Doing up houses for a living

DaftyDuck

No, you are really not getting it, I assure you.

Your house. Initially VALUED @ £205,000. You paid £188,000. (We'll ignore costs like Stamp Duty, solicitor's fees, etc. for the moment. Do ignore the £250,000 "valuation"... it didn't sell at that, did it? It never was worth that sum. Never. I could value a house at 27% (or 64%) over what it would sell for... that ain't the true value, is it?.

You spend ~ £20,000, so house now has tangible value £208,000 as you say. Estate Agent now VALUED at £230. So, £25,000 higher than it was VALUED when it was on the market when you bought it...

But, you spent ~ £20,000. You worked all that time for free?

Your house has increased in VALUE by £25,000 in the meantime. House prices have gone up (even in that area) by some considerable amount in the last year. Now, remember those legal costs we ignored earlier. Oh, and Estate Agent fees on selling will be 1% +, so that's £2,500 down the proverbial. Legal fees... If you do this on a second property, you have mortgage costs to account for...

You are being blinded by the large numbers. At the moment, you haven't really increased the value of your property at all. Not least, value is only released on sale.

Your house was valued at £205,000. You spent £20,000. It's now valued at £230,000.

aivijo

The house wasn't valued by an estate agent, is was valued by the bank. I think if it was valued by an estate agent for re-sale it would have been a lot higher - the bank merely needed to value the house to ensure that what we were borrowing against it was secured to the property.


I project managed and did some menial works for work carried out on my own house so yes I worked for free because I didn't think it relevant to invoice myself for my own work to benefit myself and my family. I know contractors and suppliers through work so got some really good deals on labour and materials along the way. I also have good relationships with solicitors and estate agents and I know what fees they would charge me already. What I did on my own house would be different to what I would do for projects that I would do to replace my current income from working for an employer.


I'm not looking at making myself a multi-millionaire. I just want my time to be spent doing something else i'd rather be doing. I have to pay my bills and have some kind of disposable income.


I've done the sums, I know exactly what i'm after from the first project, and then where that might help me with the second project and so on. I've worked out how quickly I would need to turn them over, what I can fall back on financially etc. I'm not going to bore everyone on the thread about the finer details...I was only enquiring about what kind of financial options/mortgages are out there to help fund this kind of think but its gone on to people judging and making assumptions. First of all people doubted it could be done, I know it can and that's what I want to do. I'm not spending any more time justifying that when I can't go into every single financial detail of everything on a forum. It's already causing confusion.


I pretty much already do this for a living for my employer. I'm just looking at doing it slightly different for myself. I've got to start somewhere. Seeing as i'm still none the wiser about my financing options (iwas only hoping for some ideas to get chucked around) I might just wait until I've had this year's bonus at work before meeting with my financial advisor instead :-)


Thanks

DaftyDuck

Bank or estate agent, it was still a speculative valuation, and the only real valuation is on sale. I do wish you well, but I'd strongly suggest you rethink the early stages. Doing it on twice-borrowed money (home mortgage + investment mortgage) and over-egging your own belief in profits is more likely a route to ruin, not riches.

Whoever valued the house, the amount of (even potential) capital you have made isn't great, and certainly not in the realms of paying back two mortgages, even if there were no need for other income.

mr_fishbulb

aivijo wrote: »

My own house which I referred to again was purchased for £188k (it was on the market for £205k when we bought it, a year to that it was on the market for £250k so has been reduced dramatically). We spent less than £20k doing a refurb, bringng the total cost to circa £208,000 - but after the works it was revalued at £230,000....profit of £22,000. Not bad for 6 months work around our normal full time jobs. Some jobs were still outstanding at the time of the revaluation too and spent a lot personalising the property. if we had done it for an actual profit to sell on the property, we would have spent about £5k less.

Errrrr Stamp Duty, Conveyancing Fees, Estate Agent Fees, Mortgage Fees, Gas/Electricity/Water charges for the time in the property.

Stamp duty on £188,000 (calculated with today's figures) = £1,260
Conveyancing = say £500
Estate Agent (around 1% of selling price) = £2,300
Utility costs for 6 months = maybe £400 depending on time of year.

Add a few hundred on for Mortgage fees and other miscellaneous and you are losing about £5k of that profit.

Also you are ignoring how much the house made just from the house price index. That's currently around 5% a year, so on a £188k house, HPI would add £4,700. That's nothing to do with your development work on the house, so if HPI was at 0% then the house would be valued at £4700 less.

There is more to it than PROFIT = SELLING PRICE - (PURCHASE PRICE + DEVELOPMENT COSTS)

Doozergirl

mr_fishbulb wrote: »

Errrrr Stamp Duty, Conveyancing Fees, Estate Agent Fees, Mortgage Fees, Gas/Electricity/Water charges for the time in the property.

Stamp duty on £188,000 (calculated with today's figures) = £1,260
Conveyancing = say £500
Estate Agent (around 1% of selling price) = £2,300
Utility costs for 6 months = maybe £400 depending on time of year.

