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

Associate
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My dad spent 25 years project managing new build developments and loves getting involved and helping out. But thanks for your useful comment.
Yes, in a period of continually falling interest rates and ever increasing prices. It's highly unlikely that this will continue during your proposed venture.


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.
You see, every wannabe developer makes the points you make as they are plain obvious with lots of ‘ifs’. The time you make profit is during the purchase, you have to get it for a price that allows some contingency works and without you
definitely find it hard to make a genuine profit. Unless you have access to that murky world of being able to bypass the estate agents and be able to directly purchase property for BMV, then you will find it next to impossible.

I've been there for nearly twenty years, with the ability to get hands on to cover several trades myself. That is tough enough let alone having no personal experience and coming from a driving background.
I wouldn't recommend you do this considering your mismanagement of your finances , you honestly feel capable of trying to deal with something as complex as property development?
 
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Associate
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You see, every wannabe developer makes the points you make as they are plain obvious with lots of ‘ifs’. The time you make profit is during the purchase, you have to get it for a price that allows some contingency works and without you
definitely find it hard to make a genuine profit. Unless you have access to that murky world of being able to bypass the estate agents and be able to directly purchase property for BMV, then you will find it next to impossible.

I've been there for nearly twenty years, with the ability to get hands on to cover several trades myself. That is tough enough let alone having no personal experience and coming from a driving background.
I wouldn't recommend you do this considering your mismanagement of your finances , you honestly feel capable of trying to deal with something as complex as property development?

Thanks for adding to my points that were ‘plain obvious’ with some further obvious ones of your own. I’m well aware that the purchase of the property is where you make your money, as well as keeping costs down (in terms of not going for an ultra high end finish in a bargain basement 2 bed terraced). Anyone who wouldn’t budget for some kind of contingency when doing this is asking for trouble, but again this is basic stuff that goes without saying.

With regards to your assumptions about my background and financial mismanagement - I went through a break up with my partner while halfway through renovating the house. She left me with the outstanding bills she hadn’t paid during the time we lived together and I was also left to fund the remainder of the renovations on a single wage. I’m not at breaking point, I’ve managed to get through it so far and I’m left with some disposable income at the end of the month, just not as much as I’d like to be totally comfortable. Given around 12-18 months all these debts will be fully repaid and I’ll be fully back on track. Of course if I go ahead with my plan and sell the house then I can pay them all off immediately and still be left with enough to buy and renovate a house without borrowing.

Interestingly I’ve noticed most of the people that have been trying to put me off, telling me it’s hard to make a good profit (not just on here) are property developers themselves. Doesn’t really add up. Everyone starts somewhere, right?
 
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Soldato
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I think theres a bit of money to be made in housing if you live in it / do it up /then sell it after a couple years. I.e. Not amounts you could live off but pay some of the return in time/effort doing it up.

To make money as a developer solely id expect
  • You need high working capital (at least a couple houses at a time as the estate agency time/sales time will eat into your profits if a full time job)
  • You need to be at the upper end of the market (say 10% on a 300k house is 30k profit). At this end though you will lose out to stamp duty
  • You need family / good friends who are well connected with the trades (i presume you arent a tradesmen yourself)

To be honest good luck to you, but to me it sounds very high risk if you only have circa 100k working capital and currently a job paying circa 20k. One significant downturn in the market and youll be knackered.

  • What end of the housing market are you looking at? (ie bought cost/sale cost)
  • I think your ecpectation of a 4 weeks turnaround is far too ambitious (with conveyancing etc alone id expect 3 months between houses)
 
Caporegime
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Something isn't adding up.


You make just less than £36K year.

Have a 30 year mortgage with less than £100K outstanding,

Yet you are struggling financially?

Pay off the credit and then only buy with cash. Then overpay your mortgage.

You could be mortgage free within 10 years and earning £36K a year with no mortgage in a £210K home is a good place to be in 10 years time.
 
