

For a property to sell in the current climate it needs to have something special about it, either for it to be in an exceptionally good area, or to be finished to such a high standard that it has the wow factor. Well you've already told us its not in a good area. Being inexperienced are you going to be able to finish it to such a high standard? Are you going to put in expensive fittings? You will probably have to have professionals do all the work if you want it to have the wow factor and that will be expensive too.

So I think that is what you have to think about - whether you will be able to make enough profit on it after paying for everything and you have to take into account the interest you are paying as well as the cost of the work and the costs of buying and selling.

Doozergirl

LaDiva wrote: »

A new kitchen and bathroom is required (unless we go for the 70's retro look), as well as a gate to the side of the property. It needs a good scrub down and decorating throughout. Whoever purchases the property will need a few gallons of resolva to combat the little weedy friends. So yes motherofstudents, in essence the property once modernised will be worth 100k.I do hope that makes sense. We've looked at kitchens and bathrooms, the fitting of them and think we maybe able to pull off both for under 7K. Decorating is something we're now looking into.

Just waiting to find out if there is any structural issues lurking in the property.

The more I read about the business, the more risky it becomes. I keep adding to the research rather than just looking over things.

This is a property which was let for 25 years. Presumably if the kitchen and bathroom need replacing then more than that needs doing as these are the things that are immediately obvious but not the things that cost the most money.

How old are the electrics? The boiler? Does it have central heating? Condition of the windows, guttering, roof? Is there wallpaper on the walls - is it thick vinyl or woodchip - shows that the plaster is shot - highly likely in an old house which hasn't been touched for a while - all plaster has a life span.

Regeneration areas I would be particularly concerned about under our current government. They will very easily lose funding and without doubt, places that haven't 'arrived' are the first to fall and last to rise.

You will need to remortgage to raise at least the deposit on the property, if not all of it. You should speak to the business managers at the bank regarding funding and you will have to present them very clearly.

If they decide to lend then they will lend to a maximum of 70% of property value and will expect you to fund the renovations yourself until such time as the property can be revalued higher.

In addition to security lodged against the renovation, they will expect more security lodged against your own home. That is the way they do business now. Rates will be in the region of 5% plus over base and you will have an arrangement fee of at least 1.5% in addition to this and a valuation fee on top which is around £400 + VAT.

Banks are not keen to lend on property development but they will take each case on merit. You need strong comparables to present as well as detailed costings of the work required. If you go over budget, it's your issue to find the money.

Essentially, you're better doing it against money raised from your house than trying to fund it separately.

Ultimately, you have to risk it for a biscuit so you must be very confident and not take your friends word for it. What makes me suspicious is that there seems to be a lot of undervalued property in this area - either because the street is rubbish or your friend is being optimistic in her own valuations - either way, it makes me wonder about the acheivable prices.

To me, it's quite a simple business. You need to have a very sure gut feeling that there is masses of profit in it. If I am not absolutely sure that something is going to give me a massive margin, I will not touch it as if there is a lot of work invloved the margin is usually smaller than you initially expect.

I'll tell you for free that you don't find property on the open market through estate agents being marketed at £60k, requiring just a new kitchen and bathroom and £7k spending on it to fetch £100k. I would be exceptionally rich if they were that easy to find.