How to finance buying a wreck for re-sell?

window_cleaner

Bit of a n00b here...

I fantasise about buying a wreck of a house and doing it up and flogging it on at a modest profit. I don't suppose I'm alone. I have the time, but not much in the way of building skills, and certainly no money. But I do own my own place, and am in regular self employment.

Any ideas hereabouts on raising the money for such an operation? It's not like it would need a mortgage, per se, as i would want to repay any loan within a year or so. Are the loans rates for this sort of idea much higher than the rates for mortgages? Do the high street banks offer loans for this?

marc5180

I was in the same position as you 12 months ago, i looked around for a short term loan but couldn't find one. I ended having to get a mortgage on the 2nd proerty. It took 16 weeks to buy the house 12 weeks to do the house up and then 6 months to sell it. I made a profit of 12K although in this time i was paying the mortgage each month as well as my own which was very hard and sometimes i thought to myself i wish i hadn't done it.
At the end of the day though i made a profit so it was a success but it was hard work and luckily i had some spare money....a must if this is something that you would like to do.

HugoSP

Be careful what you take on.

And bear in mind that doing the work yourself may not be the best way to make money unless it really doesn't need much doing to it.

I speak as someone who did this with a full time job. We didn't replace the roof, most of the walls, the stairs and a bit of the upstairs floor.

It is easier to list what we didn't replace.

Everything else got replaced. It was a lot of work and I did most of it myself. it took me years and sucked out most of my free time.

Doozergirl

You do need a mortgage. Any loan of house sized proportions will have to be secured against the/a property. And you have to find the cost of work - they won't lend it to you without a track record!

If it's the sort of thing you want to do, then I suggest putting your money where your mouth is and buy yourself a home which you can fix. If it works, then you'll save yourself a bit in tax this time. If it doesn't, well, at least you only have one house to worry about.

You always make money when you buy, not when you sell. You must work backwards from a sensible finished price, then deduct the cost of the work, the fees of buying, selling and owning and the profit you want to make. What you are left with is the price you want to pay for a property - this rarely co-oincides with the asking price of a property in my own experience and if you don't have regular, reliable, cheap contractors, it's going to be even further off the mark. For us, the only way to increase price is to increase the volume of a house. Do-er uppers don't really exist as you you won't make anything with a new kitchen and bathroom by the time you've bought and paid for the associated costs of ownership.

Oh, and it's a full time job too

hearts

window_cleaner wrote: »

Bit of a n00b here...

I fantasise about buying a wreck of a house and doing it up and flogging it on at a modest profit. I don't suppose I'm alone. I have the time, but not much in the way of building skills, and certainly no money. But I do own my own place, and am in regular self employment.

Any ideas hereabouts on raising the money for such an operation? It's not like it would need a mortgage, per se, as i would want to repay any loan within a year or so. Are the loans rates for this sort of idea much higher than the rates for mortgages? Do the high street banks offer loans for this?

I don't have any advice, but I would like to know..........if its a fantasy...........why not fatasize of a MASSIVE GAIN rather than a "modest profit" ;-)
The fantasy is costing you nowt m8 DREAM BIG ;-)

HugoSP

Anyone seriously considering property development should IMO take a look at their own house (if they own it).

We argued for ages about the merits of knocking through the kitchen and dining room in our previous house to make a big kitchen diner.

My wife was right and we started one Christmas Day, after we settled the children down to watch videos etc. The kitchen had to be replaced due to a water leak anyway and we sought agreement from the insurers for them to pay for work to a similar value. They essentially paid for the new kitchen for us, we just had to organise the building work, which came to about £150 for some materials and a bit of subcontract plastering.

This basically brought a 1980s house up to the millenium and we probably put some £10,000 on the value.

As Doozie says - working on your own house means that you only have one mortgage to pay and have a roof over your head in the mean time.

As someone who has done this pretty solidly for some years now (work on it in conjunction with my business) I warn you it takes over your life.

You are constantly on the lookout for cheap building materials etc, and you are thinking ahead of major works that could leave your house potentially insecure or without sections of roof etc.

Your planning skills need to be good or they will improve rapidly.

The easiest way to make a massive gain in this market is to find a property with the potential for real conversion rather than simply a doer upper. That is unless you are living in it and can put 30% on its value by renovating it, in which case you may find it hard to get a mortgage on it in the first place.

Our current home was sold as a single house with very run down shop front on part of the ground floor, and a rather inaccesable garage at the back level with the basement. When we bought it we knew it had potential but we didn't really know what to do with it. We started making it more habitable than it was.

Having reviewed our options we now have planning permission to convert the whole building into 2 decent sized 3 bed dwellings. This will probably more than double the worth of the original house, which was just mortgageable when we bought it. The best part is that we don't need to extend at all, though an outbuilding looks likely to be replaced with a garage.

This is the sort of property we will be looking for in the future. We were lucky in that we basically paid a price that reflected the complete lack of imagination of anyone who had valued it on behalf of the vendor, it was our surveyor that sewed the seed in our minds about splitting it. Though his idea was different to what we came up with.

Also, this is our own home so has the obvious tax advantages.

Next time I will deliberately be looking for something that is under utilised in a similar way.

window_cleaner

Some great replies there, thanks everyone. If it was easy I'm sure we'd all be doing it. It's sounds like another example of if you have money you'll find it easier to make more money, so getting a foothold at the start might be a nightmare.

pinkshoes

if you have to question where the money is going to come from to fund it, then it's probably not a good idea!

Most people will tell you that developments often cost FAR more than anyone ever anticipates (mortgage fees, stamp duty, HIPS for selling, EA fees, gas/elec/water?council tax, cost of a builder, plumber, electrician etc... then materials costs) so unless you have excess surpluss cash to fund this without having to take a loan, then in todays slow market, especially for someone with no experience, it's probably a bad idea!

window_cleaner

Are you being sarcastic?

pinkshoes

window_cleaner wrote: »

Are you being sarcastic?

no, 100% serious!!

I know of several people who have done renovation projects, and all projects have cost so much more than they ever anticipated!! Most took a mortgage on the property they were renovating, but also had a spare £40k+ in the bank to finance the work.

If you're inexperienced, just make sure you've got lots of funding, and plan realistically rather than thinking of minimum costs!

Plastering a wall is alot harder than it looks, especially if you want a good finish!

ps - I forgot to add solicitors fees to my previous post.

window_cleaner

pinkshoes wrote: »

no, 100% serious!!

I know of several people who have done renovation projects, and all projects have cost so much more than they ever anticipated!! Most took a mortgage on the property they were renovating, but also had a spare £40k+ in the bank to finance the work.

If you're inexperienced, just make sure you've got lots of funding, and plan realistically rather than thinking of minimum costs!

Plastering a wall is alot harder than it looks, especially if you want a good finish!

ps - I forgot to add solicitors fees to my previous post.

Thought so - my tongue was in cheek when I said that after I read your sig. I completely agree about not underestimating the costs. I also know from experience how crap I can be at jobs I thought I could do, including plastering. I've done a bit of brick-laying, but better at blocks than bricks. it's also the other things that i have done well at DIY, like electical work, but I fear nowadays that one would have to show documentation to prove this kind of work has been done by so-called 'competent and trained' persons.

Legislation would stop most people from 'having a go' at these pretty easy taks, and relegate them to labouring, but where's the fun in that? More to the point, perhaps, is that you really want to make savings where the costs are higher, and that means not having so many professional tradespeople around the site.

That's Catch-22 for obvious reasons.

Anyway, I'm off to rob a post office to fund my dreams...