How to set up as a small time property developer?

[Ian H]

I’m looking for a career change and would love to buy a run down house to do up and sell on.

There’s a 2 up 2 down just come on the market near me priced at £89,000 and I reckon it would be worth £125,000 done.

Where would I even begin if I wasn’t a cash buyer?

Something I could do is take some equity out of my own house to buy it if that’s a way to do it.

 

[alan333]

The cash really mounts up.

Stamp duty on second home is 3% so would be about £3k, say maybe £10k on renovations, assuming you're doing quite a lot yourself, probably at least £1k in lawyers fees to buy, another £1k to sell, plus estate agents selling fees of another £2k, plus interest on your £100k spend for 6 months at the very minimum, maybe about £2k. That's not counting the fees for releasing the equity in your own house etc. Total £89k to buy plus the above £19k = £108k.

There isn't too much profit there if you hit some unforeseen, or the whole country gets a virus, or house prices fall, or it doesn't sell quickly.

 

[Mottie]

Don’t forget the tax on the profits.

 

[Notch7]

I’m looking for a career change and would love to buy a run down house to do up and sell on.

There’s a 2 up 2 down just come on the market near me priced at £89,000 and I reckon it would be worth £125,000 done.

Where would I even begin if I wasn’t a cash buyer?

Something I could do is take some equity out of my own house to buy it if that’s a way to do it.

do you want to do up properties then sell them, or buy and rent out building a portfolio?

Coronavirus and brexit could increase the rate of repossessions, so you might get a chance to buy cheaper later on -probably via auction

As the above poster said the diff between £89k and £125 doesnt leave much in the way of profit.

I looked into this a few years back and the estate agents prices for doer uppers just didnt leave enough money in the pot to recover any decent profit to cover a salary.

 

[Ian H]

The cash really mounts up.

It sure does looking at that list. I know a few estate agents in town are charging a flat fee to sell a house for £695 and I think the conveyancer charged us something similar for buying this house.

If I could make £15,000 in 4 months I’d be very happy with it.

What if my daughter bought it as a first time buyer with money borrowed off her Grandad?

 

[Ian H]

Don’t forget the tax on the profits.

Would the tax be the same as my PAYE job now or a different type?

 

[Ian H]

do you want to do up properties then sell them, or buy and rent out building a portfolio?

Coronavirus and brexit could increase the rate of repossessions, so you might get a chance to buy cheaper later on -probably via auction

As the above poster said the diff between £89k and £125 doesnt leave much in the way of profit.

I looked into this a few years back and the estate agents prices for doer uppers just didnt leave enough money in the pot to recover any decent profit to cover a salary.

Buy it to sell it. There are loads of stone 2 up 2 downs around here.

 

[Ian H]

Look what’s on my Facebook now:

 

[catlad]

SPOOKY!!!!!!

 

[Mottie]

I SWEAR that our phones and iPads are listening to us. If you talk about something long enough, it starts popping up on your phone and iPads. Talk about flights, flight adverts start popping up.

 

[HERTS P&D]

They do Mottie, didn't you know that about apple? They are always listening!!!!!!!

Andy

 

[alan333]

It sure does looking at that list. I know a few estate agents in town are charging a flat fee to sell a house for £695 and I think the conveyancer charged us something similar for buying this house.

Check out what you get for your £695. Is it a flat fee for advertising and selling, but more to get the pictures taken and a nice brochure produced etc? Remember you need a conveyancer to buy and again to sell, plus estate agents fees. I reckon you'd be really lucky if you manage it all for two grand.

If I could make £15,000 in 4 months I’d be very happy with it.

I don't think you'd realistically be able to sell in 4 months. There would probably be a couple of months dead time between the day you agree a price with a buyer and their entry day for example.

What if my daughter bought it as a first time buyer with money borrowed off her Grandad?

If your daughter were to buy her only home she wouldn't need to pay any second home tax, but would be liable for standard stamp duty (subject to buying price).

I think that if you buy your home cheap then sell for more within a year it's still liable for tax, but I'm not certain. I also forgot about the essential home report in my costs earlier - add maybe £400 or a bit more to your costs for that. And you'd need insurance which might be expensive if you're not living in the house, and council tax to pay if you are.

 

[trevorbayliss]

You need to aim for a 20% return on invested capital. So if no borrowings and just your own cash, figures look a bit like this:

100k all in to buy and do up and fees. Make 20k. (sell price 120k).

200k all in, make 40k

300k all in, make 60k.

This is super simple, but as you can see, if you move up the market and have a bigger pot to play with you can make a living.

If you start gearing yourself up (mortgage) then you turbo charge the gains. Lets assume you have 25% of the total build / renovation cost in from your own cash. The rest is borrowed.

100k all in, makes you £20k, minus the higher financing costs to be accounted for. So actual profit is £10k. However, this is £10k profit on a £25k investment. So this is a 40% return.

Apply this to a 300k development and you make £30k after finance. So thats £30k profit on £75k investment. Again this is 40%

You make your money by controlling the costs. So this applies to the build materials, but also the finance costs. So imagine you can reduce the finance down to £10k in this instance above and you have gone up to a £50k profit on a £75k investment = 66% return.

Do 2 of these per year and you are making £100k on your £75k initial stake. As you move forward your pot will get bigger and so you scale up again. You just need to watch for those moments when the market stops and reverses. This tends to happen in a cycle, so google the housing price cycle and get zoned in on how property moves in the UK.