Sell house to fund new career in property development - inspired or insane?

[Ant84]

Hey guys. So I’m hoping some experienced heads on here might be able to give me a few pointers and let me know if it’s a wise choice to go ahead with what I’m considering.

Basically I’ve been working my current job as a self employed driver for around 8 years now and while the money isn’t spectacular by any means, it’s solid enough to have enabled me to buy a decent 3 bed semi in one of the nicer areas in town up here. During the 5 years I’ve owned the property I’ve taken it almost back to brick in every room, brought it back to new condition and have built up quite a lot of equity in the house by adding value and decreasing my mortgage.

As it stands right now I owe around £97k on the mortgage which is due to run another 30 years or so (I’m 35) and it’s worth anywhere between £180-200k in terms of realistic market value.

The problem is that I feel so stale in my current job. My income is pretty much swallowed entirely by my considerable outgoings, including a loan and a couple of credit cards which were used to fund the renovation works and materials for the house. It’s become very difficult with the extreme pressure to earn just to pay the bills.

With that said, I do love the house and the area where I am right now. However I’m looking at potentially selling to release the equity I’ve accrued over the last few years in order to flip property as a second income, which would allow me to step back into a part time capacity in my current self employed role as a driver. My parents have already said they’d be more than happy for me to go back and stay with them while I get this off the ground which, although by no means my ideal scenario, would be a welcome relief from the financial pressure I’m feeling.

My question is whether this would likely be a wise move, or whether I’m better staying where I am and continuing on the path I’m currently on. With the equity release of £80-100k after fees etc are paid I feel like I could get a very good start in developing property without having to borrow anything. I have a lot of tradesmen as friends, they’ve been excellent in helping renovate my current house and I’m sure would welcome me throwing a lot of work their way if I decide to pursue this new venture.

I should point out that I’d be purely looking to buy, renovate over the course of 4-6 weeks, list for sale and take the profits. I know a lot of developers like to build up a portfolio over time and rent them out but I’ve heard way too many horror stories and don’t want to expose myself to the risk of bad tenants. It might well be something I’d consider in the future but right now I’d be more than happy potentially making £20-30k pre-tax profit every few months.

Would really love some advice as I’ve been mulling this over for a few weeks now and don’t seem to be any closer to a final decision. Remortgaging is currently off the table in terms of affordability with my outgoings being what they are. It seemed the sensible option but after being knocked back by my current provider it looks like it’s all or nothing and I’m either going to have to take the plunge or leave it be.

Sorry for the long post and thanks in advance for any advice.

 

[lewism]

OK, First of all, 35 years on a 97k mortgage? The payments must be £200 a month? say 80k in equity and they wont let you remortgage? even if you only take 40k out for a flip or a consolidation?

Three Things. You're not telling us the full story. Your debt levels must be stonking to fail affordability at these figures. - go speak to a broker for a whole of market advice. Mortgages are the cheapest they've ever been and if you can't get credit in this market there's something not right.

Also it's not as easy as buy, do up, flip. It isn't homes under the hammer. If you're struggling to get a residential mortgage you'll also, most definitely, struggle to get a BTL or commercial mortgage. You'll also have capital gains tax and all the other headaches that come with it. You'll also have to keep the mortgage for around 6 months.

If you move in with your parents it isn't going to be a couple of months if you're plowing everything you've got in to a property. it'll more than likely be a year and if your cash flow is all tied up in bricks and mortar how are you going to live? If you make say 80k on this one to be conservative (before fees) you'll have to clear your debt before you'll get another mortgage. So depending on how much you owe, that will eat in to your pot. I'm not up to speed on current tax efficiencies and what the law is for properties, haven't done it in a while.

Sounds to me like you're paying far too much on your mortgage, go speak to an independent whole of market broker and see what other options are out there. Just seems that your debt is becoming too much to handle and you would be in a better position in a year or two if you were debt free with some savings in the bank.

 

[ash_scotland88]

I've read a couple of articles that often mortgage properties don't want to re-mortgage on properties previously sold within 6months. Not sure how true this is but may a hindrance to your plan if no-one get get a mortgage on a property you're selling.

 

[Psycho Sonny]

How does sdlt work does he get out of the extra 3% by living with parents?

I also think that 97k on a 30 year mortgage is what £400 a month?

You say that you have debt because of the house which is crippling you.

Why don't you remortgage and pay off the debt?

Or get a debt consolidation loan?

Alternatively how would you feel if you bought a property for £150k spent £20k doing it up and the market crashed and was worth £100k?

Anything could happen with brexit. Or if you buy the wrong property or in the wrong area.

What happens if the place needs a new ceiling, boiler, etc in your ownership?

Have you factored in the costs of buying and selling?

Also people are reluctant to pay £30k more for a property which only just sold 4 weeks previously for £30k less.

You know they can see what you paid for it and when.

