Am I to become a renter

chewmylegoff

chucknorris wrote: »

Don't forget with profit comes risk and at least some effort.

The profits are unlikely to ever be small because when you self build you eliminate the following costs:

2% stamp duty (based on the value that I would self build, see edit below)
2% sales/marketing costs (costs to the developer)
15% approx gross overheads and profit margin (of the developer)
?% potential access to cheaper finance (than the developer)
?% finamce costs between completion and disposal

The above is of course back of fag packet but represents the potential savings.

I'm not sure if ISTL has allowed for finance costs, even if he is using his own capital there would still be an opportunity cost. His notional profit is on the high side for what I would expect, but not quite outrageously so, if he happened to get good deals and didn't have to dip into a contingency fund for unusual events and risks.

Edit: just realised I would probably have to pay 3% stamp duty on the land, so the stamp duty saving wouldn't be 4%, overall it would only be about 1% plus 4% on the overall value less the land, so approx 2% overall (subsequently changed)

But if you buy the house effective "flat pack" from a house builder who then not only puts the shell together but does all the project management and arranges all the trades (presumably charging you a mark up on their subcontracted rates) surely they are charging you the 15% (or more) gross margin so you aren't eliminating it at all. I.e. buying your own land and paying someone else to do all the work isn't really self build.

Personally I think ISTL may be over optimistic about the price he can get the land for, but I don't really know what I'm talking about, it just sounds a bit too good to be true to me. If there is £120k profit to be made on the basis that the land costs £100k, I would have thought there will be quite a few people knocking around who were prepared to pay more than £100k for the land. Good like to ISTL though.

wotsthat

shortchanged wrote: »

You're well aware of my feelings on this one wotsthat, in that I am firmly against property being seen as a cash cow and investment.

Houses should be exactly what they are, places to live and call home.

Profit makes the world go round. The house fairy doesn't just magic up a housing estate when we click our heels together and say "there's no place like home". Without investors there will be no building. The taxpayer certainly doesn't have the appetite to build houses via the inefficient public sector.

Most essential services are delivered via companies intending to make a profit - I can't see a difference between water, food or housing provision.

shortchanged_2

wotsthat wrote: »

Profit makes the world go round. The house fairy doesn't just magic up a housing estate when we click our heels together and say "there's no place like home". Without investors there will be no building. The taxpayer certainly doesn't have the appetite to build houses via the inefficient public sector.

Most essential services are delivered via companies intending to make a profit - I can't see a difference between water, food or housing provision.

I've also stated in the past that I have no objection to HPI as long as it is reasonable, i.e generally in line with wage inflation.

The problem we have now is that house prices rocketed out of control in the previous decade, way out of line with earnings and they now need to re-correct at lower level in order for them to rise again.

IveSeenTheLight

chucknorris wrote: »

Edit: just realised I would probably have to pay 3% stamp duty on the land, so the stamp duty saving wouldn't be 4%, overall it would only be about 1% plus 4% on the overall value less the land, so approx 2% overall (subsequently changed)

With the land at £100k, we are calculating that there would not be any stamp duty on the land.
We will verify this with our solicitor if the project moves to the next stage

chewmylegoff wrote: »

Personally I think ISTL may be over optimistic about the price he can get the land for, but I don't really know what I'm talking about, it just sounds a bit too good to be true to me. If there is £120k profit to be made on the basis that the land costs £100k, I would have thought there will be quite a few people knocking around who were prepared to pay more than £100k for the land. Good like to ISTL though.

We too are surprised that we can get the land for what we are advised. I too am sure that if the land was suitably marketed, then there would be other potential buyers.

The owner themselved considered building, hence why we were advised by the builder that the land could be available.
The owners are in their 80's though and the good wife has convinced her husband to simply sell the land rather than take on a build project at this stage in their life.

Our advantage is that we have the funds to move quickly.
The seller can essentially secure a quick sale without having to advertise.

I'm going to speak to the owner and the builder again tomorrow so hopefully know where we stand on this opportunity.

Were also investigating another piece of land where a derelict property resides. It's been derelict for a few years after some extensions were in progress. Were thinking the owner may have run out of money and might consider selling, however that is on the outskirts of Aberdeen and I'd think the land might cost considerably more.

chucknorris

IveSeenTheLight wrote: »

With the land at £100k, we are calculating that there would not be any stamp duty on the land.

There would not be any VAT on 100k, in my example I would anticipate paying between 400 - 499k for the land.

Have you allowed for landscaping, fees (planning, building regs, statutory bodies, misc prof fees), services to the site boundary (or is the site fully serviced?), finance costs (opportunity cost if self financed)?

You should also allow for a contingency fund of around 5% of the building cost.

chucknorris

chewmylegoff wrote: »

But if you buy the house effective "flat pack" from a house builder who then not only puts the shell together but does all the project management and arranges all the trades (presumably charging you a mark up on their subcontracted rates) surely they are charging you the 15% (or more) gross margin so you aren't eliminating it at all. I.e. buying your own land and paying someone else to do all the work isn't really self build.

