Starting a small building business

[johnny2007]

The structure is probably that I could invite a builder or DIYer to join me on a 50%/50% split where we both do the work together but I put in all the money because he is putting in his years of knowledge and experience that I've not got. So he's got the knowledge and I've got the money but we still do a 50%/50% profit share split or something along those lines

I've got accounts with banks who will lend me short term finance on houses with not so much deposit. So I could buy two fixer upers for about £150k with only about £50k in cash and if I split that with someone then it's only 25K each. One of the reasons of using these smaller houses was so that I could "toe dip" and start small before growing. The idea is then as "John" said about having continuity of work we'd get self employed trades working with us as they know we've always got two or three houses on the go at any one time. The plan is to evolve from £75K purchased houses to £300k - £500k purchased properties and the small cheap ones are the "starting smal"

The same deal can be with a third person buying the property but being an armchair investor and we do the work but we also get 2/3rds of the profit. I find it easy to find people to work with because I'm honest and there's no flannel.
It's win win because everybody is taking a little bit of a risk. The investor is buying a house but isn't paying builders to fix it up so that's risk mitigation right there, me and the builder are only risking our labour so worst thing we end up working for nothing which isn't really likely but it means we won't loose money so even in the worst possible situation nobody is likely to actually loose pound notes and the balance of probability is that we all make money although splitting profit between three people is not really that enticing as the profit pot has to then be split

So at this point I ask: what contract would you have with such builder?
Would you let them have their name on the deeds?
I thought not, otherwise they could simply do nothing and ask for their share when you sell.
Are you a limited company buying corporate?
If so, anyone with a little brain will not come near you.
So this leaves one possibility, a charge on the property which will avoid both parties disappear with the money.
But... are you prepared to pay 50% of your profit to a "dumbass" builder?

 

[Notch7]

All of this applies to builders, but you're a property developer.
I have done it myself a few times, buy a wreck at a discounted price, splash of paint, cheap kitchen, cheap bathroom and best of all, brand new combi boiler.
Sold in 2 months to the first viewer.
Now, if you had to fit a £20k kitchen, or even an average £10k, you won't be making money on it, what you spend will not increase the property value by double your expense.
Same for extensions and any work to a high standard.
To make money you need to make the property livable, not a luxury.
Many times I advised customers against building an extension with the view of selling soon after.
They lost money or remained in the property.
Example: you have a £200k property in decent conditions.
Build an extension, call it £40k at the cheap.
You will not sell the property for £280k, not even £240k, so you will lose money.
Property prices are set for the area and change slightly accordingly to condition.
So in an area where a 3 bedroom semi is £250k average, you will not sell for £350k whatever you've done to it.
Be wise.

you probably have to get a property from an auction at around half the going price to make money

the money in property development is hard because of all the DIYer wannabies pushing up prices.

developers and housebuilders make a large chunk of their operating profit from rises in house prices.


builders sometimes do "doer uppers" because it can operate as a job in the side to keep the workers busy in between jobs etc

 

[dontbelieveawordofit]

so you want a builder that will do the work and take the risk, while you take half the profit.

Look for one that plays rugby. There's a fair chance he has brain damage.

you have a sense of humour, who’d have known

 

[pongoman]

In theory it's easy, in practice not so much Unless you are very experienced in building works + you have a team of great subbies......you aren't going to project manage well.
All you need is to have all 3 of these available at the same time:
Information
Materials
Labour
Delays are always when one of those is missing

I'm not talking about complete rebuilds

 

[pongoman]

All of this applies to builders, but you're a property developer.
I have done it myself a few times, buy a wreck at a discounted price, splash of paint, cheap kitchen, cheap bathroom and best of all, brand new combi boiler. Sold in 2 months to the first viewer.

How long ago and how much did you make?

