Property development

7825sarah

Hi there i am looking for some advise, me and my husband have been talking over the idea for property development for some time and as with everything there is always something that comes up. We have now decided to bite the bullet and just go for it.
My husband owns our home at present and has a £85k mortgage on it, the house is now worth £120k.
We are discussing the idea of taking a £20k loan out to begin our development but are unsure whether to take this as draw down from our mortgage or to approach a seperate lender. Does anyone have any advise on which would be best?
Can we obtain a second mortgage legally to do this?
Also here is our investment plan can you se any flaws, we hope to borrow £20k to purchase a property in need of modernisation. We are looking at £7k deposit, £1k legal fees to buy the property and £12k to renovate it and pay the mortgage and loan costs. We are hoping to look at a 4 month turn around and an average selling price of £90k making us a £7k profit. Obviously from this we need to pay our selling fees.
At the end we are hoping to amke a £5k profit on our first project. Can you advise how this will work with tax, do we have to declare it for a first project or can it be seen as a tester rather than an actual business.
My partner is self employed as a contractor and earns a regular wage of £300+ per week and i am currently on maternity leave. I go back to my job in March.
Do you think this project will make money, are there any pitfalls, dangers we need to look out for.
All advise is gratefully recieved!

lynzpower

You also need to factor in CGT as you are not selling your own residence. ( i understand, sorry tax isnt my strong point)

the issue here is that your profit margin is so small, is it really worth doing?

If you come out with a projected profit of 5k, every month that the property doesnt sell ( not sure where you are in the world, but the market is v slow in some areas) then your extra mortgage payments will come out of the 5k.

Additionally any overspend on materials or labour will eat into this too.

Will your hubby be giving up work to develop, if so how are you going to fund your own living costs whilst he is doing this? ( eg mortgage/food petrol etc)

how many weeks do you see tht the property would take to turn around. on an 8 week project, he will lose almost 2 and a half K. Have you factored tihs in? Any gander at property ladder will show you how long projects can overrun- both in terms of budget and time. Youll need a contingency fund stashed away for the just in case.

If he is working on this project solo then he will also need to get into the habit of paying his NI contributions too.

On such a small profit margin, I dont think this project would make money im afraid.

lynzpower

Additionally if you have 85k mortgage I presume you are paying somewhere around 550pcm - an extra 20k over 25 years is heading rtowards the more 700 mark ( at 6%) where will you find this extra cash from if OH isnt working and you are on mat leave.

If your savings cover this then thats OK, but I thought this is a potential pitfall as well.

7825sarah

Hi my husband and i will both be continueing in our job and do currently hold a contingency fund of £2000. I do however understand where you are coming from and that initially profit margins are small and budgets tight.
I am torn with the idea of whether this will get better within the first year, once the first project is complete will cash flow become easier. They do say you need money to make money. We are just wonderin whether this is worth the risk. Do we both work very hard with drive and determination for the first year to get this off the ground for very little reward of will it all go belly up and lose money. The debate goes on.

Ewarwoowar2

In addition to your low projected profits, you will find yourself delveloping in a falling market.

You may add £25k of value by spending £20k., However, if the price of the house has fallen by £5K or more you will make no profit or a loss.

Most property experts are forecasting the price of housing to fall over the next few years.

The time to go in to property development was 5 - 10 years ago, when the rising market would forgive new developers' mistakes. You don't sound like you have enough money behind you to account for early mistakes. If your first development didn't sell, after you've spent your money doing it up, could you afford to pay the mortgage on it for 6 - 12 months or sell it for a loss?

dolce_vita

I'm sorry, but this sounds like a recipe for disaster.

teabelly

In your shoes I'd be looking at finding properties which would be suitable for renting then you can take the profit as equity on a remortgage and the tenant would pay that mortgage. The equity released could fund further properties. You could then hang onto them and take advantage of rising prices over the longer term as short term gains aren't really easy unless you can work out how to add considerable value for not much outlay. With your budget I'd say you didn't really have enough spare capital. You are also drawing down on your current home up to near it's full current value which puts you in a risky situation if you have to sell it quickly.

If you really want to do property development then I'd suggest doing it with the home you live in. Then you'd not be stiffed for tax and you could work your way up the ladder. This is more of a long term strategy but would be much easier if your husband is already working and you intend to return. The quick turn around is too risky. I'd probably buy somewhere that needed work, live in it for 2 or 3 years then move on, selling at a profit each time and using the extra money to go for better properties or reduce your mortgage each time. You'd also find you could take longer to do things and things such as planning permission or delays wouldn't cause as much stress.

Pez2

You've picked a very bad time to become a propery developer:

http://business.timesonline.co.uk/tol/business/economics/article2879650.ece

PasturesNew

I don't think you'd get the mortgage you need to buy this magical 2nd property in the first instance.

I also think your budget has left out a lot of things.

You haven't shown us any breakdown of your figures to demonstrate you've done any sums over and above a couple of figures on the back of a fag packet.

e.g. estate agent fees to sell, which could wipe out your profit.

Generally though, prices are falling and will continue to fall. Even if they stagnate in the short-term, stagnating means it is harder to sell (more mortgage payments to pay out) and to sell if your back's against the wall you'd have to decrease the selling price: maybe to less than you paid for it.

You also appear to be doing this through a period of great change in your own lives and personal circumstances and your partner neither earns a lot, nor regularly.

Forget it.

FreshProduce_2

Hi,

Yes, unfortunately, I also think the market is rather downbeat and worn out after a few years of over speculation, And this is the big problem!

I think, there's a lot of factors that weigh into such a big financial decision and so you should certainly take your time, do proper market research into your given development region, financial circumstance, butget etc..

In the mean time, there are now more and more opportunities for aspiring property developers and investors to partcipate in the industry as we are increasingly living in a global village with different approaches to solve complex matters.

Here's one such Website I recently came across;

http://www.lendtoinvest.com/

How it works: http://www.lendtoinvest.com/index.php?id=59

I hope this helps and gives you some ideas. I'll also reproduce it separately in a different thread for other to see.

PasturesNew

Looks like a SPAMMY posting to me.

Not reported as I have no email on this PC so somebody else can do the honours.