Wannabe developer needing advice

[gottssam]

I am looking to invest into property for the first time and would appreciate if anyone could share some advice or tell me if i've missed anything. My plan is as follows:

Buy rundown property for 70k
Spend 20k on refurb and improve value by 40k (I am a tradesman so i'm confident that I could do this to a high standard for a low price, i have checked these vigures both on Zoopla and with estate agents)
Refinance to release the 40k (I understand there is a 6 month limit to refinance?)
Use 40k refinanced to invest into next property

Is it really that simple or have i missed something?

[jackie]

I wonder how you got on as no one replied, but yes your logic was correct and yes 6 months is the refinance minimum period
Jackie

[brian]

Wouldn't you need to pay CGT on the £20k profits?

[Moby Jones]

Originally Posted by brian

Wouldn't you need to pay CGT on the £20k profits?

Potentially. However you do have an annual allowance. Buy and sell in the name of your partner and use both allowances and you may well avoid it. I'd need to check but believe it's around £10,000 per annum, per person ish...

Always check with HMRC though!

[jackie]

CGT is not payable when you remortgage, only on sale, but when the property is eventually sold CGT is calculated from the original purchase price plus refurbs cost and the refinance to release equity comes back into the calculation for the purpose of adding up the profit
Jackie

[IFA]

You might not be able to release the whole £40k when re-financing (depending on how you financed the purchase to begin with).

For example, if you bought at £70k using a 90% mortgage then you would owe £63,000 on the property, so when it's value is increased to £110k you would have equity of £47,000 tied up in it.

When you then re-mortgage the property the maximum you are likely to be able to release is 90% of the new value (£99,000) and when your current mortgage debt of £63k is deducted you would actually be able to release £36,000 of the increased equity, not the whole £40,000.

All of this is, of course, subject to your income etc. Also, be wary if you want to re-finance the property by converting to Buy to Let rather than a residential mortgage, the most you are likely to be able to release in that instance would be 80% of the final value instead (so £88,000 - £63,000 leaves you being able to draw just £25,000 back out).

You should really talk this over with a local mortgage broker before diving in.