Property development, finances and tax- help and advice

[Prohibiting]

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.

Edited by Prohibiting on Thursday 7th July 11:33

[Prohibiting]

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(?)

[Prohibiting]

Thank you.

I think it was Countrywide Mortgages for 2 years and then I switched to Natwest. BTL, 21 years old with no other property when I first took it out.

[Prohibiting]

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....

Edited by Prohibiting on Saturday 9th July 12:22

[Prohibiting]

Meh, no one will make decent money without risks or pushing themselves. Of course I could just plod along with my BTL doing nothing.

I don't see how what I've said could not be possible? Honestly.

[Prohibiting]

New kitchen and bathroom. I was looking online the other day at bathroom suites. You can get a nice modern suite including taps, bath, bath panels and a fancy shower for the bath, fittings, absolutely everything for £700ish max. Surely it would be no more than £2k for a bathroom tradesman to rip out old bathroom, tile and fit new suite?

[Prohibiting]

Well I've just rang the agents, acted very polite and nice to ask how much it went for as the property went to auction on the 13th. They told me that it actually got pulled out and it was sold privately for £80k. Nice price.... Profit definitely to be made there!

Good tactic though... every property you are interested in, ring up beforehand and ask for an immediate private sale and see if they bite.