Property development, finances and tax- help and advice
Discussion
Hi guys, I'm wondering if anyone could give me some solid correct information regarding a scenario of mine as this is something I've always wanted to do. I've researched online and it's a minefield.
Basically I've been watching too many Homes Under the Hammer and I see a lot of "normal average" everyday people turning a profit of at least £30k+ in a lot of cases on the show.
I have a buy-to-let property which I'm going to put on the market. Once I've paid off the mortgage and subtracted fee's, I'm going to have approx £85k banked. I want to use this to make more money via property developing.
This is my approach but I'm not sure if this is the correct method? For example, hammer price at auction of a property £180k. So I arrange a 'buy-to-let' mortgage in principle before auction then(?), £60k deposit on house at auction and bank lends me £120k on a tracker BTL mortgage(?) I over-estimate a budget of £15k for renovation works and £5k emergency fund. That's my initial £85k all gone. Is this the correct type of mortgage?
Then let's say after 6 months of work everything is complete and I'm ready to sell the house, what taxes are there going to be to pay? My full time job provides me accommodation so I don't own my own house that I live in. The only house that I own would be the one talked about above. Does this make me exempt from capital gains tax even though it's a BTL mortgage and not residential?
Is this basically the correct approach? My full time job would pay for the monthly remortgage repayments. I suppose the only thing I have to be careful is that I can afford the repayments until the house is sold and mortgage paid off(?)
Any other taxes/fees I need to be made aware of?
Thanks.
Basically I've been watching too many Homes Under the Hammer and I see a lot of "normal average" everyday people turning a profit of at least £30k+ in a lot of cases on the show.
I have a buy-to-let property which I'm going to put on the market. Once I've paid off the mortgage and subtracted fee's, I'm going to have approx £85k banked. I want to use this to make more money via property developing.
This is my approach but I'm not sure if this is the correct method? For example, hammer price at auction of a property £180k. So I arrange a 'buy-to-let' mortgage in principle before auction then(?), £60k deposit on house at auction and bank lends me £120k on a tracker BTL mortgage(?) I over-estimate a budget of £15k for renovation works and £5k emergency fund. That's my initial £85k all gone. Is this the correct type of mortgage?
Then let's say after 6 months of work everything is complete and I'm ready to sell the house, what taxes are there going to be to pay? My full time job provides me accommodation so I don't own my own house that I live in. The only house that I own would be the one talked about above. Does this make me exempt from capital gains tax even though it's a BTL mortgage and not residential?
Is this basically the correct approach? My full time job would pay for the monthly remortgage repayments. I suppose the only thing I have to be careful is that I can afford the repayments until the house is sold and mortgage paid off(?)
Any other taxes/fees I need to be made aware of?
Thanks.
Edited by Prohibiting on Thursday 7th July 11:33
You will find it difficult to get a mortgage for an auction property. They quite often cannot be mortgaged which is why they end up in Auctions. Be aware you need to be able to pay the full amount in 4 weeks.
As to tax IIRC you would be liable for capital gains tax as the property was bought for investment, not a home. I'm not an accountant though.
As to tax IIRC you would be liable for capital gains tax as the property was bought for investment, not a home. I'm not an accountant though.
Prohibiting said:
Thank you but I got my BTL mortgage on the house I'm planning to sell without owning a home. I was under the impression that a bog-standard residential mortgage would be fraudulent as I'd never plan to live in it(?)
The finance you are looking for isn't strictly a btl mortgage.What you are suggesting can be done though you would pay more for the borrowing thus eating into your margins.
Options are bridging finance or a btl mortgage with no redemption penalty ( you pay a higher arrangement fee)
For a btl the property would need to be deemed habitable for the lender to consider it. As others have mentioned most lenders do require you to own your own property for a btl product.
Which lender did you use? And when did you get the property?
If you are buying properties with the intention of renovating them and selling them on, you are trading as a property developer. If you make any profits, the profits will be subject to Income Tax and Class 4 National Insurance (Corporation Tax if a limited company) and not Capital Gains Tax.
I'm also interested in doing almost exactly this. The only difference being I already own property. Which unfortunately could be an issue for you.
No expert obviously but a few issues that spring to mind.
You won't get a BTL on a house that needs renovating.
Do not confuse the mortgage market from even 2 years ago with the market today.
In my opinion you won't get a mortgage sorted in time to buy at auction. maybe others will tell you different, but it seems highly risky to me.
Luckily there's always a way. I would seek advice from Sarnie on this forum as he's certainly knows his stuff and can deliver what you need whatever that may turn out to be.
Who will do the work for you if you work and are elsewhere? You can renovate a property for 15-20k, but it usually means doing the bulk of the work yourself.
What is it about the flip that you prefer to BTL. If you are currently renting your BTL out, why quit that game? Just interested really as I'm in the same thought process. One of my BTL is in an area that's seen zero capital gain in 10 years so I think my money could be used better somewhere else, however the rental income does provide income for me and has payed off a huge chunk from the mortgage. It was originally the capital gain that drew me so hasn't actually been the dream I'd once hoped.
