Buy, renovate, sell...?

AlexMac

Hi Ray; RE your response
"Alex, thanks ... Yes, you're still telling me not to do it, but you just kind of deflated my bubble a little bit rather than burst it completely. Having done it in the past, is there any way you'd do it now in the current climate? (I think I already know the answer to that...)...'

sorry- I relly admire you and didn't mean to even deflate the plan. Just to be a bit cautious - given the current economic climate. Initially you'd be paying other people to do the work, which will up the cost (but admittedly shorten the time to complete the refurb) and the roaring house price inflation of the turn of the century hit the buffers in about 2007.

For example, altho' as I said, I doubled (nearly tripled) my money in three years after buying a wreck at auction for £67k and spending £25k on repairs at the turn of the century, we were lucky to get our money back on the 3-bed wreck we bought at the height of the market in mid 2007 and sold just over a year ago. In that case we were OK because we'd bought it on a really cheap re-mortgage of our home ( so 1.25% not a 5%+ BTL), had found a good builder and managed a total refurb (new plumbing & c/h, full re-wire, new kitchen, 2 new bathrooms and flooring, etc) for 20k and because we'd let it out. So the rental income meant we got out ahead- just, but we didn't make a profit!

But as Mike and Heman say- it's still possible; just make sure you do buy cheap and check sold prices so that your initial investment plus refurb costs don't bust the ceiling price for the street or type of property- much easier to determine these days from Zoopla or other sites' sold prices.

very best wishes

somethingcorporate

I'd just suggest extreme caution, a couple of tales of luck and success does not make this an easy option.

If you are comfortable at potentially having to sell at a massive loss or not having it selling at all and being a constant source of drain no your cash until it does (some houses around here have been up for sale for years) then go for it.

I think for someone with no experience and limited funds it is a considerable risk. If you do go ahead start small and make mistakes that do not cost you too much.

kingstreet

Two notes of caution. Halifax criteria quoted for information.

Firstly, most lenders now apply a six month rule which says they will not give a mortgage to a buyer where the property has not been owned by the current owner for six months.

Sub-sales and back-to-back transactions are not acceptable.

A sub-sale occurs when a property is bought and then sold on within six months, i.e. the borrower is buying the property from someone who has themselves bought the property less than six months before. The date of registration at the Land Registry is how we determine the length of ownership.

This means that the current vendor must have owned the property for at least six months before we can accept an application to purchase that property.

This could impact your ability to sell quickly.

Secondly, if you carry out large scale renovations/improvements you may fall foul of the lenders newbuild/conversion rules and leave your potential buyers being restricted on loan to value.

An initial occupancy/new build property is classed as any property being occupied and/or sold for the first time on the open market in its current state.

GreatBigBookcase

Alex, don't apologise! My reply to you was very much tongue in cheek, don't worry, I'm not being discouraged. I appreciate everyone's comments, positive or negative, because they make me think about things and then think about things again, and possibly in a different way to how I would normally. It's good for me to do this.

somethingcorporate, I do appreciate your words of caution and take your points on board, but I also see this as largely risk free (aside from the usual risks involved in buying a home). Like I said, I was intending coming back and buying a house outright for around 100k to live in and be mortgage free, and I have enough money put aside in order to do that and be a stay at home mum for a couple of years. The way I see it, if I buy a place in an area I'm happy to live in and that is suitable for me and BabyKay, if I get to the end of the project and it seems like it won't sell or there's no profit to be made by selling, then I'll move into it. So, the worst that happens is I end up in the same position I was intending to be in before I thought about renovating to sell...living mortgage free, albeit maybe with a different kitchen to the (bright red glossy) one I might have bought if I'd known I was going to move in myself. Of course I need to be cautious, and buy at the right price, and not get carried away with the renovations....but I'd be doing that anyway because of my limited budget and I just don't see it as some big risk. Am I being incredibly naive here and missing some important point? Entirely possible...I'm sure you'll let me know if I am...

kingstreet, thank you for bringing those two points to my attention. I had heard the first point about mortgage lenders, but then read elsewhere that it wasn't the case. I'll look into that a bit more. What's the banks reasoning behind this? Is it to discourage flipping? (I live in Hong Kong where the govt recently introduced a special stamp duty payable if you sell within two years. Was supposed to slow the market down. It hasn't worked. The HK housing market is still crazy!) Re your second point, that's a new one for me. Again, I'm interested to know the reasoning behind this? And, would it effect a little terrace at the lower end of the market that had just been brought up to scratch after being untouched for 30 years, do you think? Thanks for your thoughts.

kingstreet

The six month rule is an anti-money laundering measure.

