Thinking of starting property development

georged9837

Hi

After some advice regarding property development.

I'm currently 23 years old working full time living at home with no real commitments and very few regular outgoings. I'm lucky to be in a position where I have approx 100k in assets which can easily be liquidated to allow me to set up.

I've no prior experience in property development but I have previously purchased property and had relative success carrying out minor refurbishments and managed to rent out the property privately at a good yield. Moreover by Farther has lots of experience in the building trade and has built & renovated property's in the past.

I don't really have any construction skills but I do have some great contacts in the industry and I'm confident that I would be able to get great quality labour and materials, whilst sticking to a tight budget.

After carrying out some financial analysis I would need to make approx £20,000 pa after taxes to maintain my lifestlye. I am however open to getting a part time job to supplement my earnings and take off some of the pressure.

Alot of people have suggested that age would be an issue but as I dont require any support from lenders and have very few financial commitments I would have to disagree.

Obviously it is a massive risk as im currently on a pretty good career path but property development is something I'm really passionate about and I'm willing to work hard to make a success.

Does anyone have any advice or experiences which they think might be helpful in making my decision.

Thanks

George

flashg67

I'd say go for it - I would have started at your age if I had my time again.

But perhaps don't burn your bridges career-wise just yet. Can you reduce/compress your hours to start with?

I'd try to learn as much as you can from the professionals too - it really does help to be able to do even small repairs to save money. I assume even your Dad doesn't work for free for you!


It's great you've already had some success, but the new legislation seems to working against landlords, though that may reverse in the future of course, but needs to be taken into account

I wouldn't be too afraid of buy to let mortgages either. Where I live, with your £100k, you could put,say £25k down each on 4 decent houses/flats which would give you close to your £20 income, presuming no repair disasters, void periods etc.

Cakeguts

Stamp duty?

Fuzzyness

a youngish lad has recently bought the house next to mine and done exactly what you are proposing. no idea about his finances but he had a father who was in the building trade so was able to help out. i'd say go for it. start small in terms of the type of project and amount of renovation you need to do and build up from there.

brodawel

Start with a small project so you are not overwhelmed. You will learn so much on the first property and may find that you don't make any profit, but you will have gained experience and knowledge of how to do things more efficiently next time.

solidpro

I wouldn't be too afraid of buy to let mortgages either. Where I live, with your £100k, you could put,say £25k down each on 4 decent houses/flats which would give you close to your £20 income, presuming no repair disasters, void periods etc.

Since when does buying a property cost zero? To do that would cost £40k alone in one-off fees.

It's hardly a question of 'getting the mortgages' - like they won't insist on a 145% rental above the Interest repayments (or worse, repayment+interest repayments).

I'm all behind this chap for free enterprise, but unless you're advocating he buys 4 burnt out shells and quickly renovates them with his contacts for virtually zero cost into very very rentable premises very quickly, this suggestion, in today's climate is completely impossible.

If you're going to argue otherwise, show me some maths on how this suggestion equates to £20k profit that equates directly into his personal take-home income (including the recent and up-coming changes to tax laws)?

I am in the same position with £100k to invest, and the best I can come up with after 3 months is spending 40% deposit (£60k on a single deposit for a £160k property) in a great part of town, to bring down the Mortgage, and doing this as part of a limited company (with all it's additional accounting costs, inflated mortgage interest rate, higher arrangement fees) to retain the tax incentive on the mortgage interest rate (reducing the CT), and still the company only makes about £100 a month - BEFORE you take away £2000 costs in running a limited company (mainly the book keeping and annual filing accounts fees). And that's money in a company, being VAT registered to reclaim what little VAT can be), and NOT my income.

Don't forget buying a £160k property (as a second place) costs over £10k in fees - £5600 in stamp duty alone, £2000+ in Commercial mortgage arrangement fees, £500 in Mortgage valuation and another £1500 in Solicitors, legal costs and surveys). Add in a month's loss of the first month's rental whilst you're getting it straight and you're talking £70k to buy a £160k property which at best will yield (in my case, given location and competition) £950 per month (minus 8% in letting agent fees, service charges, ground rent and landlord insurance).

You have to start somewhere, and this, for me, is a start - but saying £100k can easily produce a £20,000 take home income is dream land.

£600k in deposits, then MAYBE.

It leaves me aghast that dreamers in this forum give advice based on the idea that all you have to do is buy cheap, pay in cash, rent high and you'll make millions - it's THAT easy......??!!??!

solidpro

Start with a small project so you are not overwhelmed. You will learn so much on the first property and may find that you don't make any profit, but you will have gained experience and knowledge of how to do things more efficiently next time.

Now THAT'S good advice and exactly what I'm doing. Use the capital to invest in a single space, leave plenty as a buffer, consider it an 18 month plan in learning to do everything involved and then see where you are. 18 months isn't long to wait before 'the next deal' and should mean that you've very much created a large buffer against the higher risks for the second half of this year over the first.

Just look at the costs of buying a place to realise how much that part alone ruins your profit margin.

georged9837

Thanks for the advice, I work in HR currently so I imagine I would take a part time job in this field to keep my skills and knowledge fresh. I would be looking at houses around the £40,000 - £50,000 mark requiring full renovation.

Does anyone have any advice regarding reading up on property development e.g. tips, legal stuff, costs anything that would be useful to a complete beginner.

LittleMax

solidpro wrote: »

Now THAT'S good advice and exactly what I'm doing. Use the capital to invest in a single space, leave plenty as a buffer, consider it an 18 month plan in learning to do everything involved and then see where you are. 18 months isn't long to wait before 'the next deal' and should mean that you've very much created a large buffer against the higher risks for the second half of this year over the first.

Just look at the costs of buying a place to realise how much that part alone ruins your profit margin.

That's the problem with all the Homes Under the Hammer type programmes they don't talk about the fees. When my OH was made redundant a few years ago, we looked into buying and renovating, and we had renovated our own place. But we just couldn't make the sums work. With stamp duty changes it would be even more difficult now.

I would still encourage OP to have a go. But as others have suggested do it as a part time venture at first. But don't see it as a quick way to earn a fortune.

Pixie5740

Would you be looking at doing more than one house a year? If not then I'm not sure your sums would work. There's only so much you can do to increase the value of a £40k-£50k property before you hit the ceiling price for the street/area and if you're hoping to make £20k this year from property development after taxes and other expenses you'd need to sell that £40k-£50k house for a hell of a lot more that what you would be paying out.

georged9837

"Would you be looking at doing more than one house a year? If not then I'm not sure your sums would work. There's only so much you can do to increase the value of a £40k-£50k property before you hit the ceiling price for the street/area and if you're hoping to make £20k this year from property development after taxes and other expenses you'd need to sell that £40k-£50k house for a hell of a lot more that what you would be paying out."

From previous purchases, I'm all too aware how hard it is to squeeze money out of cheap houses, like you said the area in which the property is located is crucial to its re-sell value.

In terms of my sums the £20k would be made up from a part time income after tax in the region of £8,000-£12,000 depending the amount of hours I go for and the jobs available at the time. The surplus would be made up from property development again I anticipate from 2 small developments I could make in the region of £10,000 after fees. With all going well I would be open to further developments in the calendar year but it really depends on the success and the amount of time it takes to complete as selling and conveyancing can be a lengthy process.