Getting into property development

[Zappy]

Hi, I am in a dead end job that i hate at the moment. I am a qualified chippy that has worked on other peoples development projects. I own a property that is worth £550,000 and have a mortgage of £80,000 at present. I would love to get into buying and selling property for a living. I dont want to make millions just a steady income working for myself. The problem is i dont know how much to borrow against my property, what type of mortgage to take out etc. I do have a good friend who is willing to put in £100,000 and is quite happy for me to do the work. Im not worried about having to work hard and i know there is a certain element of risk. I guess what i am asking for is just some advice on what steps to take. Any advice would be greatly received.
Thanks
Z

[Kaz]

Hi Zappy

Before replying in any detail, can I first of all ask whereabouts you live i.e. county/region?

[Zappy]

Hi Kaz,

Im based in hertfordshire, but would probably be looking just outside like beds or bucks

[Kaz]

Hi Zappy

You are in the enviable position of being able to buy properties for cash. If I were you, I wouldn't be buying with a mortgage as it will cost you thousands more from your budget to pay for the arrangement fee, early repayment charge, extra legal cost etc. The buying process will also take longer and, the first rule of property development is, time is money!

Your profit is made when you buy so location as well as price is absolutely critical. I learnt that lesson the hard way when I had trouble selling a house in what used to be a not very good area but is ok now, as people have long memories and it's hard to shake off a bad reputation!

I don't quite understand why you want to develop in a different county. You're better off doing it as close to home as possible as it's easier, quicker and you no doubt already know other local tradesmen i.e. gas engineer, sparky, spread etc.

If you decide to go in with your mate, putting in an equal amount of money but you're doing the work, don't forget to factor in your labour when it comes to splitting the profit i.e. 65/35% in your favour.

Have a word with local EAs to find out what is selling at the moment. To start with I would suggest buying something a FTB or Landlord would be interested in so you don't get involved in chains. Contrary to popular belief, there are FTBs around and, where I live in Kent, they are tending to go for 3 bed houses rather than 2 as they can get more for their money while prices are lower.

With that amount of cash, you're in a good position to buy from an auction, particularly the properties that have a very short completion time i.e. 14 days instead of the normal 28 as that puts off those who need a mortgage.

Anyway, I've prattled on long enough for now. See what you think of my advice so far and if you think it's pants, I'll say no more

[Zappy]

I realise what you are saying now. Mortgage against my house and use that cash to buy with. interest only i think otherwise too much pressure.
Have you developed any properties of late and howhave they gone for you personally ? What type of property do you look for?
thanks for your advice its always good to get other peoples opinions on things
cheers Z

[Kaz]

I have only done 5 properties so am by no means an expert but I know the basics.

I am currently in the process of selling the 5th. Out of the 5, I made a loss on one of them so that's something you have to keep in mind and be prepared for.

I stick to small 2/3 bed FTB/Landlord houses as that's all my capital will allow and I can't afford to get involved in chains.

Let us know what you decide to do

[Zappy]

Thanks for all of your input,much appreciated. Im looking at 2-3 bed properties in my county, hopefully will find something under value, will tell you how i get on. Once again thanks Z

[cmy82]

Would be great if anyone could list some general rules on how to spot "undervalued" homes

[jackie]

Sorry to contradict but I would advise against buying for cash, you can't spend bricks and mortar and you are limiting yourself as to how many you can do if you pay cash, as until you have owned it six months you cannot mortgage it and even then its challenging to raise a mortgage at moment on properties under 100k if you went that low.

I source, refurbish, let or sell properties for myself and clients and would always recommend with interest rates at long time lows, keep your cash and leave as little cash as possible in a property... If you do manage to sell you get the deposit and equity back anyway... just my method,.. hope it helps.

as far as spotting BMV, its a combination, understand your market, get to know it really well, get on rightmove, land registry etc etc anywhere you can research and start to understand price history. Compare similar houses and see what difference the better or worse property is in price.... look for empty houses, repocessions are usual BMV and banks will usually take a silly offer... remember its free to offer and if you are not embarrased at your own offer its not low enough! Look out for motivated sellers, divorce, redundancy, etc etc are usual reasons for keenness to sell BMV. Basically it is a combination of all of the above.... hope it helps and sorry the answer was so long