The newbuild idea is to accurately gauge the valuation of a property which may carry a premium because it is "new and shiny." A conversion, renovation or newbuild may therefore fall in value immediately completion has taken place when that premium disappears.

By restricting the maximum LTV the lender tries to take away the risk of a potential shortfall on sale, post repossession, in the early years of the mortgage.

Inthesameboat

I am planning to move in with my partner and can`t decide whether to sell or rent my home.

Lived in the property for 12 years. £25k mortgage and reckon around £50k equity if sold.
I would be able to rent it for £450 a month excluding letting fees, insurance etc so would not really make much of an income if any as any extra monies would be put away for repairs etc..

Just wondered whether it would be best to hang onto the property as an investment for the future or maybe invest the money elsewhere? I know no-one can predict future house market prices but really interested in people`s views and opinions.

botchjob

Even with my rose-tinted ‘glass half full’ spectacles on, flipping properties at the lower end of the market, in the current climate, is not an obviously gilt-edged prospect. Even if you used every pound of your purchasing muscle as a cash buyer to land a relative ‘bargain’ below market value (which you’d have to do to stand any chance of turning a real profit), the numbers are going to be very tight. Buying at £80k then selling at £105k is a difference of over 30% (out of which comes selling fees and renovation costs) and you’re going to have to do something pretty significant to achieve that (probably add a bedroom along with all the other improvements). Not impossible, but very tough and a massive learning curve.

But, rather than flipping, what about (boo hiss!) buy-to-let? Cash purchase a doer-upper, do the renovating bit on the strictest of budgets, then let instead of sell? Then mortgage to a level where the rent/repayment numbers stack up, buy another property, and repeat. With initial capital of £100k you could have a portfolio of 3 or 4 properties within a short space of time. That wouldn’t provide a liveable regular income but with a bit of luck, good mortgage gearing, more properties, and a great deal of learning on the job, in 5-10 years’ time you could be deriving a proper rental income from your hard work.

From little acorns mighty oaks grow.

GreatBigBookcase

Hi botchjob, thanks for your thoughts. You're not the only person suggesting BTL to me. For me it feels more risky, here are a few of my concerns:

- I don't think I'd get a BTL mortgage as I'm hoping to be a stay at home mum for the next couple of years, so I have savings but no income, and I believe whilst lenders used to just take rental income into account they now take the borrowers other income into account too? I might be wrong with this, happy to be corrected.

- the mortgage will still need to be paid during empty periods, with no cash coming in so much more of a risk for me without a regular income in the next few years. Although I came across a letting agent the other day who offer a guaranteed rental income for 52 weeks a year. Obviously you get less per month than you would through a normal agent, but it could be good for someone as risk-averse as I am.

- being a landlord looks tough! And something I don't really feel the desire to do myself, so then I need to take into account management fees, etc. so reducing the income from it further.

BTL just seems a lot more risky to me, just because of having to get a mortgage to make it work. What I like about the flipping is I can do it mortgage free, admittedly very slowly...one house at a time... but then I always have the house to live in if it doesn't turn a profit.

Still thinking and researching though...in touch with a few companies that source BMV properties, which I agree with you, is probably the only way to make any money by flipping at that end of the market.

Inthesameboat - I have no advice to give on your situation, why don't you start a new thread on the forum, that way many more people will see your post and might be able to help. Good luck figuring out what's best.

kingpin1

i dont see what you really have to lose im a builder so its easier for me i also have mates that are trades who are happy to help when not at work as long as you price the work as if you had to get someone in and theirs a small profit youl be fine many properties that appear in great condition underneath the paint etc are not at least this way you control it yourself

GreatBigBookcase

Thanks kingpin