Entering into the world of Renovation and BTL

hopefulfooluk

Hi everyone.

I'm after a bit of advice. I currently own a house but I would like to expand and ideally purchase a handful more within the next 3 years or so so that I have something dependable for when I am older. I'm currently 27.

I have been thinking of doing the following. Funds at this stage are limited but this is what I am intending to do - please tell me if you see any problems with what I'm doing (other than the obvious pitfalls of not getting tenants/buyers etc) or if you can see a better way to start getting into this properly.

I've seen over the last few weeks, a few properties (3 bed houses typically) in reasonable areas of Oxfordshire up for auction for a guide price of 130k. In the case of one of them, there was one sold STC in the same road, identical layout just more modern inside, for 209k. So let's say the auction sold it for 150k, interior updating and modernisation cost 20k, that is a healthy profit even taking into account solicitors costs for buying and selling.

Finance wise I would require a mortgage and I could raise a sizeable 0% stooze pot to fund the renovation work. Assuming my figures above are roughly correct, I'd have 9 months to complete the work before the 0% runs out, but seriously hope it wouldn't take that long to do up and sell the property. Even if it did take longer, an interest only mortgage of 150k would only slowly eat into the profit so I do think I'd be able to do it and still walk away with a decent profit to move onto another property and do the same with that.

Do you see any better way for me to do this, especially raising the finance to do the work? I could potentially get a loan off my parents and I'm sure they would but I'd rather do it myself.

Thanks in advance,

Chris

painted_lady

The only problem I see is that often properties at auction go way, way above the guide price. It could work, but go to auctions first, see how they work.

Doozergirl

If it goes like that then it's fine but there are a lot of variables in that lot!

You need to check what the auction properties have actually sold for and it's awkward to buy with a mortgage at auction as you need to have your own survey carried out to discover what it's worth and whether there are issues that will prevent you raising a mortgage on the property. Of course, after that, you can't guarantee you'll get the house.

If you turn the house round in 10 months (that means to the completion of the sale) then you're looking at costs of around £185,000. £20,000 to do a full refurbishment I'd say is hopeful if it's your first time; I'd like to see how the budget breaks down.

hopefulfooluk

Thanks people I'm going to go along to an auction on monday to try and get a basic idea of how things work.

Doozer thanks for your advice. Yeah the whole mortgage at auction is a bit of a pain but I guess the survey and searches I'd have to do before the hammer came down are a risk that could be worth taking to potentially get the property at a good price. But yeah like you say if I don't get the house then I'll have lost out and I just need to factor the likelihood of that into the equation.

The house mentioned - again I'm going on description not having seen it first hand - is structurally sound and very clean, just dated - new kitchen 4k, new bathroom 4k, new carpets and decent flooring 4k, paint 500, replastering 3k, labour 4200 (assumes 150/day for 4 weeks).

Hopefully that's not too far off

Doozergirl

What about the important things like Windows, Electrics, Plumbing, Roof? An auction house isn't likely to be a redecorating job.

Labour is far too loose a term really. I know they use it in property ladder but I put labour in with each subject that needs to be tackled
eg. Bathroom fittings £500, labour for fitting £500.
Heating system inc. fitting £3000
Windows inc. fitting £2500
That sort of thing (I'm making the numbers up too!)

You can't employ a builder for the whole project as there's no way you'll pull it in under £20k. You have to employ the trades seperately and project manage yourself. It's no mean feat!

Also, if you're just starting this, I'd own one house at a time. Two houses is just a plain liability.

PoorDave

You don't need to spend 4k on a new bathroom if you're not going to live there. Kitchen - you can probably spend less than that too

Leon_W

A problem would be finding a suitable mortgage.

You'll need 10% on the fall of the hammer so that's £15k + solicitor costs (£2500 ish)

If you have a residential mortgage on your own house (I'm assuming a bit here) that it is unlikely you would be able to raise enough on another residential mortgage to fund the purchase.

What about a "Buy to Let" I hear you ask. Probably won't work either. Most lenders will require that the property is lettable from day 1 which is unlikely at auction.

There are a few specialist lenders which offer mortgages on a doer upper basis but there are invariably 2 or 3 year redemption penalties. So a no go for a fast turn around.

Bridging or Commercial could be an option, no tie ins, but more expensive and unlikely to make up the shortfall of 90% so another 15-20K would have to be found to make this up.

Apologies if I've got the wrong end of the stick. You don't say if you have a large deposit or not. Just thinking out loud here.

