Buying a property to renovate and sell

kingstreet · 21 March 2013 at 12:08AM

BTL mortgage lenders want readily-lettable property. In many cases, the fact that these are not going to be capable of immediate letting is going to make them unmortgageable by that route.

Buildstore do renovation lending, but AFAIK that's designed for owner-occupiers.

http://www.buildstore.co.uk/finance/renovation.html

I tend to agree with the other opinions you've had. This is a commercial venture and it should be commercially funded. TBH all routes lead to your own bank for this. You can mess about seeing brokers, but the minute you put it in front of your own bank, if they want your business, they will undercut what you've been offered by 0.25% or thereabouts to secure it.

phill99 · 21 March 2013 at 12:34AM

You need a development loan. This is what commercial property developers use. All of the costs, interest etc is rolled up and repaid once the development (or in your case refurbishment) is complete and the property sold. This means you don't have to pay mortgage repayments while you are refurbishing.

However, I think you have totally underestimated your costs. Most people underestimate the time it takes and the cost. I always say to people double the amount of time you think it will take, especially as you are amateurs and add 30 - 50 % to your cost base. Now factor in extra mortgage payments as the refurb time is longer, plus a council tax payments, utilities, buildings insurance, running around costs, out of pocket expenses eye. And you need a contingency because no matter what you think you will either a) come across an unforeseen problem of b) change your mind on things as you go along.

You need to be looking at a project with a much higher margin as you are leaving yourself no margin of error for when it goes wrong. And it will.

Tancred · 21 March 2013 at 1:16AM

manyspots wrote: »

Hello,
My husband and I are interested in purchasing a property to renovate and sell. This would be our second property as we already own a home that we live in. Despite reading posts on here and on the revenue site I am still unsure about capital gains tax and wondered if someone might be able to answer a few questions.

The following is hyperthetical, we have not yet made an offer on a property although we have seen a couple that we are interested in:

Purchase: £90,000 (75% mortgage, we have 25% deposit)
Renovation: £15,000
Fees for solicitor buying and selling, estate agents and mortgage arrangement: £6,000
Mortage payments whilst we renovate and sell: £2,100
Estimated resale value: £125,000

Please can someone advise me on what tax I would be liable to pay. Am I right in believing that there is a threshold of £10,600 for capital gains tax and therefore we would only pay tax on any profit made after this threshold was exceeded? Can I deduct any fees or renovation costs from the profit to bring it closer to the threshold limit?

If we did follow this venture and it was successful we would be looking to do another renovation project. With this in mind would we then be entering a different sort of tax as we could be considered to be trading?

Thankyou in advance of any help or advice.

£15k seems a very tight budget for a house renovation. Are you planning on doing all the hands-on work yourselves? I would say £40k is realistic.

manyspots · 21 March 2013 at 8:18AM

Morning,

Thankyou eveyone for all of your replies they are very useful. The work we would do is re-carpet, paint, new kitchen and bathroom. We are looking to move the bathroom upstairs which would involve a bit of stud walling and then knock the kitchen into where the bathroom was to extend it. The house is perfectly livable now with no damp or structural issues. I have said renovate but its much more on the do-up side of the spectrum than the adding extensions and doing major refurb.

The mortgage advice is particularly useful. We will now research that side more. I have also taken heed of your warning about contingency and underestimating costs. Back to the spreadsheet!

mel48rose · 21 March 2013 at 8:48AM

I watch daytime tv showing how easy it is to do up houses and sell on. I've always fancied having a go but would be scared to death of losing money on it and getting my fingers burned. Best leave it to the experts, I'd be very wary if I were you.

lessonlearned · 21 March 2013 at 9:45AM

mel48rose wrote: »

I watch daytime tv showing how easy it is to do up houses and sell on. I've always fancied having a go but would be scared to death of losing money on it and getting my fingers burned. Best leave it to the experts, I'd be very wary if I were you.

You only become an expert by doing. No-one is born an expert.:D

Manyspots - I recommend you invest in some good "how to" books. Get learning.

I suggest our dear friends, Sarah Beeny, and Gary McCausland. Readable and easy to understand - and - they both know their stuff.
You can pick them up from Amazon.

Re Tax - There are a series of Tax Guides, specifically written for property business, published by the Tax Cafe. They cost around £25. Needless to say you will soon recoup your money on your investment. They are quite accessible for the layperson - well as far as anything to do with tax can be:rotfl:.

Read and learn.

Yes by all means come on here and ask the odd question but with all due to respect to the posters who are kind enough to give advice you really do need to put some effort into this and do your own homework.

If you are really serious about this get learning.

Oh and good luck.If you know what you are doing then yes there is money to be made. Get it wrong and you could lose a lot of money.

googler · 21 March 2013 at 10:08AM

mel48rose wrote: »

I watch daytime tv showing how easy it is to do up houses and sell on. I've always fancied having a go but would be scared to death of losing money on it and getting my fingers burned. Best leave it to the experts, I'd be very wary if I were you.

Next time you watch one, look at the copyright date on the end credits. I'd be very surprised if you find any made in the last few years.

Wonder why that might be ... ?

GDB2222 · 21 March 2013 at 10:26AM

manyspots wrote: »

Morning,

Thankyou eveyone for all of your replies they are very useful. The work we would do is re-carpet, paint, new kitchen and bathroom. We are looking to move the bathroom upstairs which would involve a bit of stud walling and then knock the kitchen into where the bathroom was to extend it. The house is perfectly livable now with no damp or structural issues. I have said renovate but its much more on the do-up side of the spectrum than the adding extensions and doing major refurb.

The mortgage advice is particularly useful. We will now research that side more. I have also taken heed of your warning about contingency and underestimating costs. Back to the spreadsheet!

Just to give you an idea of what can go wrong, my brother had his pantry knocked into the kitchen. A simple job, with nothing structural involved. It turned out that the ceiling joists were resting on the "non-structural" pantry wall. Lots of renovation work later, it was was all put back again.

Regarding the mortgage needed, if you can possibly raise the money on your existing home, that will save you a shed-load of problems/money. It means that you will effectively be cash buyers on the purchase. Plus it means that you will not be paying a mortgage broker to help finance each project you undertake separately. Plus home loan rates are much lower than commercial rates. Get an offset loan, so you are not paying interest whilst the money is idle.

For tax purposes, it's a trade, even the first one => income tax. If you can get away with CGT, regard that as a bonus.

"One estate agent speculated a much higher sale price which we believed to be inflated so the selling price we have built in to the equation is easily in line with what others are selling for in the area, in fact it is slightly lower."

You are definitely looking at what places have actually sold for, rather than the asking prices?

00ec25 · 21 March 2013 at 11:21AM

Your intention from the outset is to renovate and sell, that makes it trading so as GDB says that means Income tax. You might get away with CGT once, but do it again as you intend and you will forever be exposed to a retrospective investigation of your tax affairs and the whole thing unravelling. HMRC computers are easily going to spot you owning 2 properties and selling one soon after you bought it

As for finances it’s a commercial/development mortgage (flag for tax!) or remortgage your current home (cheaper, but you’ll need a clear paper trail to support claiming the finance charges as a business cost)

tim123456789 · 21 March 2013 at 2:06PM

CLAPTON wrote: »

if a house at 90k will be worth 125k with only 10k of work, why is there not a queue of FTBs waiting to buy?

Because it's only 10Ks work if you do it yourself and most FTBs are too lazy.

Get a man in and it's 25K to do up

tim

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Buying a property to renovate and sell

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