 

[pongoman]

you probably have to get a property from an auction at around half the going price to make money the money in property development is hard because of all the DIYer wannabies pushing up prices. developers and housebuilders make a large chunk of their operating profit from rises in house prices. builders sometimes do "doer uppers" because it can operate as a job in the side to keep the workers busy in between jobs etc

I agree

 

[pongoman]

So at this point I ask: what contract would you have with such builder?
Would you let them have their name on the deeds?
I thought not, otherwise they could simply do nothing and ask for their share when you sell.
Are you a limited company buying corporate?
If so, anyone with a little brain will not come near you.
So this leaves one possibility, a charge on the property which will avoid both parties disappear with the money.
But... are you prepared to pay 50% of your profit to a "dumbass" builder?

Anybody jointly investing would have their name on the asset title

 

[RonnyRaygun]

All of this applies to builders, but you're a property developer.
I have done it myself a few times, buy a wreck at a discounted price, splash of paint, cheap kitchen, cheap bathroom and best of all, brand new combi boiler.
Sold in 2 months to the first viewer.
Now, if you had to fit a £20k kitchen, or even an average £10k, you won't be making money on it, what you spend will not increase the property value by double your expense.
Same for extensions and any work to a high standard.
To make money you need to make the property livable, not a luxury.
Many times I advised customers against building an extension with the view of selling soon after.
They lost money or remained in the property.
Example: you have a £200k property in decent conditions.
Build an extension, call it £40k at the cheap.
You will not sell the property for £280k, not even £240k, so you will lose money.
Property prices are set for the area and change slightly accordingly to condition.
So in an area where a 3 bedroom semi is £250k average, you will not sell for £350k whatever you've done to it.
Be wise.

Yup, completely agree with that. An extension is not a sure fire way to add value, especially in parts of the country where house prices are lower.

Unless you live in a very expensive area the outlay will usually outstrip the value you will add. I did a lot of research before doing my own extension and I live in a pretty expensive area in Hertfordshire.

All in I spent around £1200 per m2 (with the cost kept down by doing the vast majority of the work myself). I am very happy to have added a nice chunk of value (a lot more than it cost). Obviously in an expensive area an extension makes more sense as the cost of stamp duty can make moving a non-starter.

However, if I was doing it to make a living I would have had to pay myself a wage for the duration of the project which will increase the overall cost. Other costs such as estate agent's and solicitor's fees have to be considered along with the period of time between completing the refurbishment and completing the sale. Unless you have several properties on the go at once every additional day between completion of the refurb and completion of the sale costs you money. If you need that money to purchase the next property it could be many months where no money is being made.

Full time property development is really only suitable for people with enough capital to be developing more than one property at a time and enough to see them through the tough times.

 

[bernardgreen]

Anyone watch Homes Under the Hammer ?

 

[RonnyRaygun]

Anyone watch Homes Under the Hammer ?

Yeah, sometimes see that one bloke on Match Of The Day. What does he know about football?

 

[johnny2007]

Anybody jointly investing would have their name on the asset title

So your builder promises to put the hours in to refurbish the property.
You buy with your money and put his name on the deeds, most likely as a tenant in common.
At this point the builder can disappear until you decide to sell the property and he'll be collecting his share.
Totally legal.
Your only recourse will be in county court if you've signed an agreement to do the refurbishment, but the builder's liability will be limited to the cost of refurbishment which you will have to provide proof of expenses.
The percentage of the property listed on the deeds belongs to him.
In other words, this is too risky and I shouldn't be telling you, a property developer.

 

[pongoman]

I would be working alongside the builder. I wouldn't put his name on the deeds unless he was investing his own cash. Perhaps he works for a wage and a percentage of the profit. The point is that it has to be someone trustworthy who isn't going to try to pull the wool over your eyes.

 

[kingandy2nd]

This is all pie in the sky.

You can't find someone trustworthy. You need to find someone, work with them for on jobs, then you will build up trust and a potentially a partnership of some sort.

 

[Captain Nemesis]

Let's not get this out of proportion, project management is not rocket science

IME people who say that dont know much about project management.

 

[Captain Nemesis]

Am I missing something here?

I currently I buy houses, fix them up and sell them.

What is your role in the refurbishment of the houses you buy?

I buy them and refurbish them myself

are you a tradesman?

No, but I've an eye for detail and finish