 

[b0rn2sk8]

To be brutally honest, it doesn’t sound like you have enough money to get up and running, let alone the working capital to get the work done and live. It’s a cash intensive game and comes with its own set of risks. Your debt will be crippling on the cash flow.

There is one thing doing this in your own time at weekends in your own house, doing it for a living where every single day you delay literally cost you a chuck money in financing costs or not realising your profit is a whole other ball game.

What if the house doesn’t sell quickly or make the money you need from it?

Most people doing this own the property they are renovating outright. It makes flipping them far easier and cheaper. The big gains are made by buying cheap at auction, you need cash for that. Not only do you need the cash to buy the house you also need the cash to do any work needed. Most can afford to make a loss on a property here or there, as long as they make a profit overall over many houses.

Do you also have the required certificates to do the work on a commercial basis or will you need to get people in? More cost there.

It sounds like you’ll be better off restructuring your debt and sorting out your cash flow before doing anything else.

 

[ash_scotland88]

Also people are reluctant to pay £30k more for a property which only just sold 4 weeks previously for £30k less.

You know they can see what you paid for it and when.

Event shy of 2years we as a buyer refused/didn't see the value in the same.
Sellers over valued the house they bought, in an area that often just makes home report value (10%+ over home report), spent 20k in it and were selling it at what they spent to buy+renovate(+ maybe legal fees and LBTT) We valued it in its current state what fractionaly above what they paid.
Some buyer and them have agreed a value as it's now under offer. I'm curious to what it's actually gone for.

 

[Slade2]

Some sound advice above. Sell the house move in the with the rents for a bit and save up for a few more years if its really what you want to do. I am a building surveyor and I wish I had the financial ability to do exactly what you are planning but for now I can stick some extra money in the pension pot while I pay off the house I have now and look again over the next three years.

Its all about buying the worst looking decent conditioned house in the best area, spending as little as possible doing it up and selling it at soon as you can. Like people have said above that does not happen that often. You could be left with a lemon on your first go and it cost you thousands to put it right I have seen loads and loads of houses that cosmetically look really good but when you start having a bit of a deeper look they can be shocking houses.

 

[Psycho Sonny]

He would need to also get a tracker mortgage rather than a fixed. Otherwise he will be fined by the mortgage company for repaying early when it sells.

Also he needs to factor in the loss of the interest which could be £200-£400 a month at a guess. Say it doesn't sell for 3-4 months that's £1200 gone to the banks.

Which is why cash buyers do this.

 

[Ant84]

Appreciate the replies - I’ll have a proper read through when I’m properly awake in the morning.

Most of the replies seem to assume I’ll be mortgaging whatever I buy as a flip. If I sell my current house I’ll have the cash to purchase and renovate outright without any borrowing required.

 

[Deleted member 77746]

Sell it, pay off your outstanding debt and move back with family.

What you doing won’t be easy and it only takes you to lose your job while all this is going on and you left with nothing except more debt.

Easiest way out of this is to go back with family then you have no out goings and then no pressure with bills.

 

[Slade2]

Appreciate the replies - I’ll have a proper read through when I’m properly awake in the morning.

Most of the replies seem to assume I’ll be mortgaging whatever I buy as a flip. If I sell my current house I’ll have the cash to purchase and renovate outright without any borrowing required.

umm, no you wont. lets say you clear 100k which is probably unlikely after selling anyway but lets carry on.

You sell for 100k, you buy somewhere for say 80k, leaves you 20k to `live on` and do up the house, lets say you spend 3 or 4k on `doing up the house` (this is cheap btw - new kitchens and bathrooms are not cheap and most houses are sold on both of these rooms) and it sells for maybe 87k or maybe even 90k. Most property investors look for a return around the 6 to 9% mark to start off with. Its possible to get more if you are flipping larger houses of course. This work took you about 4 or 5 weeks and it took another 2 to 3 weeks to sell.

so, 80k outlay + 4k = 84k. so you `invested` 84k to make 90k but that took you roughly 2 months which works out at £3000 a month in profit and that I would imagine is somewhere around best case scenario and that`s with doing most of the work yourself because on those budgets you are not getting people in to do the work for you. You also would have lawyers and agency fees to pay, (typically 0.75% to 2% for agency and maybe you can get a deal for a flat fee for the conveyancing but lets say £500) along with day to day expensive and paying back your debt, oh and any profit you make is taxed with capital gains tax at 18% if so thats £1080 of the 6k gone already.

So from the 6k you made you have to pay £900 to the agency for the house sale (1%) £500 quid to the lawyers, and £1080 to the tax man. So that leaves you a profit of £3520 or £1760 a month. Its not impossible but its just over 20k a year as an income if it all works in your favor.

but I suppose it is possible if you know the right house in the right area. I know of 10 houses that will go to auction soon and I would love to be in a position to afford to bid on a couple of them because I completed condition reports on them some time back and I know if people are viewing them they will be put off (some of the houses in the group have extensive dry and wet root and have been empty for years so the floors are all rotted out) but 1 or 2 of them are in fairly sound condition and could go as cheap as the others at auction, these types of houses would be ripe for flipping but grab the wrong one and you are throwing away money.