Add a few hundred on for Mortgage fees and other miscellaneous and you are losing about £5k of that profit.

Also you are ignoring how much the house made just from the house price index. That's currently around 5% a year, so on a £188k house, HPI would add £4,700. That's nothing to do with your development work on the house, so if HPI was at 0% then the house would be valued at £4700 less.

There is more to it than PROFIT = SELLING PRICE - (PURCHASE PRICE + DEVELOPMENT COSTS)

You missed council tax, paying the mortgage for the time you own the house (because it's not being lived in) and the conveyancing fees for the purchase which would be approaching £1000.

I would not and have not considered that sort of apparant profit margin as worth thinking about. Allow yourself a margin for error on the actual selling price and it's a risk.

If you live in a house it is a bit different as you have to live somewhere and that costs money, somyou can write off mortgage payments and bills as a necessary evil.

tjj2

I would suggest that you speak to a mortgage adviser, that is a property investor, as they will know what the best options are.

There are many creative ways to finance projects, and if you really want to do this maybe go to local property network meeting such as PIN or PPN.

brightontraveller

If you have to ask you’ve not done your homework…. If you think you know your stuff then set out your plans proposal etc pop along to one of the many property crowdfunding , lend to save groups etc watching other do there pitches can help a novice....

andre_xs

I think it has been mentioned before but seem to have been ignored: The numbers you specify as profit are your profit *before* tax. I don't know the rates, but I guess you'll have to subract around 30%?

Further things to consider:
- If you do this as a business, I'm sure you need insurance to cover for the case that any mistakes of you in building lead to consequences. I'm sure builders need to insure themselves against obviously faulty work.

- Will you employ people? They need to be paid and need insurance. For bigger projects you need a helping hand sometimes, just to carry something over.

- Don't forget that if you run your own business, you have to do all the paperwork as well. Long hours in the evening after you come home from the house you are working on...

- When looking around here, it is probably optimistic to say that it easily may take 8 weeks between putting the house on the market and the purchase is final, i.e. you have the money back on your account. In these 8 weeks, you can't work, because you don't have enough money to buy the next house before the first one is sold. In other words, consider that (with these exemplary numbers) you need to earn enough money to support your living for 12 months by working only 10 months. If you plan to do two properties per year, you are effectively not working for 4 months!

- Think about your kids. Not only the risk of loosing your current home if everything goes wrong, but also that you'll have virtually no time for them anymore. In German, there is a nice wordplay with the word for "self-employed": A literal German translation of "Selbstständig" (self-employed) would be "self-constant", and we often say if you are "self-constant" you have to work (a) yourself and (b) constantly. Also, I know of guides for self-employment who say that in the first years one should consider that you'll have to usually work *at least* 60 hours per week.

To be honest, I wouldn't do it...
If you go for it, get professional advice, not in this forum.

Best wishes,
Andre

Tassotti

Your finance options are

Cash. Either yours or a joint venture with someone.

Bridging. Expensive and eats up your profit.

You cannot use mortgages for trading property.

I would say go for it as long as the figures stack, but don't give up the day job. Well, not yet anyway.

Conrad

OP

I own my own finance brokerage. Been in the biz 20 yrs.
I also invest in property, so the following may help.

Take what you will from this, it might not quite be what you're after.

So let's take for example the last two years. I've bought a few studio and 1 bed flats. Did each one up myself, I am super fastidious and turned dreary flats into contemporary homes. I have let them, however by accident added considerable value much helped by the bountiful market conditions which should persist for some years yet.

I'm at a critical juncture this very moment and considered getting into
developing and selling on hence fourth but even with all my connections and know how it's for me not viable I think. But I say this as someone that needs a high income. Also my area is just too competitive, every other person is a would be developer spurred on by TV property poooorn
You have broadly two financing options.

1 Buy To Let - there is nothing stopping you using this method and then deciding to do up a place and sell it instead of letting it, however there is usually some kind of large exit penalty which will bite into your profits as will the monthly payments. This is the cheapest in terms of interest rate.
I find whenever I do the sums there simply is not enough profit, however having said this recent massive price increases round my way would have meant a good profit actually but it's risky relying on market generated HPI

2. specialist developers finance which lots of good brokers deal with but its very expensive and I find usually a deal killer

So if you use ordinary buy to let finance ostensibly with the intention of letting it the property needs to be in good enough Nick for the lender to lend, so major projects won't be acceptable usually.

Don't let the neg heads talk you out of this. Plenty of people do it and often start with nothing. If you ask people expect to get negative comments as most people tend to see the down side. Worst ways you can always let the place so you have little to loose.

You will need 25% deposit plus all your costs. Now in terms of funding those costs perhaps take a further advance on your main home, say it's for home improvements or perhaps buying another place, but don't say you intend getting another mortgage as this could affect affordability.


The other option is as has been stated to renovate each main resi you move to and really push yourself. This way it's tax free.