Personally I think ISTL may be over optimistic about the price he can get the land for, but I don't really know what I'm talking about, it just sounds a bit too good to be true to me. If there is £120k profit to be made on the basis that the land costs £100k, I would have thought there will be quite a few people knocking around who were prepared to pay more than £100k for the land. Good like to ISTL though.

It is still classed as a self build (by the industry) although I tend to agree with you as personally I don’t really consider it (full on) self build. Which is why I don’t think he would save 15% there, but I would save at least that because being a chartered quantity surveyor my preferred method would be to project manage it myself, using sub contractors rather than a main contractor, therefore eliminating most of the main contractor's overheads and profit. But I'm not just talking about a main contractor's profit I am talking about the developer's profit and overheads. I suspect that you are comparing it to a small building company building houses to sell (develop) but this is a far different role to that of a main contractor who builds a house directly for a client, which carries far less risk and therefore less profit. There would also be a further saving on the overheads, profit and risk of the developer over that of the smaller profit margin of a main contractor (taking on far less risk).

I have always been on the lookout for a plot of land but in Surrey but it is easier to find rocking horse sh*t, sure they are some plots around but I haven’t seen anything that would suit us. I would like to build something worth about £1m and I would expect to pay something in the order of:

480k land (certainly under 500k)
15k stamp duty/solicitor
250k building costs
20k miscellaneous professional and other fees
40k finance/opportunity cost
15k contingency fund

I too think he is being very optimistic but he has plenty scope to spend more and still be well in (notional) profit. He may have to spend a bit more than he expects on things like landscaping (hard and soft), bringing services to the site (builders usually quote from the site boundary only), fees (for example planning, building regs, statutory bodies, misc professional fees), finance costs (opportunity cost if self funded)contingencies (ie soft spots, existing services discovered on the site etc).

chucknorris

IveSeenTheLight wrote: »

Were also investigating another piece of land where a derelict property resides. It's been derelict for a few years after some extensions were in progress. Were thinking the owner may have run out of money and might consider selling, however that is on the outskirts of Aberdeen and I'd think the land might cost considerably more.

Don't forget if you would be renovating then 20% VAT would be payable, but not if you demolish and build a new house.

Generali

IveSeenTheLight wrote: »

Sadly no.
I've went with a very good local builder who produces quality spacious properties.

Here's the design I'm interested in
http://www.caledonia-homes.co.uk/plan%20and%20detail/ronaldsay.htm

The builder will project manage the build including planning, utility connection building warrants etc.
This property is expected to be circa £192,000, and is happy to tweak the layout at no cost unless it results in additional materials.
The plot that is coming to the market is approx 1,000 sq m, quite near Aberdeen and is available for approx £100k

I can see that there is a similar design on the market from a few years ago
http://www-r.aspc.co.uk/cgi-bin/public/LiveProperty/295748?ID=FAPOJEJL#picture

All in, it will probably cost me about £330k to build and finish with the valuation being circa £450k

Very nice and adding value is always a good thing. Keep us up-to-date with how things are going: I'm hoping to build a farmstead in 5-8 years time so would be fascinated in your experiences.

Check out insurance: I know 2 people in Sydney in the past year that have had builders go bust mid-build which would have cost them plenty of cash if it they hadn't been insured.

Percy1983

chewmylegoff wrote: »

what if his parents were to use the rent to pay off their mortgage though? unethical, surely. after all they're not doing anything to earn the money.

Surely family wouldn't charge well over and above the actual cost of them being there.

Hence the use of the term 'rent', not really market rate just a contribution to the utilities and food etc where things are shared.

The idea of it could benefit eberybody is that one gets a reduction in the running costs and one pays 'rent' which is less than market rent.

It is possible for families to help each other without profiteering from each other, some of us do actually see the greater good rather just our own needs.

chewmylegoff

Percy1983 wrote: »

Surely family wouldn't charge well over and above the actual cost of them being there.

Hence the use of the term 'rent', not really market rate just a contribution to the utilities and food etc where things are shared.

The idea of it could benefit eberybody is that one gets a reduction in the running costs and one pays 'rent' which is less than market rent.

It is possible for families to help each other without profiteering from each other, some of us do actually see the greater good rather just our own needs.

Ok, so charging rent now is fine as long as it's not "profiteering"? So what a LL should to is work out exactly the cost of the property and recharge that to the tenant with no mark up? How would this work - presumably to be consistent with your previously stated views the LL could not pass on the cost of the mortgage interest as that is not a cost of the tenant "being there", as it would still have to be paid if they were not. So, should rent in fact be a charge to cover the amount of wear on the carpets caused by the tenant walking up and down, and nothing more?

This still seems inconsistent with your previously articulated views that, even if a LL charges a tenant a below market rate rent, it is an immoral practice as the LL is getting subsidised carpets paid for by the tenant.

Also, I am confused by your clarification around your use of the word "rent" as it appears what you meant was "a contribution to the incremental cost of utility and food bills and no contribution towards the provision of the roof over one's head".