Associate
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Something isn't adding up.


You make just less than £36K year.

Have a 30 year mortgage with less than £100K outstanding,

Yet you are struggling financially?

Pay off the credit and then only buy with cash. Then overpay your mortgage.

You could be mortgage free within 10 years and earning £36K a year with no mortgage in a £210K home is a good place to be in 10 years time.

I’ve spent around £35k of my own money renovating the house. £20k from savings and the rest on a low interest loan and credit cards (now mostly balance transferred to 0% cards) which was unfortunately necessary after the breakup as I couldn’t live in a half finished house.

In any case, and without wanting to be too blunt, the purpose of the thread wasn’t for an in depth analysis of my finances and background. I don’t have as much disposable income as I’d like at the moment but, as stated previously, this won’t be the case in 12-18 months and I’ll be back on my feet.

The equity I have in the property is pretty solid and I wanted to gather opinions on whether it would be a sensible move and whether £80-100k would be enough working capital to make a good start. I’m well aware that I’m in a decent position as a single guy of 35 and could well have a £250k house with no mortgage in a few years time, but it’s just bricks and mortar at the end of the day. If taking a chance on doing this could change my life for the better then I’m open to it.
 
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What end of the housing market are you looking at? (ie bought cost/sale cost)
  • I think your ecpectation of a 4 weeks turnaround is far too ambitious (with conveyancing etc alone id expect 3 months between houses)

I’d be looking initially at the lower end of the market. Something needing renovation up here could be had for £45-60k.

After taking on a few of these (if successful) I’d definitely be looking at the £100-150k price range as there seems to be more scope for adding value and obviously the profits should be higher. Maybe after a few years and after building up a lot of capital I’d be more interested in building up a portfolio in that sort of price bracket to rent out.
 
Soldato
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I cant see buying a 45 to 60k house going to make you significant enough return via sale to allow you to turn it into a full time job. Surely the returns will be vary low and investment of time very high?

I hope you prove me wrong and post a build thread on here if you go forward with it though!
 
Caporegime
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I’ve spent around £35k of my own money renovating the house. £20k from savings and the rest on a low interest loan and credit cards (now mostly balance transferred to 0% cards) which was unfortunately necessary after the breakup as I couldn’t live in a half finished house.

In any case, and without wanting to be too blunt, the purpose of the thread wasn’t for an in depth analysis of my finances and background. I don’t have as much disposable income as I’d like at the moment but, as stated previously, this won’t be the case in 12-18 months and I’ll be back on my feet.

The equity I have in the property is pretty solid and I wanted to gather opinions on whether it would be a sensible move and whether £80-100k would be enough working capital to make a good start. I’m well aware that I’m in a decent position as a single guy of 35 and could well have a £250k house with no mortgage in a few years time, but it’s just bricks and mortar at the end of the day. If taking a chance on doing this could change my life for the better then I’m open to it.

how much work can you do personally?

can you do plumbing, bathrooms? etc.

can you do electrical, wiring, lighting, etc?

how good are you with wood and building in features like built in wardrobes, cabinets, kitchens?

can you do plastering?

again you would want a regular income to supplement this until you have at least £50K profit in the bank.

put it this way i know someone with a large property portfolio. like 30+ flats. however struggling for cash as his day to day bread and butter income is gone because he sold up that business which generated cash on a daily basis.

the flats he has are all mortgaged and lost value since he bought them and only on interest only too. so his outgoings are extremely high.

you would need to keep your current job and do this project work in the evenings. basically you will need to make huge sacrifices to make it a success and be able to do the majority of the work yourself.
 
Soldato
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Buy a cheaper house in a cheaper area to do up. There is one in my street, terraced, 3 bedrooms for £45K probably could get it for less. Just needs new windows, kitchen & bathroom, and decorating & new carpets throughout. Easy money up norf.
 

