Is property development a good business?

[Mariagatzs12]

My parents are thinking of giving me around £200k to start my own property development business. I would create a company and my husband would become the company's employee as a PM.

We were thinking of buying a house for say £150k, invest 25k and then sell it for £200k. I know it depends on the property and the are, but does that sound more or less accurate? My husband's salary would be whatever the profit is up to £25k. Whatever is left would be reinvested and so on and so forth.

According to my maths, it takes about 4-5 years to make enough for doing two properties simultaneously and that's when the good money starts to come in.

Am I being delusional? My mom is on board but I have to present my "business proposal" to my dad who believes it's a good business but he's had businesses of his own so likes everything to be well structured and planned.

TBH it sounds like you're pulling figures out of hte air. Have you written a business plan?

Given you apparently have zero skills or experience, I think you're on a hiding to nothing. And plucking numbers out of thin air is not very convincing.

I have a few examples in the local market. We've been house hunting for a while so we've seen derelict houses being "modernised" and then resold. I always see that at least they're charging £50k on top (sometimes less, it's true) but none of them have been done to very high standards.

So we've been saving those examples, viewing them and then budgeting what we think they'd need and how much they're likely to sell for. My biggest apprehension is that of you're lucky it seems like fairly easy money and a lot better than a BTL (which is their original preference).

To copy from my other post

I have worked in the property industry for about 80 billion years, and it’s nowhere near as lucrative as it used to be. The recent changes in tax laws mean it’s really hard to turn a meaningful profit unless you are working at huge margins (ie buying massively below market value where you are competeting with CBCs who will offer the same but can complete in 14 days or auction companies).
You are unlikely to buy a 150k property, spend 25k and sell it for 200k in the current market too.

The only people I know who make real money buy at auction or convert commercial premises into flats. They are also usually RICS qualified.

I have zero skills true and no experience in property development. However my husband is skilled and is experienced in certain trades and knows people in different trades too. His brother is a plasterer for example.

You don’t need people who know trades people

You need to be mates with absolutely shit hot surveyors and conveyancers as they are expensive and you need to get mates rates on it.
Have you also looked into stamp duty costs? It’s very hard to make proper money especially if you are buying off the open market. I say this as someone with heaps of experience and I see people lose vast sums of money every day.

How would you cope if, as often happens, you get a property and it turns out to be a complete money pit and you end up having to sell it on a a huge loss?

Just remember you have to pay tradesmen etc which eats into your budget.

If I wasn’t in a trade/didn’t have circle of tradesmen who were in it with me then I wouldn’t do it. Not worth it.

Thanks @lastqueenofscotland that's very helpful. We've thought on buying at auction too. I wonder if RICS would accept my husband's experience in boat building as relevant. Doubt it.

I am not a property developer but off the top of my head:
Have you been checking to see what the actual price achieved is versus what marketed at actually is ?
Is this going to be your main residence? If not isn’t there higher stamp duty as a second home?
Have you factored in solicitor fees?
Have you factored in Building Reg Fees which may or may not be applicable depending on what is done ?
Will you be having a survey?
What happens if the market falls during the time you are renovating and wipes out any profit ?
What experience have you had renovating properties and are you confident in getting things done in the correct order?

Of what o read stamp duty is tax deductible (to an extent with CGT) .

Your margins are too small. With an investment of £200k - you plan to spend £150k then £25k on renovations. That's a total spend of £175k leaving only £25k for contingencies, lawyer's fees, accountancy fees, planning (depending on the extent of the remodelling, etc) and setting up an office, etc.

Depending on where you are (and where you plan to buy) you'd be better starting with a much cheaper property (under £100k) and seeing what you can realistically achieve.

I used to support businesses starting out in this field. I'd expect a minimum 20 page business plan with a proper SWOT analysis of the market - not just a few properties printed off the internet.

Have you been checking to see what the actual price achieved is versus what marketed at actually is ? -Yes we have on a couple of cases (as it takes some time to update).

Is this going to be your main residence? If not isn’t there higher stamp duty as a second home? Yes, there is that but can be used as a tax deductible.

