investment property dilemma, help?!

anskills

hi folks, my g/friend and i are currently looking into buying a local property in need of major full rennovation. i own a flat with good amount of equity, but girlfriend is with parents still. we hope to buy this flat and initially my girlfriend is to live there for a year or so, after which we hope to move in together to my flat. Once we've been living together for a while in my flat, we hope to sell both properties and use the equity to buy a nice house. During this period we would hope to rent the flat out.

i see this as an investment but also as way to help my g/friend onto property market. however, as i will be doing and arranging all works we agree that i need to be re-imbursed suitably, and obviously cover myself in the event that things do not work out.

i will not be living there, so it would be her name on the mortgage and therefore i would not be taxed upon sale..... correct? also would i have to ensure my name is noted on all deeds and contract drawn up by solicitor etc, so i was clearly noted a predetermined percentage, but also avoiding any tax at same time?

currently im thinking she takes out a 2 year fixed 95% LTV interest only mortgage, as it would only be a short term investment. i also think she should take out an extra £10k on mortgage to cover majority of rennovation works, and uses her savings as 5% deposit. i had thought a 100% mortgage would be a possible solution also, in order for her to keep her savings and maximise any short term gain.

anyway, just wondered if any of you helpful folks could have a look at our situation and advise/comment as you see fit? im aware financial advise is entirely at my own expense, but am just looking for some more helpful opinions on the matter, before we consult solicitor and IFA

thanks

kevin

Doozergirl

Why should your name be on the deeds if she is taking the financial risk?

Do you *really* know how much this property will cost to renovate and how much it will be worth in it's full glory? I'm sorry if I sound patronising but sometimes people are in the trade and sometimes they aren't!

What are the figures?

sortofok

Tell me doozer.



Do they really know my friend?

TheOneSteeltips

if your name is on the deeds the bank will only give her half the money as she will not own all of the property. the bank manager will think something is up

buy to rent
that way if you fall out you can still rent to cover costs
or go the hole hog and rent both flats to buy that new home

Zammo

Sounds like an accident waiting to happen.

anskills

fairly negative vibe going on here but i must say i am in construction as a building services engineer, working dailly with architects/structural engineers/qs and the like in my large office. i design and contract manage million £ jobs and have a large network of trades contacts, and am very competent plumber and electrician. the work to be done is not an issue as i have just completed doing the same to my house, for a £45k profit.

however, although i understand the basics of finances/mortgages/legalities etc its fair to say im not in any way qualified as a financial advisor.

the reason that we both agree that i will be worth a percentage slice of profit, is that i will be taking a solid 3-4 months to complete the rennovation, and putting up half the money to do so.

the reason i am requesting some help is im after the best way to go about this all, from a finanical/business point of view. we are looking for the best way to fund this that would incur minimal taxation, and use of our own savings. its really just a short term investment, in that we only hope to own it for maximum of year to 2 years, before selling and getting place together.

although i asked for comments, i would appreciate them being on the subject requested, rather than my ability to carry out the works as i am not a fly by night wannabe property developer.

with regards to the steel tips comments. thanks. her father is a bank manager and we had preliminary discussions about financing it last night. they are both going for a look today, to decide the next step. this thread is purely for my knowledge/info.

buy to rent may well be the answer, but i was worried about payments being larger than traditional mortgage, and i dont think we could cover mortgage with rental costs. or alternatively we could treat it entirely as her property, but draw up a contract with solicitor to set terms. i dont think anyone could expect me to spend £5-6k and give up 3-4 months of my spare time for no financial gain.

anskills

initial figures are:
buy for approx £88-92k
valuation still to be carried out, but mortgage for approx £100k
this gives approx £10k to fund works, plus savings
re-wire: £1500 (friend with large electrical contractor, so excellent rates)
central heating: £1500 (i do this, as ive done my own current house)
structural work: installing lintel for new bathroom and rsj for opening out kitchen: £2000
new double glazing: £2000 (again good contact, cash deal, same as my house)
bathroom and kitchen: £2500 (just done both in my house, similar costs)
redecoration, carpets etc: £2000 (do it all ourselves)
misc £1000
solicitor costs £1000
these costs are speculative, and to be honest i think i could bring in most cheaper, but budget for £13.5k

nethouseprices.com advises that flat in same block sold for £125k in december, and i would budget for similar value. however, market has considerably gone up in this area even since then, so potential for more but i prefer to budget for worst case. also, i would expect market to stabilise, but continue to rise so potential for further increase if we hold onto it for couple years

overall figures approx: £90k buy, £13.5k do up, sell for £125k, gives £21.5k profit (minus selling costs again)

missile

You are making things very difficult for no reason. You are only liable for CTG on gain and if you own half from your figures that would be £10.750 - costs. I would suggest after deducting your ctg allowance you will be liable for zero or very little tax.

£100K mortgage for a property valued @ £90K = no chance

itsakidsworld

The best of luck with your idea and if you believe it will work then go for it. It will be difficult to put you on any deeds as having an interest in property as the mortgage provider will require just your girlfirend to keep things simple, as far as I understand.

Why not just draw up a contract with your solicitor saying that you are entitled to a % of any profit at the end? This would be less all costs of course which include interest on the loan which it appears you have not added into your figures?

Renting will certainly cover most or all of interest but if your girlfriend is living there and you are renovating, this may take up all of the two years you plan as you also have another job? Interest on £100k at between 6%-7% is simply £6000-£7000 so add these on. It also appears that interest rates are going up so anything you get make sure its fixed for this period. Plus add on the set up costs and closing fees when your sell the property.

Well done though for having the idea and if you think it will work then follow your dream. Good luck.

anskills

missile wrote: »

You are making things very difficult for no reason. You are only liable for CTG on gain and if you own half from your figures that would be £10.750 - costs. I would suggest after deducting your ctg allowance you will be liable for zero or very little tax.

£100K mortgage for a property valued @ £90K = no chance

i see, as you can claim tax relief on such major improvements, correct? how would tax man see costs and CGT split between 2 interested parties?

i also see what you mean re: mortgage, and it would appear in that case that i may have to borrow the money against my house?! shouldnt be a prob as i am on decent salary, mortgage is only £63k and value of my flat £110-115k. however, in theory, im sure you get 125% mortgages, although this is not even a consideration.


i agree it does appear convaluted and difficult, hence the request for advice. im good on the work front, but sadly am on a learning curve with regards to finances. would you please be as kind to spell out your suggested course of action. thanks!

Doozergirl

By the time you've paid a few mortgage repayments, if the property is in joint names, your CGT allowances will mean you pay little if any tax on the profit on your half of the profit. I wouldn't sacrifice the security of my cash there's no tax liability anyway.

You can't get your name on the deeds anyway if you're not on the mortgage.

Go to see an independent, whole of market broker and they will find you the right product to buy the property. You would pay through the nose for an over 100% mortgage but it might be cheaper than remortgaging your own house in addition. (if indeed you can even find a product like this after recent rate rises)

Carry out the project, keep all the receipts and note all your contributions to the mortgage repayments, and (put simply) fill yourself out a tax return when you eventually come to sell it.