Selling your house, making a profit then using that to renovate another house

Emmaterry

I bought my property for £91k

I’m looking at selling it for roughly £110k as I’ve renovated it.

I’ve seen another property which needs renovating and would like to put an offer in at £70k

I owe roughly £78k on my mortgage as it stands.

I don’t quite understand how mortgages work but in theory, can I use the profit I make out of selling my house to renovate the new house?

Do I get that as cash? Or does it get swallowed up into the new mortgage on the new house?

da_rule

So, once you have paid off your current mortgage (when you sell your current property) you will have about £30k left over. Obviously a bit of that will go towards your legal costs of buying and selling and any estate agents fees.

You will then be buying a property worth £70k. How much of that £30k you use as the deposit is up to you. Obviously the more you use the better chances you have of getting a mortgage or getting a better rate. However, any amount that you do not use will be returned to you by your solicitor after the transactions have completed.

Therefore, if you put down a 10% deposit (so £7k) you could feasibly walk away with £20k in cash (well bank transfer probably but same difference).

eddddy

Emmaterry wrote: »

I'm looking at selling it for roughly £110k as I!!!8217;ve renovated it.

I've seen another property which needs renovating and would like to put an offer in at £70k

From what you say, your offer might not be taken very seriously, as it doesn't sound like you're a proceedable buyer.

Until you have accepted an offer on your own property, it's unlikely that the seller of the £70k property would accept your offer.

And it would also be sensible to have a mortgage offer in principle before you make an offer on the £70k property.

saajan_12

Emmaterry wrote: »

I bought my property for £91k- okay, that'll be relevant to capital gains / income tax calculations, but doesn't matter for profit/cash flow planning.

I’m looking at selling it for roughly £110k as I’ve renovated it. - from that you'll need to pay off mortgage, EA fees, solicitors, mortgage redemption fees if any, capital gains tax (or income tax if you're renovating as a business).. all in call it mortgage + 5k.

I’ve seen another property which needs renovating and would like to put an offer in at £70k - okay, most vendors won't take you seriously until you have your property on the market and have accepted an offer to sell. Then you'll have mortgage fees, survey costs, solicitor costs, stamp duty if you own another property.. all in call it £5k

I owe roughly £78k on my mortgage as it stands. - so £110k sale proceeds will need to pay off £78k mortgage + £5k selling costs + £5k buying costs => leaving you with £22k

I don’t quite understand how mortgages work but in theory, can I use the profit I make out of selling my house to renovate the new house?

Do I get that as cash? Or does it get swallowed up into the new mortgage on the new house?

The buying and selling costs are usually needed in cash when you complete, so need to be taken out now.

You then purchase a £70k house - maximum residential mortgage will be 90% if your income supports it and you'll live there, or 75% as an investment property. If you could borrow 90% ie 63k then that leaves 10% or 7k deposit to fund from your profit.

£110k sales proceeds
£-5k selling costs (EA fees, solicitors, CGT)
£-5k buying costs (mortgage fees, surveys, solicitors, SDLT)
£-78k pay off old mortgage
£-7k deposit on new property

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£15k for renovating

IF you don't need the full £15k to renovate, you can increase your deposit, so lowering the new mortgage as this will help you get a better rate.

00ec25

also since it appears you intend to repeat the pattern of property development and selling on you may want to consider your tax position. You'll likely get away with it once, but the risk goes up if you start repeating.