No expert obviously but a few issues that spring to mind.
You won't get a BTL on a house that needs renovating.
Do not confuse the mortgage market from even 2 years ago with the market today.
In my opinion you won't get a mortgage sorted in time to buy at auction. maybe others will tell you different, but it seems highly risky to me.
Luckily there's always a way. I would seek advice from Sarnie on this forum as he's certainly knows his stuff and can deliver what you need whatever that may turn out to be.
Who will do the work for you if you work and are elsewhere? You can renovate a property for 15-20k, but it usually means doing the bulk of the work yourself.
What is it about the flip that you prefer to BTL. If you are currently renting your BTL out, why quit that game? Just interested really as I'm in the same thought process. One of my BTL is in an area that's seen zero capital gain in 10 years so I think my money could be used better somewhere else, however the rental income does provide income for me and has payed off a huge chunk from the mortgage. It was originally the capital gain that drew me so hasn't actually been the dream I'd once hoped.
Thanks guys. I've spent a lot of time online trying to do research last night. You're right, I won't get another BTL mortgage because my intention is not to let the house out. My intention is to buy then sell which is classed as trading in property for profit. There are special "buy to sell" mortgages or bridging finance type mortgages- the only trouble is interest rates are higher. I think it's best to be completely open and honest about your intentions as you don't want to get stung down the line. I would have to pay income tax on any profits made because as said, it will be classed buying to sell to make profit, NOT long term investment which is where CGT comes in.
Rufusgti, I want to do this because I honestly think there's more money in it doing it part-time on the side of my full time job compared to my simple easy BTL currently. My BTL is obviously paying off the mortgage by itself and I'm profiting on top an extra £60 a month once agent fee's etc has come out. I think I've watched too many Homes Under the Hammer but it looks easy.
For example, if I sell my BTL house I'll have £85k to play with. So as an idea in my mind, I've seen a house up for auction at the end of this month, guide price £80k. It looks sound and will need a new kitchen and bathroom. Let's say I budget £12k to get tradesman in for a new remodelled bathroom and simple white gloss kitchen. Once done the house could sell for £125k. Let's say at auction the hammer falls at £90k.
Plus as I'm not pushing my finances, I could put a £60k deposit down so I'd only need to borrow £30k and I'll hold £20k back for the refurbishment.
£90k + £12k refurbishment + £3k fees(?) = £105k.... Sells for £125k.... £20k pre-tax profit in 3 months.
Bearing in mind these figures are realistic and safe, plus I looked at previously sold house prices in the area. My only concern would be, which you've touched on, is organising tradesmen when no one would be at the property and I work 8-5. I was thinking of trying to find someone who's on my wave length, someone I can trust and just give them the keys so they can let themselves in and do the work.
This is the example I'm referring too: http://www.rightmove.co.uk/property-for-sale/prope...
This is my thought train! Anyway, my tenants are leaving on 10th August so yeah....
Rufusgti, I want to do this because I honestly think there's more money in it doing it part-time on the side of my full time job compared to my simple easy BTL currently. My BTL is obviously paying off the mortgage by itself and I'm profiting on top an extra £60 a month once agent fee's etc has come out. I think I've watched too many Homes Under the Hammer but it looks easy.
For example, if I sell my BTL house I'll have £85k to play with. So as an idea in my mind, I've seen a house up for auction at the end of this month, guide price £80k. It looks sound and will need a new kitchen and bathroom. Let's say I budget £12k to get tradesman in for a new remodelled bathroom and simple white gloss kitchen. Once done the house could sell for £125k. Let's say at auction the hammer falls at £90k.
Plus as I'm not pushing my finances, I could put a £60k deposit down so I'd only need to borrow £30k and I'll hold £20k back for the refurbishment.
£90k + £12k refurbishment + £3k fees(?) = £105k.... Sells for £125k.... £20k pre-tax profit in 3 months.
Bearing in mind these figures are realistic and safe, plus I looked at previously sold house prices in the area. My only concern would be, which you've touched on, is organising tradesmen when no one would be at the property and I work 8-5. I was thinking of trying to find someone who's on my wave length, someone I can trust and just give them the keys so they can let themselves in and do the work.
This is the example I'm referring too: http://www.rightmove.co.uk/property-for-sale/prope...
This is my thought train! Anyway, my tenants are leaving on 10th August so yeah....
Edited by Prohibiting on Saturday 9th July 12:22
Prohibiting said:
I don't see how what I've said could not be possible? Honestly.
Yes, it is possible. The question is, what skills do you think you bring to this particular party? Other people are in it as a full time activity - it's a challenge to start from scratch and beat them at their own game.What if the property doesn't sell? How long can you sit on it?
I took a couple of years out of my career and bought and renovated a house we bought. Loved it. There's definitely money there.....but I reckon you make your money when you buy the house. Buying a good house is very hard as there's lots of people out there with bigger budgets, much better contacts and more reliable trade men's lined up.
HUTH does make it look very tantalising but I reckon you have to be able to lots of the work yourself to make it worth while.
