Starting of in property development - funding options

toonfish

spdavies wrote: »

The plan is to buy 2-3bed properties that need a cheap and cheerful overhaul and turn them around within fairly quick timescales. My wife and i intend to do most of the work in the evenings, weekends and holidays initially to get going with an aspiration of doing it full time in the long run. I have spotted a number of potentially suitable properties in the local areas to indicate that this is possible and plan to start looking seriously in the new year.
The plan is to turn these properties around quickly and sell within 2-3 month periods making a profit of around 15-20%. I can't post the spreadsheet onto here but i think i've taken most things into account and can still make it work.

One thing i'm not clear on is tax. I believe i have to pay tax on the profits but i'm not sure which bits exactly are taxed and by how much (i.e. is it the difference between the sale and purchase - what about costs etc??)

To all you financial advisors out there - is this the sort of thing i should be able to discuss with a FA along with my costing assumptions and funding options???

seriously - taking costs into account you would need a 30-40% uplift in 3 months, you wouldn't even get that on a new build development. Make sure you go into this with your eyes wide open, and don't be swayed by the false impression you get on the DIY TV programmes. On a bathroom/paint and decorate job you will be doing well to make a few £1000 profit, as lonng as you can sell it quickly

I do speak from a bit of experience, and the only way you can make these work is on deceased estates, or total renovations in todays market as far as I can see, at least in my area.

[Deleted User]

As far as im concerned 99% of property developers that do it on the TV lose money because

-They fail to cost in their own time
-They dont take all fees into consideration
-They dont take into account lost opportunity costs in the wages they miss out on and the time thereafter to get another job, or the fact they cant get another job as they have been on the idiot bull run show
-The dont take into account mortgage fees and the interest payed thereon
-They dont beat HPI, they merely make it easier to sell, not add value, the land is what changes in value not the house.

I am very happy to watch people lose money the property developer shows are about people losing money and the debt sorting out shows are about people gaining money.

Beware of debt maskerading as wealth.

The most comical of the property developing ones was when i saw this toff dude with over a million pounds of self certified mortgages, absolutly zip all income and projects that were scaling scosts out of control, i think one he was trying to build a flat on the top of a block of flats but the walls were made of falling to bits mud PMSL!!!

guppy

Al_Mac wrote: »

Went to an auction in May. The builders dropped out at £350k. Two normal people took the price to £517k!!! Mad.

If that's normality these days, heaven help us!

Dithering_Dad

I have to echo what everyone else has said. I also love the property development programs on TV and it looks like an interesting way to make a decent living. However, remember that in order to be on TV right now, many of these programs will have been filmed over a year ago. Some of the programs are repeats from a few years ago. The property market was a different beast back then, even only one year ago.

Borrowing to invest whether on the stock market or in property is a one-way ticket to financial disaster. Look at Northern Rock. The days of cheap credit are coming to an end. Ask yourself, could you afford your current mortgage if the mortgage rate went up to 10%? If this is a "no", then you definitaly won't be able to afford it if you have taken all of the equity out.

The combination of a downturn in the economy (Article here), more expensive and difficult to obtain credit (due to the banks raising their lending rates to cover themselves in light of the US sub-prime issues) and the slowdown in house sales means that anyone trying property development right now will struggle.

[Deleted User]

Many UK subprimes are now at over 11% after the 2year fixed period.

Many prime mortgages are in the 8% region.

bobsa1

We do a bit of property developing and it is far from easy. Even in trad low value areas prices are now high. We are currently doing a six week turnaround on a £100k house and hope to make approx £20k after costs, however we will have actually spent in region of £125K incl purchase price so will be making less than 20% even if it sells quickly.

Think long and hard before doing prop developing. Getting trades in can also be a nightmare.

Jonbvn

Slightly OT, but talking about Property Progs on TV the one that really drives me nuts is on UK Bright Ideas. Can't remember what it is called, but usually they lay laminate flooring, and then they get some EA to come in and say the property is now worth 10k more.

Do people actually believe such rubbish?

Dithering_Dad

Now that the OP knows not to touch property development with a barge pole (and if he doesn't then I'd love to hear how it turns out). I feel we can go off topic a bit too....

I deleted UK Bright Ideas from my Freeview channel list (with QVC, price drop TV and all the other crap) so haven't seen that one. I love Sarah Beany (is the woman permanently pregnant??) when she tells the developers that they should have put a new bathroom here, or a wall there and they ignore her advise. Three months later the Estate Agents come in and say "would have been better with a bathroom here and a wall there" - surely they've been primed by the producer to say that. Still, it makes good TV, it's free to watch and it's not me investing/losing my hard earned money.

My absolute favourite though is "Grand Designs", with my absolute favourite episode being the one with the older couple renovating a french manor house that was burned down by the nazis.

homer_j_3

grand designs is my favourite too and at some point would love to do something like this for myself but it seems to be the only property program where there is no focus on the financial aspects but more the design and build quality.

Worst program for me is homes under the hammer - never tells you the end result.

The "10k added value" program with handy andy etc is a load of tosh!

Another one that I like is the one that is being shown on five - "how to become a property developer" I like it for the fact that it has shown that it takes a bit of luck and you can make losses in developing if you don't do it right.

spdavies

Folks - thanks you for all your posts it is always good to hear peoples honest opinions. Whilst i appreciate everyones concerns it disappoints me a little that people think i am entering into this venture on the back of watching a few tv programmes. Of course i watch them (never get too much info) but i am more intelligent than that and would only set up a new business based on facts and significant market research.

I am disappointed that there are not more people presenting the positive facts based on experience (as per Bobsa 1 and Toonfish). I'd appreciate some lessons learnt from people who have actual property development experience (or from Financial advisors with experience of managing people through similar ventures) on how to make things work in their opinion and how to raise the funds initially.

Of course it won't be easy and there are obvious pitfalls including the instability of the housing market - but if it was easy i might have done it by now!!

Thanks again for your responses - keep them coming i'm not the kind of person to give up easily.