Some advice needed from an experience property developer..

JDMYOFAN

Good afternoon,

I'm currently looking to move onto the property ladder, I have a few ideas on how to do so and profit from property, yet I require some advice to ensure I'm not getting the wrong Idea..

My idea is as follows:

Property 1: £100,000 (+£20,000 development work) = £650 a month. 5% deposit. I intend on selling this property in 1-2 years. I will purchase a property in need of development, basic development though. A new kitchen, bathroom, paint etc, preferably not too 'serious'. I will live in this property and work around myself. I have good contacts within the building trade so costs will be cheaper.


Property 2 - 2bed apartment: £120,000 - no work needed. would want to keep for a long time
I will purchase this property and let it out. If the mortgage will cost me £650 a month I will rent out for £550 a month and pay the extra £100 myself. I understand this is a £100 loss, however, I will be almost guaranteed a tennant because the price is low, possibly saving me money for void periods.. I will have an interest only mortgage and for the £100 a month, i would hope the property increases in value more so than that. I understand I will also have to pay for the Management fee's and Buildings insurance

Does this make sense?


I have worked out that having a mortgage won't cost me a great deal more than im currently giving to my landlord, and I should only accumulate an extra outgoing of £200-250, though I will then OWN 2 properties..

gingin_2

Have you researched the property market in your area?

You are investing purely on the basis that you expect property to rise in the next 1-2 years? Do alarm bells not ring based on the fact that the rent will not cover the interest repayments on your mortgage?

I would read and read and read some more on the current state of the economy and housing market.

Good Luck

subjecttocontract

Sorry to disappoint you BUT your plans don't stack up!

Property 1.
You think you can buy a property in need of refurbishment to the tune of £20K but only put a 5% deposit down ? Any lender will hold back a substantial part of the refurb' costs until they are complete.
So:
1. You will need more than a 5% deposit on a run down property.
2. You will have to find the £20K for refurb from your own resources first.

Property 2
You will need around 15% deposit for a BTL mortgage.....ie £18K + buying costs + property set up costs.

Most lenders require the monthly rent to exceed the mortgage payments by 125%. So your £102K mortgage payments of around £510 per month (@ 6%) will need to be supported by a rental income of £637 a month

You need to rethink your plans..............

Trollfever

Have you prepared a business plan and a cashflow forecast?

HugoSP

Forget the BTL, but instead try and raise a decent deposit for the renovation.

Ideally you would need to have a 20% or 30% deposit and have the money set aside for renovation.

Then look hard for the right property.

An experienced property developer will see potential in a property that others miss. For example, no one saw the potential to convert our house with run down shop front into 2 3 bed houses. TBH we didn't at first as we were blinkered by another proposed scheme.

With a scheme like that, just having PP for the conversion puts an extra 6 figure sum onto the value.

Doozergirl

I wouldn't class either of those as a scheme to profit from property.

Scheme 1: You haven't even told us what the house would be worth when you finished. £20,000 is waaaaay over the top for a kitchen, bathroom and redecoration in a modest house. That would be a complete refurbishment for me, including absolutely everything - plumbing, electrics, roof, windows plastering, kitchen, bathroom, redecoration and flooring.

Scheme 2: Where's the profit? Interest Only mortgage, and you put £100 towards the interst payments

I'd be living on the street if I worked at schemes like those

chappers

I am in the process of developing a property at the moment, we bought it cheap are doing substantial works on it and the return should be great enough to withstand any dips in the housing market, the house is in Oxford so hopefully fairly stable with regards to house prices. But even i am cautious and abit worried about forecasts particularly in the time period you are thinking about.
In my area houses that need minimal rennovation are usually marketed at a price, which reflect this i.e a house needing £20k worth of rennovation will be marketed approximately £20k below the norm. You are relying on a rise in the market which is the last thing you should be doing when developing a property.With the current forecasts you would be very foolhardy to try this.
Always always when developing a property make sure that the return is coming from the actual development. Bear in mind that even in arising market you will still need to purchase aproperty after you sell it and your new property will be relatively more expensive too.

How much do you think this property will be worth after you have developed it? Be honest with yourself otherwise you can come very unstuck.

Your buy to let idea doesnt stack up for the reasons mentioned by STC although there may be some commercial lenders out there that might entertain this but intrest rates through them would probably be more like 9% plus.

I would reccomend extreme caution in both sectors at the moment and personnaly think you would be sailing far to close to the wind and relying upon circumstances that would be totally out of your control.

Why not take a more cautious approach and say buy property one, live in it and rennovate it then test the market and see if there is some profit in it, if so sell up and move onto another rennovation and live in that, trying to move up the ladder that way.
If it turns out that you cannot sell for a profit then just sit tight until the market improves.
As I said earlier I would be very cautious of exposing yourself so much in the current economic climate.

HugoSP

I suppose I speak from a rather distorted position.

However the thing is you need to pay the right price for your property in a given market.

To my mind that could be from 10% to 35% lower than you would have paid 12 months ago, depending on what area you are looking at and what type of property you are looking at.

We are living in our house whilst it gets renovated, so we are not shelling out extra to finance an empty house. I think the OP is looking to buy an extra house.

moneysavinmonkey

nj106 wrote: »

...I will have an interest only mortgage and for the £100 a month, i would hope the property increases in value more so than that. I understand I will also have to pay for the Management fee's and Buildings insurance

Does this make sense?

According to the Nationwide HPI figures*, just released for January 08, a £120k property would have lost approximately £1000 value in a month... so NO, your plan makes no sense!

* average figures for the whole country but gives you a rough idea!

Twinblade

Out of interest, what is the property market like where you are?

The house I bought in December last year here increased in value by £20,000 within a month. We are talking about a house that when purchased didn't have central heating, a kitchen or a bathroom and the previous owners tenant hadn't cleaned it in 15 years. Every room was covered in and smelt of grease and nicotine.

Since then I have managed to gut it out completely, redecorate everything, put in a new kitchen and bathroom suite, install central heating and this has added another £20,000 (average between 3 agents) on top of the increased value given one month after purchase.

I know across the country house prices are considered to be slowing or decreasing, but where I am the prices are still rising.

PasturesNew

Oh dear ... anybody got a BarBQ?
We've got a lamb to slaughter .....