Property Development Full Time? - Advice

[jim1234]

Hi Guys,

For years now I have been watching all the programmes about property development, read numerous books on property development in addition to moving house every couple of years following full refurbishment to release the equity/profit gain and put into my next home.

I now feel the time is right to go into property development full time and quit my job (I'm 31). My financial situation is as follows and I’d appreciate any advice you might have, is there anyone on the forum who has made the move to this full time, do I have enough equity or are the risks too high:

Current house on the market for £495k (realistically I’ll get 480k)
Mortgage to pay off 225k

That leaves me equity of circa 255

From that I will take 20k for living off for a year (that is a lot bearing in mind I’ll have no mortgage to pay off, but also give me a significant buffer should a property be hard to shift or I run into problems)

However, if all goes well that leaves me with 215 to spend on a property (likely to be 2/3 bed terraced or 1 bed flats suitable for turning into 2 beds in Surrey / London) with a 20k refurb budget per property.

I’ll aim for a min. 20% profit per property after costs (incl. CGT) which will be circa 29k (I know each property will be different and these are generalised financial assumptions).

Being conservative I’ve financially planned to turnaround 4 per annum (however I’ll be aiming to refurb each in 4 weeks so hopefully can do more)

I’ve considered living in the properties but don’t think it is realistic (especially as I have a wife and 6 month daughter). We will either live nearby in cheap rented accommodation or stay at my parents (who have already offered). If I wait a few more years I’ll probably have enough equity to buy a place to live and also a second development property, however I’m keen to start now, make the profit and after a year or so be able to buy a second home to live in anyway.

I have little building skills however am experienced at Project Managing property renovation, good at DIY, have a good business sense and am not one of the many idiots you see on the TV with no business acumen (or common sense!) to be a successful property developer. Compared to my day job (senior bid manager for a construction company) I’ll be working much harder (probably 7 days a week), realise the stress involved but its something I’m passionate about and know there is money to be made with the right strategy.

I understand the current market situation, however there will always be properties out there in the perfect location at the right price to develop and make that 20%. Although they are harder to find these days as competition is high.

Your advice and thoughts please before I make this large step in property development.

[brian]

I think the big problem is that you're trying to come into the tail end of a market.

Property development has been pretty much done exhaustively in the UK, so the ability to find actual bargains isn't good as there are a very large number of people looking for and chasing them.

That wouldn't be so bad if the market would sustain it, but just look at the state of the current UK property market - even the optimists are talking about a big slowdown, but there are some surprisingly authoritative voices predicting an overall fall of as much as 20% over the next few years.

In that regard, I think the conditions for property development as a business as adverse and likely to get worse - though the UK market certainly has managed to surprise for the past few years.

However, the serious problems of sub prime markets impacting financial markets, and basically ruling against the end of cheap credit, means that there are further pressures working against the UK market getting any extra steam soon.

The real boom at present isn't property development, as much as buying property for around 20% less value for cash and reselling at near value, namely to free equity for people having problems with mortgage payments.

So IMO, if I *had* to enter the property market now and had ready cash to buy property, it would be to buy houses for cash to make quick sales.

Market conditions for this are very good - people are already getting squeezed via interest rates and rising bills, and there are over 1 million people coming out of cheap fixed term mortgages being only to be hit much harder on the repayments. I'm expecting to report a big rise in defaults on HomeMove's news soon, along with shaky conditions for the UK subprime sector.

Anyway, just my 2c.

[Denzypops]

I have read your posting and also Brian's posting, which I have to say I do not wholly agree with. I am a full time property developer by the way.
The most important consideration is location (yes, I know you have heard this thousands of times before, but it is vital) If you are buying to rent out then you must buy houses well under the market price, carefully assess what needs doing i.e the basics, and a good idea is to have a pre-survey done which will show up any nasties.
The other most important matter is to very carefully budget and plan the sequence of work. Those silly people on television who happily go 20K over budget are just stupid.
These considerations are just as valid if you are buying to sell. You must buy well under the market price, details of which you can get from the Land Registry.
If you don't buy at the right price you will never make any money.
The figures you quote are correct.
However, while there are far more people looking for houses than there are houses available, there will always be money to be made in property development, but only in the right location. I am doing it right now and have written a comprehensive book on the subject.
Best wishes
Dennis

[mountie]

Originally Posted by Denzypops

and a good idea is to have a pre-survey done which will show up any nasties.

What's a pre-survey?

A survey before a survey??

[Denzypops]

A local firm of surveyors (RICS) will be happy to carry out a survey for you, not for a mortgage company or bank, and will list all the things they believe would need doing before offering a maximum mortgage.
They will charge you for this (in my area around £250) but I believe it's money well spent because unless you yourself are an expert, you could well miss things that will subsequently cost you money to put right.
Please ask further if I have not explained ti very well.
Dennis

[bonetti consultants]

Hi Jim1234, how are you doing????

[KevinR]

Hi There,

Avoid anything that is advertised as "in need of modernisation" etc, more often than not they will be complete wrecks at near the asking price, even in todays tough market there are still people crazy enough to take them on. Instead look for a house a great location that has been on the market for a while, these are usually old fashioned or tired properties that don't warrant the dreaded renovation tag. Put in a cheeky offer and see what happens!
With the market as it is do not try and sell at the ceiling price, you need to buy at such a good price that you can be competitive, easier said than done!
I am a developer by the way!

Stick to properties that can be re-furbed in 4-6 weeks and sold on quickly, this will minimise your risks in a falling market. Also do not aim for 20% return, % return is meaningless what really matters is time. If you can make 5-10k on a property in 4-6 weeks then go for it, not many jobs where you can make this sort of cash. But remember to be competitive with your re-sale price, working to small margins is risky but you will struggle to make 20% return without massive extensions.

If you cannot afford to have two or more on the go at the same time then i would say don't bother, doing one at a time is very risky as you could be stuck with a house that won't sell!

Hope this helps

[fred333]

That is some great advice thanks.

[namegoeshere]

Originally Posted by brian

In that regard, I think the conditions for property development as a business as adverse and likely to get worse - though the UK market certainly has managed to surprise for the past few years.

However, the serious problems of sub prime markets impacting financial markets, and basically ruling against the end of cheap credit, means that there are further pressures working against the UK market getting any extra steam soon.

The real boom at present isn't property development, as much as buying property for around 20% less value for cash and reselling at near value, namely to free equity for people having problems with mortgage payments.

So IMO, if I *had* to enter the property market now and had ready cash to buy property, it would be to buy houses for cash to make quick sales.

Market conditions for this are very good - people are already getting squeezed via interest rates and rising bills, and there are over 1 million people coming out of cheap fixed term mortgages being only to be hit much harder on the repayments. I'm expecting to report a big rise in defaults on HomeMove's news soon, along with shaky conditions for the UK subprime sector.

Anyway, just my 2c.

Like the op I'm also looking to get into developing full time.
I've been to lots of auctions, and thought I'd buy a place cheap fix it up sell it.
But I have the cash to to buy outright - How would you recommend finding people who need cash quick?

Thanks for help

I notice Property Ladder's new add is relying on the presenters big boobs. Good.

[brian]

The market is in a downturn - seriously, it's only good for investment if you're planning to stick it for the long term - a good 5-10 years at least.

However, you would probably earn more money just by leaving your cash in a building society at the moment.

As property prices come down, so does the value of your investment...

IMO trying to invest in property while it's on a downturn is like trying to invest in the stock market as share prices crash. I think it's completely nuts, really.