 

[413x]

This doesn't add up.

This is one of those you need money to make money .

Like said, you will need your parents to allow you to live cheap at theirs. Mine wouldn't. Nor would I expect them .

You won't be able to get a fixed rate mortgage
You have less than 100k cash
You need that for the next house purchase and renovation, that leaves you with.. What.. 80k at best ?
You can't buy a house outright or seems so you'll have to have a mortgage on it, so you need a high interest non fixed?
So you'll need to keep your job

There is way more ageist than for this
If you get the first one wrong.... Ouch

 

[BUDFORCE]

Also be wary about how much you believe renovation will increase a value of a property.

I mean obviously it all depends what the original state is, how much of a deal you get, demand in area for freshly refurbished properties, but in my job, I see it on a daily basis where someone has spent X amount on a property, estate agents big it up, mortgage brokers big it up, and then when you try and capital raise a valuer goes in and says (not in these words) but basically:

"Nice new kitchen mate, but the property is still a small house in a ****** area with low demand, Brexit looming and a hundred other idiots in the area also putting nice new kitchens in **** holes, so no your house isn't worth anywhere near what you think it is".

Sorry to sound harsh, I'm not saying you can't make it work you need to be really savvy about what your doing.

 

[Rroff]

Also you can lose a lot of money before you've even started if the sale(s) doesn't go smoothly when buying properties - while not to flip someone was looking at buying several properties in a row including my old house to develop into a housing/flats complex using additional land nearby that was for sale - they stalled so long over it (a lot due to their solicitor being inept) that everyone ended up pulling out after they'd put a few thousand down in things like surveys and other fees.

As alluded to above this is really a game for people who have money to make money - you aren't going to be making money from it starting small unless you have every duck firmly in a row and know the game inside and out IMO. I know a couple (parents of childhood friends) who do (or did) make a lot of money from it though they were professionally renovating houses (and even stuff like boats) while living in them and then selling on - must have been **** on the kids though probably quite an interesting life style as they were always moving after 6 months to a year or so and basically living very frugally almost camping out. I don't know their background but I assume both parents had some kind of history in the relevant trades or whatever as they knew what they were doing top to bottom and able to knock work out at a terrific rate.

 

[Ant84]

I think I need to clarify a few things. Maybe I haven’t explained myself very well in the OP but people seem to be getting the wrong idea.

Like said, you will need your parents to allow you to live cheap at theirs. Mine wouldn't. Nor would I expect them .

They’re very comfortable, have a big house with lots of free space and are more than happy to let me stay there while I get on my feet with it. Finances aren’t a consideration although I’d obviously chip in.

You won't be able to get a fixed rate mortgage

I wouldn’t need any mortgage or borrowing.

You have less than 100k cash

£80-100k up here where I am in NW England is more than enough to buy and renovate with the cash reserves I’d have from selling my house.

So you'll need to keep your job

I can keep my current job in either a full or part time capacity. As many hours as I choose to work. So my current earnings of just under £3k per month would still remain if I stuck to my current hours.

 

[MatteH Oxford]

You have zero experience of managing a project, it will be a disaster.

 

[Rroff]

You have zero experience of managing a project, it will be a disaster.

To be fair we don't really know much about the OP to know things like that. But certainly the vibe isn't one of overwhelming confidence this will work out. Think OP needs to try and find someone who has actually done this, who is willing to advise, to talk to in person if possible there are too many unknowns or things we can only assume about online.

 

[Ant84]

You have zero experience of managing a project, it will be a disaster.

My dad spent 25 years project managing new build developments and loves getting involved and helping out. But thanks for your useful comment.

 

[keylion]

Another thing to consider is how long a sale can take to go through. Inept solicitors can easily make what seems like a simple sale take three months plus. Also consider council tax, insurance and charges for utilities whilst a property is in your possession. It depends on what the council is like in your area but some only allow a small amount of time before you have to start paying.

 

[Ant84]

Another thing to consider is how long a sale can take to go thought. Inept solicitors can easily make what seems like a simple sale take three months plus. Also consider council tax, insurance and charges for utilities whilst a property is in your possession. It depends on what the council is like in your area but some only allow a small amount of time before you have to start paying.

This is a good point. Solicitors dragging things out when it comes to the sale is just about the only thing I hadn't really considered.

I'm aiming for rapid turnarounds on any project developments to try and avoid as much of the costs you mentioned. Also if I can manage to complete the works within 8 weeks maximum then I should be protecting myself against downturns in the market in terms of resale value.