Investing in a house with builders - how should it work?

Doozergirl

paranoidandroid31978 wrote: »

As everybody has said this will turn into a nightmare and I'll tell you why.
First of all there is tension. I don't mean "stress" but I mean the builders are used to you being a customer and so they will look to get as much from the deal as they can just like a normal builder/customer relationship often is. Not always but builders will work like say for example they buy a bag of cement, they will keep a certain element of profit that you won't know about, if they hire a carpenter normally they will charge an extra 40% on that carpenter and it's structured in such a way that you don't necessarily know about it

So what I'm saying is how well do you know them because it's a common model. Investors get stung. There's loads of these so called property gurus who do it, they take investors money, find them a house then do it up for them but fleece them through the building side of it and charge them to get the house and then manage it and the poor old investor only realizes several years down the road that he's the only one who hasn't made any money. It's a Standard Operating Procedure! They will most likely rook you but they won't see it as rooking. They'll think to themselves we're doing all the work, blah blah blah

Steer clear unless you are onsite working with your hands every single day and even then sharing a deal is a nightmare. Most partnerships DO NOT work out. That's a fact not opinion.

Hang on.

If the builder could be elsewhere earning their own wage in the way that they normally would, then if they don't do the same on an investment property then they're actually subsidising the build for the person sat at a desk, unless the desk person also fancies putting a portion of their own salary into it for the sake of it?

It's not fleecing anyone. If one wants to buy a property and everyone put in equal amounts of 'free' labour then that is their own business but suggesting that the people actually doing the work are purposely fleecing others by still trying to earn a living from it (whilst others are warning a separate living elsewhere) is absurd.

I totally agree that it isn't a great set up, but it isn't because the builders are fleecing people, it's because the profit from a small development split three ways in one of the most tumultuous times, politically, is going to be running the close risk of receiving a third of nothing. And you've just demonstrated how someone sitting at a desk can underestimate the additional value brought by skills and contacts, as well as investment funds.

We have done it in different ways in the past with others, but it's a simple fact that it's our expertise producing the increase in value and that element of it holds a value % seperate to any money we invest.

Never had a complaint from anyone making a significant return on their money! Ultimately, the fairest way is to buy a house oneself and employ a builder (if you want) to do it. Then everyone gets their entitled share.

wysiwyg_online

Doozergirl wrote: »

Hang on.

Ultimately, the fairest way is to buy a house oneself and employ a builder (if you want) to do it. Then everyone gets their entitled share.

Thanks for all the replies.

What we are trying to do among the 3 of us is to build up the coffers so we ca go after bigger opportunities, even a HMO. And this will be the tester project to see how it works.

The builders are genuine guys - they want to do it to build up a portfolio, as much as I. It just looking at the fairest way.

What are the thoughts on using the builders contacts and pay those guys rather than using the 2 builders? That way they could do their day job and I could mine and then we pay the bills from the 'joint venture' pot.

Doozergirl

wysiwyg_online wrote: »

Thanks for all the replies.

What we are trying to do among the 3 of us is to build up the coffers so we ca go after bigger opportunities, even a HMO. And this will be the tester project to see how it works.

The builders are genuine guys - they want to do it to build up a portfolio, as much as I. It just looking at the fairest way.

What are the thoughts on using the builders contacts and pay those guys rather than using the 2 builders? That way they could do their day job and I could mine and then we pay the bills from the 'joint venture' pot.

Who is project managing?

I think you have to trust them to carry out at least their own trade on the houses. Ultimately, you talk about this and you all work out the boundaries.

I have to say though that I wouldn't be splitting the profit from anything three ways. I don't think the pay off is large enough when you can, essentially, do it yourself or between two and reap a larger share. I don't think there's any absolute need for three parties to be involved.

AdrianC

So the property is £100k to buy, and there's a budget for the work of £20k.

How's that £20k splitting down between their labour, sub-contracted labour, and materials?

What's the timescales?
When will they be taking their labour element? At the end, or as they go?

What's the expected value of the property at the end?
Will you be selling or letting?
If let, who'll manage the let?

And why can't you just buy the place and employ them...?

wysiwyg_online

AdrianC wrote: »

So the property is £100k to buy, and there's a budget for the work of £20k.

How's that £20k splitting down between their labour, sub-contracted labour, and materials?

What's the timescales?
When will they be taking their labour element? At the end, or as they go?

What's the expected value of the property at the end?
Will you be selling or letting?
If let, who'll manage the let?

And why can't you just buy the place and employ them...?

Time scale 4-6 weeks.

Paid at the end.

Expected value £155-165k.

Sell or let dependent on valuation - though would only be on an interest only mortgage.

Last bit - less money to fork out. ��

AdrianC

So let's work on £35k value hike. Less any contingency. Less other costs - legals, finance, SDLT.
Is the £20k costs including labour, or not?
At best, you're looking <£10k each out of it.

wysiwyg_online

AdrianC wrote: »

So let's work on £35k value hike. Less any contingency. Less other costs - legals, finance, SDLT.
Is the £20k costs including labour, or not?
At best, you're looking <£10k each out of it.

I see your point but this would be the first one, to show if the model (and relationship) work. Then from that we can go on more expensive - be it let or flip.

Sensible way of looking at it?

System

Confirmation bias! You want it to work therefore you only look at the most positive outcome disregarding the reality of the situation.
I've been guilty of this myself and am in the process of reviewing a decision I've taken to move forward with property you should probably stand back and just reflect, research and ask unbiased people with experience. Don't ask people who just will tell you supportive things like your mum or your wife/girfriend as people who have no axe to grind, no skin in the deal so to speak

wysiwyg_online

paranoidandroid31978 wrote: »

Confirmation bias! You want it to work therefore you only look at the most positive outcome disregarding the reality of the situation.
I've been guilty of this myself and am in the process of reviewing a decision I've taken to move forward with property you should probably stand back and just reflect, research and ask unbiased people with experience. Don't ask people who just will tell you supportive things like your mum or your wife/girfriend as people who have no axe to grind, no skin in the deal so to speak

And thats why I'm here :beer:

System

:beer:Actually yes!! hahah sorry if I seemed to be teaching my grandma to suck eggs!! lol
I actually myself had the idea to buy houses and refurb and I'll tell you exactly where