233

233

Soldato
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OP go for it,

if you can sell your current property and release enough capital to get that first property bought outright then its win win,

either move in with the parents or at least get one room habitable, you instantly up being morgage free for a start pressures off then get the debt gone and have a bricks and mortar asset all bought and paid for that you can do up at your own pace with no pressure. when its good to go stick it up for sale and you can wait for the price you want rather than being forced to sell. when you have the sale through next property bought rinse and repeat.

one thing i would say is try and bank some cash from each property until your in a position to have enough to have 2 properties on the go, that way you always have somewhere to live yourself and you can be straight on with the next project whilst waiting on a sale.
and if you buy smart your not going to lose anything taking the gamble.
 
Soldato
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Good luck if you do decide to do it but consider even a bit of the following before you jump in.

You sell up and have 100k to start your property business.

You buy at 80k cash - spend 10k doing it up (very conservative), along with your own living expenses during this time (say 3 months at best)

You sell house for 100k - So you've made "profit" of 10k over 3 months. That's £3k a month -same as your earning. (this does not take into account any extra costs/overruns etc)

Another thing to consider - the house you do up - doesn't sell for 3/6 months. You have all your money tied up in the house - what happens then? Where is your earnings? What are you living on even if your at your parents.

Who's doing the renovations on the property? You? Tradesmen?
Are you sole trader, Ltd company?
Tax? Ni? Corporation tax
Stamp duty/ Insurance costs
Electric/gas costs during refurb
Buying/Selling costs - solicitors/surveyors costs
Accountant costs? Book keeping costs?
Freehold/leasehold issues?

Everyone and their dog think they can make money on property - however, it's nowhere as easy as people think it is.

20% ROI is a general rule of thumb - if your not clearing 20% after everything is done - it's really not worth your time unless your doing lots at a time.
 
Soldato
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I’d be looking initially at the lower end of the market. Something needing renovation up here could be had for £45-60k.

After taking on a few of these (if successful) I’d definitely be looking at the £100-150k price range as there seems to be more scope for adding value and obviously the profits should be higher. Maybe after a few years and after building up a lot of capital I’d be more interested in building up a portfolio in that sort of price bracket to rent out.

I bought the house I'm living in for £70k knowing it needed work, but I don't mind not having pristine paint etc, it adds little to my life.

I've spent circa £7k on new doors/windows, kitchen and I'll get the bathroom replastered and spend another few hundred on that.

If I re-decorate it'll go for £95-100k or I can get about £600 per month rent.
 

daz

daz

Soldato
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I've done a couple of quick refurbs/flips on some 1960s maisonettes (new kitchens, bathrooms, re-decorate throughout). Biggest problem I found is that your cash/profit is tied up when you really need to be working on the next one. So when you have finished property 1, you are advertising it, perhaps you get a solid offer in 2-4 weeks, then it can be another 12 weeks of conveyancing etc. So You're waiting near enough 4 months after finishing the first property before being able to start on property 2. Ideally, you actually need to have money in the bank to do 2 properties, so you can be working on property 1, then move on to property 2 before you have the money back from the first one. Then when property 1 sells and property 2 goes on the market, you have property 3 lined up to start. This approach potentially gives you access to economies of scale, e.g. materials that you need for one property can be re-used on another, so you can take advantage of when flooring or tiles are going cheap etc.

The other issue is the 3% stamp duty, that takes out a large chunk of what would have been profit in the past. So my most recent property I bought for £232k, sold for £273k. It cost £18k for all of the work so it sounds like a healthy profit but once stamp duty, solicitors (buying AND selling) and estate agents are taken care of the profit worked out to around £9k-£10k, for approx 6-8 weeks of refurb and then the selling process took near enough 16 weeks. And in that time anything could have happened to the property market or we could have found anything wrong with the property that would have wiped out the profit entirely. In the end I decided that whilst it wasn't a complete failure, there are more productive uses of my time and money.
 
