Life changing property career decision

Hi Onslow

How do you intend to add value to the properties?

Have you ever done anything like this before?

Rather than jumping in both feet first, have you considered securing a loan against your home to do just one project? If that works then do another. If that works then you at a point where you can make a better informed choice on selling your home and committing fully.

To me, your plan sounds a bit Sh1t or bust at the moment.

If you screw up the first deal you will be able to re-think. You may have to downsize your home, sell up and move into rented accommodation or even get a job to service the residue of any debt remaining as a result of losses. That has to be better than risking everything though and you will still have capital to try something else.
.

Hi Onslow

Wow - that's a BIG step you're intending to make, and good that you're considering the options before jumping in with 2 feet.

In my experience, going full-on into property development in this way can be a very risky manoeuvre. As Mark points out, it seems like quite a 'gung ho' approach and one which could potentially jeopardize your existing portfolio if things don't work out quite according to plan. Whist the theory sounds good, the reality will, I'm sure, be very different. If you have never done anything like this before, then the refurbishment element could be a baptism of fire in itself with all the regulatory factors needing close attention.

Furthermore, you need to accurately anticipate the turnaround time and take into account the '6 month guideline' most mortgage lenders follow which would impact the potential purchaser's ability to finance the deal.

You must really work out what your end objective actually is. If your intention is just to live off the proceeds of each sale, then in effect you are just buying yourself another career. If you wish to continue to build up a residual rental income, then you need to factor this in to your buying decisions. It may be that the money you make from the capital sums will go to pay down the mortgages on the other properties you own, in which case you'll gradually increase your cashflow and mitigate your risk from interest rates rising. You also need to be aware that you will have fewer lending options open to you until you can 'prove' yourself as a successful developer.

In all, I think Mark's idea of starting with just one project so that you learn from it and see how it goes, is a much more considered approach.

Whatever you decide, make sure you take some good tax advice as to the best structure to work under and check your lending options.

Wishing you all the best!
Hazel

Thanks mark for responding, you're absolutely correct it is all or nothing but i am comfortable with that and believe it to be a calculated risk.

This is something I've done before, I currently have a portfolio of 12 houses but have probably bought and sold a further 10 over the years. My concern is that when rates go up next year my income from rent will go down and so i need to generate it from a different source.

I don't have the option to secure a loan against my house as it already has a mortgage and any additional borrowing would not be enough to do what i want to do.

selling my house is not an ideal situation but it's not something that worries me, in effect i will still own houses just not the one i'm living in.

I think really, i'm just looking for reassurance that this is a viable plan and that i'm not missing some glaring problem.

My biggest concern is getting back on the property ladder once i've stepped off it.

Reply to the comment left by "Onslow Clough" at "19/09/2014 - 12:14":

Hi Onslow

It's reassuring to hear that you have had experience of having bought and sold 10 other properties.

You haven't answered my question about how you are going to add value though.

Also, what experience have you had from buying a auction?

There are over a hundred posts on Property118 relating to buying a auction. You can find them by typing the word auction into our search bar (top right of all pages). There are useful guides, tales of woe and lots more. I suggest you read as many of these articles as possible in order to prepare yourself.

Good luck!
.

Thanks to both Hazel and Mark, these are the things i need to hear. I don't want to go into this with rose tinted spectacles.

I really appreciate you highlighting the pitfalls and I hope I have considered all of them.

firstly i understand this is gung ho but perhaps that is down to my nature, i am not risk averse and this attitude has worked in my favour in the past (Of course it has also come back to bite as well)

With regard to experience I bought my first house back in 1998 when the housing market was last on it's knees and then continued to buy and sell for the next 10 years. In that time I have bought over 20 houses and retain 12 rental properties.

I have been through all the trials and tribulations that tenants can bring and i'm still standing. I am fully up to speed with all the regulations and requirements that go with rental property.

With regard to turnaround time i like to think I have been realistic in giving myself 6 months from buying to selling. Hypothetically i would like to buy 3 houses at auction in January, renovate and sell in June, then do the same July through to December. That way, conceivably I could turnaround 6 houses in a 12 month period. I fully understand that this will come with many problems and it might be 4 houses in a 14 month period but i believe there is an income to be had.

I understand my lending options will be limited but being self employed with pretty weak accounts, that is something i'm used to.

i intend to add value by buying at the right price, easier said than done but I know my locations. I will buy properties that are in need of full renovation, i will do my homework with regard to what price houses are selling for, set my budgets accordingly and aim to take between £10k- £15k per house.

For me auctions are the way to buy houses, i have bought several this way. I prefer auctions because you are in control of how much you spend and there are lots of bargains to be had. Also, because i will be a cash buyer I will avoid all the additional fees of getting a mortgage which of course will mean my margins will be larger.

Once again I thank you for your feedback. I think all the concerns you have raised have been addressed, so in a way i feel more confident.

It's such a leap into the unknown i worry that I might be missing something important.

Reply to the comment left by "Onslow Clough" at "19/09/2014 - 14:09":

Are there any auction in January?
.

If you can raise £250k by selling your property, how much could you raise by re-mortgaging instead of selling?

What would your costs be of selling ie estate agents, solicitors, removals etc

Onslow, just a thought...

If you are intending to buy 3 properties with your available funds, which, I presume, would also have to include the refurbishment and purchase costs, then I assume you'll be buying in some pretty low-value areas. Just bear in mind your exit strategies as lower value units can be harder to sell for 'full market value' in areas which typically attract investors. If this is the case, I would anticipate your turnaround time to be longer by virtue of the fact that it may take you longer to find buyers who are willing to pay full price and can afford to borrow against income.

Another idea may be to buy in a more fluid market with better demand for resale, but potentially fewer units and therefore make better margins.

If you are interested in knowing more about maximizing potential and adding value by means of reconfiguration, this is an area we specialize in. Please feel free to contact me for more details.

Reply to the comment left by "Mark Alexander" at "19/09/2014 - 14:22":

I only used January for convenience, my point was to show how i intended to turn around 6 houses in a 12 month period.

Reply to the comment left by "Adrian Jones" at "19/09/2014 - 14:29":

Remortgaging is good point Adrian and one i have considered but with the existing mortgage I wouldn't be able to raise enough to make it viable. It could also be said that i would struggle to get a further advance as i am self employed.