Mortgage options for property development business

marcusjames

I'm tempted with the thought of developing properties to create some income. I have a deposit but would like a mortgage that doesn't penalise me for buying, developing and reselling within a year.

Another option would be to release equity from my current house but I assume this will still hold similar charges.

How do developers make this work without 100% cash (plus development costs)?

Thanks

Thrugelmir

marcusjames wrote: »

How do developers make this work without 100% cash (plus development costs)?

By using a bank for a commercial credit line.

The purpose of residential mortgages isn't to provide business finance.

Wh05apk

If you have equity in your current property you could possibly do an offset style mortgage, which would allow you to draw down the funds, then repay when you sell, not all lenders will allow borrowing if they see it as a "business" proposition, if you are simply using it to fund a buy to let for example, that would be permitted.

holly_hobby

You should also be aware that as a property developer, you will be liable to income tax and not CGT on disposal of the development.

Holly

shortchanged_2

marcusjames wrote: »

I'm tempted with the thought of developing properties to create some income. I have a deposit but would like a mortgage that doesn't penalise me for buying, developing and reselling within a year.

Another option would be to release equity from my current house but I assume this will still hold similar charges.

How do developers make this work without 100% cash (plus development costs)?

Thanks

Good luck with that one, unless you are confident that is that house prices are going to rise over the next few years.

somethingcorporate

shortchanged wrote: »

Good luck with that one, unless you are confident that is that house prices are going to rise over the next few years.

I agree. Unless the OP can do all the work themselves the margins will be razor thin (or probably negative given the way house prices are going).

My advice would be to do something different, the time for flipping houses in 12 months for massive profit ended about 4 years ago.

Conrad

I have small time developers making money. One example is 2 ladies that buy in Suffolk, 1 of whom does up old cottages (paid £199k, just sold for £400k 1 year later - her and hubby do all the work) and the other buys large plots / barns and makes a good returns - all Tax free as they use each as thier main resi, - again they do the work themselves. Perhaps this is not so easy in more depressed parts.

I also have developers who buy houses and turn them into flats and make reasonable returns after Tax.

Finance on your main home is the way most people get going. Specific development finance can be add from vaious lenders up to about 70%. You will OF COURSE pay fees and exit charges - you yourself want a profit on each development, so of course do your funders - they aren't charities. I would suggest fees in total of £10k ish - plus normal selling and buying fees such as stamp duty. One small lender has lower fees at about £7000 on a £150k loan.

It can and is done, and even now people make money (just as people made amazing films and songs despite the 1979 dire times when we all thought the end was nigh).

somethingcorporate

I am sure it can be done but in the toughest housing market in decades and never having done it before risking your main residence does not sound a great idea.

Conrad, your experience seems to indicate the people making money from it now have been doing it a while. Most probably backed up with oodles of cash from the good times to support developments now when it is tougher.