want to buy a house to do up and sell

chocomonsta

I have seen a house (quite a wreck) that I think would make a good buy. Needs basically everything doing to it. I would be buying to sell on. I could put 20k down as a deposit and get a mortgage (interest only with a view to paying off once sold) for the rest. I have told the vendor I am interested. He said great give me a 10% deposit and I will take it off the market.

How does that work, is it non refundable? Who holds the deposit and would it be subject to survey?

I have never done this before but have always wanted to.

My house has no mortgage, but I believe there are tax implications of buying a second house and selling it on.

Cost of house is circa £60,000, houses in the area done up range from 85k to 130k. My only experience of doing up houses is the ones I have lived in where we pay to get work done, though I have recently helped son to renovate his, replacing (boarding) ceilings, tiling and painting so far.

Any advice would be most welcome

bob_bank_spanker

SDLT on the transaction would be £1800. Any gain you make would be subject to income tax, which is higher than CGT. If it only achieves the lower end of your estimated sale price, it doesn't leave much in the way of margin.

ACG

RUN!
You do not pay the vendor the deposit, you pay the deposit to your solicitors. Your solicitor then combines that money with your Mortgage and pays it to the vendor on completion.

You will need to look at developement finance, so the rates will be 8-10% as a ball park.

eddddy

chocomonsta wrote: »

I have seen a house (quite a wreck) that I think would make a good buy. Needs basically everything doing to it. I would be buying to sell on. I could put 20k down as a deposit and get a mortgage (interest only with a view to paying off once sold) for the rest.

This would be a business venture, so you wouldn't be able to get a mortgage.

You would need development finance. Without a track record in property development, you might find that very difficult to get.

chocomonsta wrote: »

I have told the vendor I am interested. He said great give me a 10% deposit and I will take it off the market. How does that work, is it non refundable? Who holds the deposit and would it be subject to survey?

The vendor is mad! Why are you even contemplating this?

chocomonsta wrote: »

My house has no mortgage, but I believe there are tax implications of buying a second house and selling it on.

So it's much easier to get a mortgage on your current house (as an owner/occupier) and use the money you raise to buy the place that you want to do up.

ACG

eddddy wrote: »

So it's much easier to get a mortgage on your current house (as an owner/occupier) and use the money you raise to buy the place that you want to do up.

Just be careful who you apply to, not all residential mortgage lenders will allow you to release funds for business purposes.

teddysmum

If the house is not habitable, a mortgage could be very difficult to obtain. Also, going by the few of those awful tv programmes I've seen, people who are not building trade savvy have ended up with huge expenses because they were unaware of hidden problems, only exposed when work started or were unaware of actual costs. (some apparently simple jobs ,being the most expensive because of preparation times etc.)

chocomonsta

thanks for replies so far.

it has a useable bathroom but kitchen not useable some one has been in and wrecked it although boiler and radiators still intact? Someone has smashed most of the windows, and front and back doors not secure ie front one you could basically walk around the door !

hmm re vendor suggesting a deposit.......... we have bought houses before and never offered a deposit.

Didn't know that we had to get development finance so thanks for that info.

Can I remortgage my home as I never had a mortgage on it to begin with?

Yes I have been watching the doing up houses programmes, the ones where no one ever loses any money! :rotfl:

I had got Mortgage in principal from London & County I explained that I wanted to buy another house and already owned one outright, but don't think I said as a doer upper. I will have to give them more details

Pixie5740

Yes you can mortgage your current home even if you've never had a mortgage on it before providing you meet affordability, it is the kind of property lenders will lend on (standard construction, not the 15th floor of a high rise, etc), and you find a lender who will give you a mortgage which will allow you to use the funds raised to invest in a business venture.

To be honest I think you need to do a lot more research into property development before you go looking at any more properties. You didn't even know the basics such as what type of financing is required or what taxes you would have to pay so how could you possibly calculate whether you'd make a profit or not?

dlmcr

Ah yes "property development" that thing that every tom !!!! and harry wants to do and is apparently an expert on but virtually nobody understands how to actually make any money out of it in anything but a rising market.
Thoughts to consider:
1) Is the market in your area going up down or sideways. in other words if you buy this house and sit and do nothing to it for a year and then sell it would you make a profit anyway?
2) cost of house plus cost of finance plus cost of renovation work plus contingency minus sale price less fees = ??? there is your profit or loss amount. does the equation work for you? really??
3) can you get trade prices on the materials you need to do the work. going to homebase and getting your stuff is doubtful going to make it a profitable assignment.
4) do you know people in the trade for the trades required such that they can co-ordinate without you waiting 2 weeks "dead time" between say the plumber leaving the bathroom and the plasterer arriving because you don't have the contacts to do this seamlessly?
5) if it hasn't been bought by now it is not going to be financially viable, end of and certainly not for a beginner. many more experienced developers than you have passed up as being unprofitable, this opportunity so it is doubtful if they as experienced devlopers will make it work, that someone far less experience, would be able to make it work.

eddddy

chocomonsta wrote: »

I had got Mortgage in principal from London & County I explained that I wanted to buy another house and already owned one outright, but don't think I said as a doer upper. I will have to give them more details

It's not so much that it's a 'doer upper', it's the fact that you are buying it to 'do it up' and then sell it - i.e. it's a business venture.

So it's not...
- a 'doer upper' that you intend to live in
- a 'doer upper' that you intend to have as a second home
- a 'doer upper' that you intend to BTL.

You might be able to get a mortgage in one the above 3 cases - but not for a business venture.

(I guess some people might lie to a mortgage lender, and say they're buying for one of those reasons, but that's a whole different discussion.)

Cakeguts

I hope you are intending to live there while you are working on it and while you are waiting to sell it otherwise there won't be anything to stop the people from breaking the windows and wrecking the new kitchen.