Baffling London BTL economics

Conrad

chucknorris wrote: »

Young professional sharers have been my target market since I started 25 years ago, although we do actually have a family in one of our proprieties at the moment (but that is unusual).

Have you any opinion on the merits or otherwise of small scale property developing?


It's been a long held dream of mine that I would start buying, renovating and selling 2 or 3 places a year, without requiring finance, but the stamp duty is hideous. I suppose one might buy them in a company name to get around / reduce the SD?


I'm a bit of an over-analyser (despite what I said earlier) and tend to focus overly on the downsides, one of which is 'why isn't everyone doing it'? For example Mum has retired to the Welsh coast. You can snap up a tired bungalow for £200k, do it up to a high standard for about £30k and sell to newly retiring people for £275k. So why isn't everyone doing this?


If I could make a profit of £60k pa, together with my rental income I'd be as happy as a hog in brown stuff.

cells

Conrad wrote: »

Have you any opinion on the merits or otherwise of small scale property developing?

its been good to the people I know who do it but they have had London HPI in their sails and transaction costs are now much higher.

Maybe stamp duty should be refunded on flipping. So if sale is within 6 months of purchase 90% of stamp duty is refunded.

In fact that might be a good idea for all buyers. Stamp duty is refunded if property is resold within 20 years with a 5% sliding scale per year.

It then would go from a transaction tax to more of an annual property tax

westernpromise

Conrad wrote: »

Have you any opinion on the merits or otherwise of small scale property developing?


It's been a long held dream of mine that I would start buying, renovating and selling 2 or 3 places a year, without requiring finance, but the stamp duty is hideous. I suppose one might buy them in a company name to get around / reduce the SD?


I'm a bit of an over-analyser (despite what I said earlier) and tend to focus overly on the downsides, one of which is 'why isn't everyone doing it'? For example Mum has retired to the Welsh coast. You can snap up a tired bungalow for £200k, do it up to a high standard for about £30k and sell to newly retiring people for £275k. So why isn't everyone doing this?


If I could make a profit of £60k pa, together with my rental income I'd be as happy as a hog in brown stuff.

Putting them in a company makes no difference to the stamp duty, I don't think. Basically everyone pays the penalty rate except people buying from rented or people with only one property who complete on both sale and purchase the same day. Everyone else pays the 3% extra.

As I've said before, if the state puts a 300 to 500% transaction tax on something I'm bound to conclude they wnat that something to stop. Right now the state does not want you to buy a house.

The issue is that it is very easy to overspend on the kind of thing you are talking about doing and you tie up a lot of money doing it for what is really quite a small margin. Not much needs to go wrong for it not to work.

You also face paying income tax on it if you're doing it for a living.

I'm wondering if lateral thinking is the answer. If you had £100k to invest maybe a garage in central London is the best bet. No stamp duty on those and they hold their value.

Cornucopia

Conrad wrote: »

Have you any opinion on the merits or otherwise of small scale property developing?

I went through a succession of owner-occupier trades over an extended period from the mid-90s to about 2007. In some cases, they were new builds that only needed window blinds and keeping clean for a couple of years, and in others they were older properties that I did a DIY refurb on. I also did a couple of Part-exchanges to reduce buying & selling hassle.

Doing this as an owner-occupier means no CGT and a level of risk similar to other home owners. It does make it more difficult to predict the good and bad investments, though. I also used the old 36 month CGT exemption for second homes that are nominated as a main residence.

So, yes, you can make money. It's difficult to predict, but the risk of major losses is relatively low. My worst property (a new-build) produced a 5% gain over 2.5 years, and my best (a refurb) 61% over 3 years.

Generali

Conrad wrote: »

Have you any opinion on the merits or otherwise of small scale property developing?

I've done this twice while living in the house which gives huge tax advantages obviously and made pretty good returns.

Ultimately I earned more working in the City and it was a colossal PITA.

My mate in Aus does much the same thing and makes a decent turn but he is in the army so they pay his EA fees, removal costs and stamp duty.

I guess that unless you manage to muck it up monumentally then you're unlikely to lose much so I'd say it's worth a go. I don't regret it although I wouldn't do it again. I do have other ideas but I'd rather not discuss them.

economic

in order to maxmise returns and minimise losses i would look to buy property which tries to have all of the following:

- large development opportunity (eg extension to add more bedrooms)
- ability to let at a good yield post development
- short leases to pay less for it (and making sure price you pay factors into account the lease extension and then some) and get relevant section served by previous owner for lease extension prior to completion.

Generali

@Conrad - Just to add a further point, I constantly found myself reining in my and Mrs Generali's attempts to overcapitalise. There is only so much people will pay for a flat on a fairly busy road in Bromley and they simply aren't going to pay extra because you've put a chi-chi bath in or something.

The bargain bin is your friend.

Conrad

westernpromise wrote: »

I'm wondering if lateral thinking is the answer. If you had £100k to invest maybe a garage in central London is the best bet. No stamp duty on those and they hold their value.

Know you of such a thing?


I'm not at the development stage of things yet, but am looking for another rental investment - as I just sold something. I have done up places in the past.

Conrad

Generali wrote: »

@Conrad - Just to add a further point, I constantly found myself reining in my and Mrs Generali's attempts to overcapitalise. There is only so much people will pay for a flat on a fairly busy road in Bromley and they simply aren't going to pay extra because you've put a chi-chi bath in or something.

The bargain bin is your friend.

Good points in this and your previous post.


My Letting Agent friend always moans at me and says I needn't do up a rental flat to the extent I do, however, in case anyone is interested it does have the benefit of allowing me to be able to have the pick of tenants out there - especially as so many rental properties are offered in a tired and often chintzy state. A secondary benefit is each property last longer before needing a re-fit / re-dec and the tenant may stay longer as its a nice home


But when it comes to me actually developing for a living I will deffo keep in my the price ceiling dynamic you mention.


The dilemma I face is giving up my consultancy business which I am sick of but it pays a decent income

Generali

Conrad wrote: »

The dilemma I face is giving up my consultancy business which I am sick of but it pays a decent income

I was in a similar place. I was working in a job in the City that I hated. I hated going to work and I hated every moment of being there but it paid okay.

I have now turned that into a job that I love that pays about the average income for Sydney despite me working 3 days a week.

I guess it comes down to what floats your boat and how much you value the happiness money can provide versus the happiness fulfillment can provide.