All the best.

jyonda

You are entering into an oversaturated bubble with no experience. Run away. Why do you think you would be any better at property developement than any other business like, I dunno, selling used cars? You may be familiar with cars and drive around quite a bit but that's a far cry from operating a used car dealership.
Your 2 big problems are cash and expertise. Do you have the 10% deposit, money for fees and a further 15% to make up the shortfall from what a bridging loan would be? You'll also need the means to service that bridging loan at eye watering rates whilst also paying for the building works. You then need a quick sale as the bridging loan payments are going to eat up your profit and it's generally a fairly short term arrangement anyway. Do you have a builder/surveyor/architect in your family who can come with you to properties and give you a quick opinion? Quick being the operative word.

Do you know much about being a landlord either? Responsibilities, maintenence costs, agents fees etc? It's not clear whether you wish to be a BTL landlord or a developer. Which is it? Or are you not bothered because either way property is a big easy payday with absolutely no chance of failure?

hopefulfooluk

Doozergirl wrote:

What about the important things like Windows, Electrics, Plumbing, Roof? An auction house isn't likely to be a redecorating job.

Labour is far too loose a term really. I know they use it in property ladder but I put labour in with each subject that needs to be tackled
eg. Bathroom fittings £500, labour for fitting £500.
Heating system inc. fitting £3000
Windows inc. fitting £2500
That sort of thing (I'm making the numbers up too!)

You can't employ a builder for the whole project as there's no way you'll pull it in under £20k. You have to employ the trades seperately and project manage yourself. It's no mean feat!

Also, if you're just starting this, I'd own one house at a time. Two houses is just a plain liability.

Thanks Doozer I definitely need to get full quotes from people in every trade before I go in for the kill on a particular place should I find one but I was just toying with figures to work out whether I should bother considering it. Your suggestions have opened my eyes to more possible costs so thanks a lot

hopefulfooluk

Leon_W wrote:

A problem would be finding a suitable mortgage.

You'll need 10% on the fall of the hammer so that's £15k + solicitor costs (£2500 ish)

If you have a residential mortgage on your own house (I'm assuming a bit here) that it is unlikely you would be able to raise enough on another residential mortgage to fund the purchase.

What about a "Buy to Let" I hear you ask. Probably won't work either. Most lenders will require that the property is lettable from day 1 which is unlikely at auction.

There are a few specialist lenders which offer mortgages on a doer upper basis but there are invariably 2 or 3 year redemption penalties. So a no go for a fast turn around.

Bridging or Commercial could be an option, no tie ins, but more expensive and unlikely to make up the shortfall of 90% so another 15-20K would have to be found to make this up.

Apologies if I've got the wrong end of the stick. You don't say if you have a large deposit or not. Just thinking out loud here.

All the best.

Thanks Leon. I can get access to the 10% deposit for a property of this value and also the solicitors fees, surveys etc and also a further 20k or so for the doing up, so I'd be looking for around 90% LTV to allow me to save some cash behind to do the work, so I'll have to investigate my options here too. Thanks for the pointers

hopefulfooluk

jyonda wrote:

You are entering into an oversaturated bubble with no experience. Run away. Why do you think you would be any better at property developement than any other business like, I dunno, selling used cars? You may be familiar with cars and drive around quite a bit but that's a far cry from operating a used car dealership.
Your 2 big problems are cash and expertise. Do you have the 10% deposit, money for fees and a further 15% to make up the shortfall from what a bridging loan would be? You'll also need the means to service that bridging loan at eye watering rates whilst also paying for the building works. You then need a quick sale as the bridging loan payments are going to eat up your profit and it's generally a fairly short term arrangement anyway. Do you have a builder/surveyor/architect in your family who can come with you to properties and give you a quick opinion? Quick being the operative word.

Do you know much about being a landlord either? Responsibilities, maintenence costs, agents fees etc? It's not clear whether you wish to be a BTL landlord or a developer. Which is it? Or are you not bothered because either way property is a big easy payday with absolutely no chance of failure?

I rented out a flat I used to own for two years on ast so I know all about the responsibilities and costs associated with it. I am not so stupid to think that property is a big easy payday with absolutely no chance of failure. Give me a break please.

I may not have experience in renovating properties yet but I do run my own successful business and am not in the habit of making brash decisions without researching my options first. That is why I posted here, to get other people's opinions. We all started somewhere with no experience - I am there now and just want to make sure I have everything in place should I decide to go for it.