Soldato
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Real estate is an illiquid asset, it can take ages to trade and there are an awful lot of aspects well outside of your control - if the market dips due to Brexit concerns in 10 months time, you could be stuck with an asset on your hands that you might not be able to shift for a suitable profit.

You might be better off moving back in with your folks, taking extra shifts and saving up enough for an additional deposit or two, allowing you to work on a number of properties at once.
 
Soldato
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Just wanted to echo @Psycho Sonny's points about your financial situation. Why are you sitting on a 30 year mortgage slowly paying it off while you're being financially crippled by these debts? Up the mortgage, pay the debts off, then reduce your mortgage term by increasing your monthly payments. It's a no brainer. The additional benefit of that is that your interest on the mortgage will drop substantially.
 
Soldato
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You asked for advice....if you've got yourself into a mess running up debts on credit cards and loans...then no, attempting to get into property flipping isn't a good idea.

This is not a good time, a lot of uncertainty around. We're definitely not in 'easy money' territory at the moments....we'd in IF a lot of IFs come true, you might do OK-ish out of it. It's far more likely you'll end up making zero gains or losing money working with such small amounts of capital.
 
Associate
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Thanks for adding to my points that were ‘plain obvious’ with some further obvious ones of your own. I’m well aware that the purchase of the property is where you make your money, as well as keeping costs down (in terms of not going for an ultra high end finish in a bargain basement 2 bed terraced). Anyone who wouldn’t budget for some kind of contingency when doing this is asking for trouble, but again this is basic stuff that goes without saying.

renovate a house without borrowing.

Interestingly I’ve noticed most of the people that have been trying to put me off, telling me it’s hard to make a good profit (not just on here) are property developers themselves. Doesn’t really add up. Everyone starts somewhere, right?

Points that you didn't mention beforehand and missed, because you don't have a clue what you are getting into through having zero experience or knowledge until said points were mentioned to you here.
Most property developers that are successful and can make a profit have the prior experience doing this for a company for years . They would have started as an employee somewhere, not as a ex driver straight out of their previous employment (I'm a carpenter by trade). It would be interesting to be an fly on the wall when your attempting to work out how to deal with planning, HSE and building control without coming a serious cropper.

Your finances may not be your fault entirely, but they are relevant and will hinder you.
Get your finances sorted, and in the mean time see if anyone is willing to let you work with them, at weekends and around the job you already have, on development projects to gain experience. Surely your dad must know people.
 
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Soldato
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You need to go in with your eyes open to the market and what you are going to do, then hold onto the end goal you are aiming for.

If you do it, remember most people buying houses do notice when something is on the market and see it re-appear (if your serious about buying houses you'll know this phenomena), so any prospective quick turn around really is bargaining on someone not knowing it's a quick turn around or you nailing on what they wanted changing but weren't willing to suffer the time to do.

The other big one to remember is everything is worth what a purchaser is willing to pay for it (classic civ4 or 5 quote). This is very important as the 100K you could have on your current place is only real once the cash has exchanged hands, as such any profit you make isn't real till you have it.

Housing looks like it'll always go up, but remember what goes up must come down. Personally I'd stick with the idea that a house is a place to live, not to make money off. If you can get a bargain in a good area that'll appreciate renovation and living in, that'll probably make money. Spend all your time chasing some cash you might not get/loose money on isn't going to leave you happy.
 
Soldato
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It sounds like your current job pays considerably more than you'd make by developing property.

If you've built up 100K equity in your house over 5 years:
at least 5,000 of that would be from your deposit
at least 9,000 of that is from your regular mortgage payments
probably 10,000 of that is from house price inflation
and it cost you 36,000 for the development

so around 40,000 of the equity could be attributed to effort you've put in. Over 5 years, you've earned 8k per year by doing the work to your house. Sure, you'd be able to do more of the work if you quit your current job to do this full time but it seems like it would be difficult to match your current salary.

(for the record, I'm not a property developer trying to put you off)
 
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