Have you factored in solicitor fees? We have, and we've become fairly friendly with one who would gives us a decent discount.

Have you factored in Building Reg Fees which may or may not be applicable depending on what is done ? We'd try to buy houses that don't need it or come with it.

Will you be having a survey? That's mandatory I believe.

What happens if the market falls during the time you are renovating and wipes out any profit ? We'd still have my income coming in. While we get some experience my husband wants to work PT to at least have that as a cushion.

What experience have you had renovating properties and are you confident in getting things done in the correct order? None. Which is the tricky part. My husband has experience with super yatchs but I know it's not the same.

Thanks @KatyCarrCan very helpful too. And yes the £150k property was just for illustration purposes we'd start with something cheaper to not out so much capital at risk.

Your figures are way off.

You buy a house for £150k plus solicitors fees, stamp duty etc

You spend £25k doing it up (it might be more, it might be less)

Then you sell it for £200k
Solicitors fees for buying, stamp duty, estate agents fees, and solicitors fees for selling

If something needs £25k spending on it then you are going to be working for a few months.

You have missed out £5000 stamp duty. Say another £2500 on buying and selling costs. Estate agents fees even at 1% is another £2400
It could take 3 months to do up and 3 months to sell. (Even if you get a buyer the moment it goes up for sale)
To make a profit of nearer £15000 for 2 people’s work for 6 months.

I haven’t calculated in if you go over.

Why do you need to set up a company? Another expense

For got about second home stamp duty.

In order for you to put that expense against tax you need to actually make a profit that you need to pay tax on.

I am a property developer and don’t even consider anything that close a margin.

Buying something cheaper even with those margins you are still going to struggle.

It makes more sense to set up a company. It protects their assets and their own home. It also means they can look at commercial borrowing rather than mortgages. Setting up a company isn't necessarily expensive.

What are your margins @Oliversmumsarmy?

Exactly @KatyCarrCan that's why we'd do it that way. It's also as far as I'm aware more tax efficient.

It isn’t mandatory to have a survey if you are buying without a mortgage.
Wondering if you are fairly close to me with mention of super yachts actually!

I’ve done a lot of house renovations for personal use and I think there’s probably a self build on the horizon. But at the moment things much too fragile with the market and there is no way I would be looking to do this at the moment , especially without experience behind me.

If your DH has experience of building and project managing the internals of super yachts, then he should have lots of transferable skills. I know people who have jumped from completely irrelevant fields into property development.

As long as you have a detailed business plan, keep a close eye on all your figures and stick to your timelines , then it is possible to run a successful business. Your DH may need to temper his expectations. Most properties (especially since your starting budget is £200k) will not need the level of finishing that a super yacht does. Look at the demographics of your intended customers and be prepared to pull your DH back if he veers towards luxury rather than functionality. You need to be ruthless with your budgets and focused on your deliverables.

What are your margins

A lot more than £15k for 6 months work.

I have done a couple of places with a £25k margin but they were places I knew the area and knew they were under priced and I sold them the same day I took ownership without touching them.

I think in this day & age no & I wouldn't be surprised about more taxation in the future.

Of course you could try it, if you have enough financial backing. But there is a reason that mainly building companies or very experienced building professionals/traders get into property development. At least they can absorb a lot of the costs that you would have to pay for - even if you get „mates rates“. Property development is extremely volatile to market fluctuations. Especially if your are buying second hand properties to renovate and flip. You need an excellent knowledge of market conditions and trade prices. I know a few professionals (Architects/ Surveyors) who tried property development, but it really is a hit and miss as you are lucky to break even or earn a few k after spending months working on it. You rarely get rich from it unless you ride on a wave of house price rises. Certain tv shows make it seem so easy to flip houses for a reasonable profit, but in most cases it really isn’t.

Only in a rising market.

I think I setting up as a company is a good idea, when it all goes to shit you don't become a personal bankrupt.

And as you rightly surmise, no, boat building experience won't be of any interest to RICS