I loved it and I'd do it again I a heartbeat but, oddly, the money isn't really the appeal.
Good luck.
I took a couple of years out of my career and bought and renovated a house we bought. Loved it. There's definitely money there.....but I reckon you make your money when you buy the house. Buying a good house is very hard as there's lots of people out there with bigger budgets, much better contacts and more reliable trade men's lined up.
HUTH does make it look very tantalising but I reckon you have to be able to lots of the work yourself to make it worth while.
I loved it and I'd do it again I a heartbeat but, oddly, the money isn't really the appeal.
Good luck.
If the house you are looking at has a guide price of £80k you had best hope there is no one else at the auction to bid on it, too many people have also watched HUTH and have money burning a hole in their pocket and bid way over the odds for property, the guide of £80k will most likely sell for around £100-110k leaving no room for profit if you are not doing any of the work yourself.
Bear in mond the guide prices for auction houses are usually well below what they make on the block.
Kitchen should be 4k tops and bathroom £1500, you tend to make more money buy expanding a property upwards or outwards; if you build/conversion cost is £150 per foot and your local value is £300 per foot all is good . if its the other way round pain will ensue.
If you are bringin trades in most that are available immediately, are available for a reason, you need to be there every day, you need to buy all materials yourself, if you don't you will end up with a house finished as the builders want not what you want
Kitchen should be 4k tops and bathroom £1500, you tend to make more money buy expanding a property upwards or outwards; if you build/conversion cost is £150 per foot and your local value is £300 per foot all is good . if its the other way round pain will ensue.
If you are bringin trades in most that are available immediately, are available for a reason, you need to be there every day, you need to buy all materials yourself, if you don't you will end up with a house finished as the builders want not what you want
Prohibiting said:
Hi guys, I'm wondering if anyone could give me some solid correct information regarding a scenario of mine as this is something I've always wanted to do. I've researched online and it's a minefield.
Basically I've been watching too many Homes Under the Hammer and I see a lot of "normal average" everyday people turning a profit of at least £30k+ in a lot of cases on the show.
I have a buy-to-let property which I'm going to put on the market. Once I've paid off the mortgage and subtracted fee's, I'm going to have approx £85k banked. I want to use this to make more money via property developing.
This is my approach but I'm not sure if this is the correct method? For example, hammer price at auction of a property £180k. So I arrange a 'buy-to-let' mortgage in principle before auction then(?), £60k deposit on house at auction and bank lends me £120k on a tracker BTL mortgage(?) I over-estimate a budget of £15k for renovation works and £5k emergency fund. That's my initial £85k all gone. Is this the correct type of mortgage?
Then let's say after 6 months of work everything is complete and I'm ready to sell the house, what taxes are there going to be to pay? My full time job provides me accommodation so I don't own my own house that I live in. The only house that I own would be the one talked about above. Does this make me exempt from capital gains tax even though it's a BTL mortgage and not residential?
Is this basically the correct approach? My full time job would pay for the monthly remortgage repayments. I suppose the only thing I have to be careful is that I can afford the repayments until the house is sold and mortgage paid off(?)
Any other taxes/fees I need to be made aware of?
Thanks.
I've done developments before - standard procedure to raise funds to purchase is either just having the cleared funds in the bank or bridging loan secured against investment property already held. For example developer has a built up property portfolio with £600k equity that allows him to bridge to immediately buy a £250k property. I've simplified but that's basically how it works.Basically I've been watching too many Homes Under the Hammer and I see a lot of "normal average" everyday people turning a profit of at least £30k+ in a lot of cases on the show.
I have a buy-to-let property which I'm going to put on the market. Once I've paid off the mortgage and subtracted fee's, I'm going to have approx £85k banked. I want to use this to make more money via property developing.
This is my approach but I'm not sure if this is the correct method? For example, hammer price at auction of a property £180k. So I arrange a 'buy-to-let' mortgage in principle before auction then(?), £60k deposit on house at auction and bank lends me £120k on a tracker BTL mortgage(?) I over-estimate a budget of £15k for renovation works and £5k emergency fund. That's my initial £85k all gone. Is this the correct type of mortgage?
Then let's say after 6 months of work everything is complete and I'm ready to sell the house, what taxes are there going to be to pay? My full time job provides me accommodation so I don't own my own house that I live in. The only house that I own would be the one talked about above. Does this make me exempt from capital gains tax even though it's a BTL mortgage and not residential?
Is this basically the correct approach? My full time job would pay for the monthly remortgage repayments. I suppose the only thing I have to be careful is that I can afford the repayments until the house is sold and mortgage paid off(?)
Any other taxes/fees I need to be made aware of?
Thanks.
Edited by Prohibiting on Thursday 7th July 11:33
Bridging finance is about £500 a month per £80k so expensive.
To be making a decent return look at more expensive properties - but I appreciate you don't want to here that - but I've refurbed crap semis in Derby and guess what after an eBay kitchen and bathroom they are still just a crap semi with a ceiling price and lowish capital growth.
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