Life changing property career decision

Reply to the comment left by "Sally T" at "19/09/2014 - 22:59":

Thank you Sally, that is something I need to consider. I am aware of, but not fully up to speed of this 6 month rule for selling on. I understand that it is very difficult to get a mortgage on a property within this time frame but after 6 months is it straightforward?

There isn't some kind of slide rule whereby, up to 6 months no chance, at 7 months a few companies may lend, 8 months a few more 9 months,,, etc.

Reply to the comment left by "Onslow Clough" at "20/09/2014 - 06:40":

Hi Onslow

I don't think the CML guidance on mortgaging properties within 6 months of ownership will cause you too many problems, if any. It is not a "rule", the CML guidance is for lenders and solicitors to prevent fraud. If you sell the refurbished properties through an established and recognised estate agent you will be fine.

Something else I have thought of; presumably you are aware that the type of development you are doing will result in profits being taxed as a trade? CGT only applies to investment, i.e. properties which you have let. If you do will you will pay more tax because the maximum band for CGT is 28% whereas the upper band for income tax is 50% and you will also have some National Insurance to pay. Also note that VAT is not reclaimable on residential refurbishments.

If you don't have a good accountant, now is the time to get one - see >>> http://www.property118.com/member/?id=452

The comments regarding re-saleability make a lot of sense. My brother does the same as you but targets the grey market, i.e. baby boomers. Demand for bungalows is high but supply is low. As bungalows tend to appeal to older people, those which come on the market are more likely to do so as a result of death than other types of residential property. Tired bungalows tend not to appeal to the grey market as they don't want the hassle associated with refurbishment. Accordingly, the profit margins on sale post refurb tend to be higher due to demand.

If you can buy a bungalow which can be extended, that's where the real money is. If you can redesign it so that it is more open plan, such as American properties, demand will go through the roof.
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Reply to the comment left by "Mark Alexander" at "20/09/2014 - 09:53":

Thank you Mark for clearing up the guidance regarding the 6 month rule.

The information regarding the CGT issue is also very helpful. It is something I have considered but hadn't really thought about the profits being income as opposed to capital gain.

Also, i do like the idea of buying bungalows. At the moment my plan is to aim for the first time buyer market, i want to renovate 2 bedroom houses to a good quality that will come in around £100k - £124k therby coming in just under the stamp duty level. i believe 5 years of limited credit availability and a weak housing market has lead to a build up of youth who are dying to move into there own property. Pricing these houses at around £100k should make them affordable even by today's stricter criteria.

Hello Onslow, I followed a similar trajectory to you pre-2008 but could never have accumulated 12 houses because of higher house prices in the South-East; I also switched in 2006 from renting to a strategy of buy-and-sell, and then building new houses from scratch, with reasonable success considering the subsequent state of the housing and mortgage markets.

Your turnover rate is ambitious and very much depends on quick sales in healthy markets; you also need dependable renovators who are prepared to travel considerable distances, unless you can find properties at auction that are consistently close together. I'd also be concerned about the inordinate time taken to grind through the conveyancing process. You only need a few delays and/or unexpected problems with your renovation work, and your turnover and income will be severely impacted.

Have you considered going into partnership with other investors and pooling your resources? You might find an active partner like a builder, architect or surveyor, each of whom brings different skill sets to the team, or you could seek out passive partners who recognise your abilities and are content to let the business pay you a wage while each party receives a share of the profit in proportion to the capital they invested. The arrangement could be formalised to protect everyone's interests by creating a company and issuing shares.

I know a development company called Zone Developments in Berkshire that came together in exactly this way: an experienced builder, an architect and a land surveyor decided to go into business, and found themselves an additional investor and managing director (an accountant and former finance director) who looks after capital raising and the day-to-day running of the company. I think they also had an angel investor to begin with - an IT entrepreneur who'd cashed in - who true to form exited the business with impeccable timing in late 2007, although they were able to continue trading and appear to have done very well since.

I appreciate that this kind of arrangement may cut against the grain if you are an independent sort of chap and used to being a sole trader, but there are many advantages in collaborating with other people. Your £250K may mean your business is permanently starved of capital, especially if you are pulling significant income out of your investments at the same time, whereas if you got together with three other people with similar amounts of money, £1 million and a few successful projects under your belt will open up all sorts of doors with development lenders.

Reply to the comment left by "Tony Atkins" at "20/09/2014 - 18:14":

Hi Tony, many thanks for sparing some time to look at this.

You are right my turnover is ambitious, i think it is achievable but realistically i think it could well and less, certainly in the first year. Hopefully though the figure can be improved on year on year as more contacts are developed, experience gained etc.

