Buying a second house to renovate and sell

Figandmig

Hi everyone,
My girlfriend and I are looking to buy a second house to renovate and sell. She has a decent job and I'm unemployed (I've decided not a continue my career so need to be occupied and generate an income). We want to generate some income out of this and to see if this is a realistic way forward for us. We would be looking to renovate fairly quickly and sell ASAP.
In terms of the renovation we are quite handy or know good tradesmen and should be able to realise the potential in a property.

Please could people give any start up advice in terms of pitfalls, mortgages, tax etc. For example could I go self employed? Should we buy through auction?
Thank you

kingstreet

How much money do you have? How can you raise capital?

Mortgage-wise, you'll struggle if trying to use residential mortgage products or BTL products for flipping.

Your potential buyers could have problems getting a mortgage if you try to sell on within six months of buying.

Figandmig

We are confident of getting a mortgage. We can deposit c20 per cent cash and generate a similar amount for the renovation.
thanks very muh

ILW

How much would you expect to increase the value, at what cost and over what period?

jungle_jane

Will you be living in the house at the same time as you rennovate? If not, I think you are either subject to capital gains tax or you would need to pay tax on your earnings as a developer. Could be wrong about this last bit - would be interested to hear what the correct story is....

kingstreet

Figandmig wrote: »

We are confident of getting a mortgage. We can deposit c20 per cent cash and generate a similar amount for the renovation.
thanks very muh

Are you raising money on your property, or on the subject property?

20% deposit is probably not going to be enough if you want to raise it on the subject property.

Jonbvn

Have you been watching "Homes Under The Hammer"?

googler

kingstreet wrote: »

Your potential buyers could have problems getting a mortgage if you try to sell on within six months of buying.

This is crucial to your plans. Unless you're willing and able to hold on to your second property for more than six months, you will struggle to sell to anyone who's getting a mortgage on it. Lenders are very picky about this at the moment, possibly due to money laundering regs.

googler

Jonbvn wrote: »

Have you been watching "Homes Under The Hammer"?

If you've got this idea from this show, or from any similar show on daytime TV, please look at the copyright dates at the end of the shows. They won't be 2013, they won't be 2012......

AlexMac

Lots of previous posts on this, most recently at
https://forums.moneysavingexpert.com/discussion/4396931

Then, many people made the point that you're "10 years too late" in that in the 1990's and even into the 'noughties', it was possible to make money because house prices were rising so fast, sometimes 10-20% a year, so you'd make profit even if you just sat on a house. But after prices peaked in 2007, and in some areas, fell by up to 20%, it became much harder to make money through 'sweat equity' (hard work) alone.

For example, in the late 90's, I got really lucky- bought at auction for £67k, rewired, re-roofed, replumbed, re-dec'd and even after that £25k plus fees and finance costs I more than doubled - almost tripled -my money when I sold after in 3 years.

Declaring the house as your "principle private residence" and living in it, if only for a few months would mean you'd get a cheaper mortgage pay no Capital Gains Tax, and unless you did this several times or repeated it at very short intervals, the Taxman/lenders wouldn't think you were running a business. Last century, lots of people moved up the ladder every 2-3 years in this way. But unless you made over £20k capital profit together, then the gain would be below your individual gains allowance of £10k odd.

The good news is that (in London and theSE at least) Auction prices are coming down a bit - all these hyped TV programmes meant that for a while, unimproved properties were selling too dear. But buying at auction can be risky and requires you to know what you're doing- in terms of values, structures/refurb costs, the legals and the fact that you have to have funds in place complete within 28 days of the hammer, or you lose your 10% deposit. I nearly did lost mine on my 1st auction as I thought my bank had agreed to give me a loan but they backed out!

go to an auction or two, look at 'legal packs', and do the numbers; Note actual sold prices on properties like the ones you might buy, guess their refurb costs and then see what neighbouring done-up homes are valued at or have actually sold at on ZOOPLA to speculate what your profit margin would have been.

But if you go for it, you end up with a nice house which might not represent a big profit on your initial investment, so the very worst outcome is that you have to live in it, or let it out, or take a lodger (probably under the tax threshold for letting rooms). And most of all, you'll have learnt lessons about developing, whether you can operate as partners/a team as well as lovers(?!) and you won't have spent months on computer games while she slaves.

Oh- and make a will, in case either of you fall off a ladder. Good luck

AlexMac

Sorry- just read my own post- to clarify a couple of points- re your Q " Please could people give any start up advice in terms of pitfalls, mortgages, tax etc. For example could I go self employed? Should we buy through auction? "

I suggested that as you are not married, you can own two homes tax (CGT) free, if one of you could declare the 'second' home as your principal private residence without thinking that that tactic, (which is more or less what I did with my GF before we married) might be tricky if you don't have absolute trust in each other or if you've already bought your 1st home jointly? Ask the taxman or an accountant - after all, she would get CGT exemption if she left you and bought a place for herself, leaving you in the 1st shared home?

And tax-wise, self employment is a doddle. You pay no tax on earnings up to the personal allowance, you have to register for but can reclaim NI (which is only a few hundred quid a year anyway) if you earn less than about £4-5k pa, and