With regard to my portfolio of 12 i was very lucky to get into this game in the late 90's when prices were last rock bottom, it was through necessity rather than choice, unable to get a mortgage, my wife and i lumped all our savings together to buy a 4 bed house in a popular rental area of Leeds for £15k. It hardly seems believable now. That was the catalyst for the rest of my life.

In some respects my biggest regret was not to snap up as much as I possibly could at this time. Funds,knowledge and other commitments all prevented me.

Fortunately in Yorkshire housing is still relatively cheap, the much heralded price rises of the South are still to arrive, but they are coming. It is for this reason I want to be in a position to capitalise.

Although I intend to sell 6 houses each year they don't necessarily have to be the 6 I buy. Therefore if i have delays with a couple of the projects then I always have my portfolio to draw on and i could sell some of these to keep the cashflow going plus there will already be built in equity as i have had some for over 10 years. I understand raising liquidity out of property is not quick, so a certain amount of forward planning will be needed, to ease this problem i intend to keep a liquid "kitty" fund of £30k at all times.

As for going into partnership you may have gathered that is not for me. I am inherently cautious of working with other people, i hear nothing but horror stories from people who have done it. The collective capital may be advantageous, but the decision making process would be a nightmare and the liabilities potentially huge.

Once again I thank you for your help. I need to hear about as many pitfalls as possible so I can be sure I have a plan in place to combat them.

Onslow ,

!). how old are you and are you in good health ?

2) what are you like with a power-drill and paint brush ?

3). if the SHTF can you live off the land ?

4). are any of your BTL portable?

5). have you got a sister ?

Reply to the comment left by "micky alderson" at "22/09/2014 - 12:13":

Hi Micky, i'm mid 40's and in control of all my faculties, i'm above average height, GSOH, non smoker, and enjoy cinema and walking. Looking for similar 🙂 ps, hands off my sister

If I were a bank manager and someone came to me with this as a business plan, I wouldn't think it realistic.
Strangely enough, I had a very similar get-rich quick plan about 20 years ago, but soon realised the property market was so slow that I might renovate a house and then be unable to sell it for ages - especially as one can be a bit greedy/optimistic about the value of the property after you've done the work and exaggerate the value added.
That reminds me of a tenant we once had who said she'd added thousands in value to our house after painting it. Because it was a rising market at the time she thought she could take credit for the increase in value.
On the other hand, maybe if house prices are starting to rise again it will be that increase (which is out of all of our control) which could add value, rather than works. There was a time when house prices increased rapidly over 6-month periods, but I'd say that's pretty risky. And I'd separate being a risk-taker (which I consider myself to be also), from just wishful thinking and hoping for the best. That's closer to gambling, which I'm not fond of.
Also: on a realistic note, my current builders who are doing a loft conversion, but who then had to install new fire ceilings, fire doors etc. (not budgeted for but demanded by the HMO inspector) said they'd get everything done in 3 weeks and we're now into the 6th. So taking into account: financially running over budget, builders taking longer than they say and an uncertain property market - in terms of how quickly you can sell at a profit and in terms of how much that profit will be), I'd say a much more reliable profit would come from more buy-to-lets rather than buying to sell. And if the property market goes up you'll be quids in later anyway.

Reply to the comment left by "Rosalind Beck" at "23/09/2014 - 10:11":

Hi Rosalind, i appreciate what you're saying but fortunately I don't need to present this plan to a bank manager. I think it fair to say under present conditions these credit prevention officers are unlikely to take any form of risk.

This of course doesn't make the plan right. However to a certain extent I am taking a calculated risk that we are at the beginning of a rising market, house prices have always been cyclical and lets face it they can't go much lower.

As a cash buyer I hope to make some of the profit when i buy rather than sell, by that i mean buying at below market value in auctions. Homework will tell me which properties have the right guide price and the using Rightmove I will get an idea of what properties in the area can achieve. If i can't achieve the return i want i won't buy.

I intend to spread my risk by having up to 3 projects on the go at any one time. By staggering the time I purchase there should be one in the early stages of development, one nearing completion and one on the market thereby creating a conveyer belt.

I have no doubt that there will be delays, unexpected costs etc but i also have a portfolio to fall back on if needs be. Some of these already have built in equity as i have had them several years so i can raise capital by selling one of these. I also intend to keep a significant amount of liquid funds in a couple of offset mortgages which i can draw on as and when needed.

Thank you for giving some time to looking at this and hopefully I have answered the issues you have brought up.

Reply to the comment left by "Onslow Clough" at "23/09/2014 - 12:01":

Hi Onslow

Presumably you've had a play with our Property Research Tool?

See >>> http://www.property118.com/property-search-tool/

Please let me know what you think 🙂
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