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.

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

For a business that is entirely predicated on renovating houses, this would appear to be an enormous stumbling block.

It's not like saying "he can do the electrics but would need to get a certified guy in to sign off the part P". It's "we don't know what were doing at all"!

This is cloud cuckoo land OP. If it was so easy on such a small budget, wouldn't we all be doing it?

@Buzz we don't have it in properties but super yatchs are a lot like houses in many ways. He can do most things (apart from gas and electrics although I did rewire my own room many, many moons ago).

For us is about making enough to cover his salary (which isn't massive) and a bit to the capital. What we want is a better balance and flexibility for our family.

The small budget think I've thought about it too. But considering we don't want to get rich, maybe that's why?

My husband also worked at homebase in the buying department/stock department so has a broad idea of some materials and costs .

For people who do do it for a living, what was the original capital, costs, etc...

My ds has done /is doing this. I think it depends on how good you are at budgeting, it's so easy to go over.
We did it by actually living in the property ourselves to start off with, but didn't have money to invest.
We made money on doing the first one up, then moving and using the profit for the next one.
My ds1 has a portfolio of properties at 28. Used to work as delivery for Asda now earns a bloody fortune
it's long hours though and you need to know what you are doing, the money soon goes if you have to pay tradespeople.

Motherof3Dragons

Yes there is money in property development and not just in a rising market.

For some they maybe lucky but for others
it takes knowing the area and the market and each individual street and sometimes house in that road to know immediately when a place comes up for sale that it is a good investment.

I bought a flat in the recession, I was the second viewer (the first apparently went away to think about it) in the 25 minutes it had come on the market.

I offered a price and bought it and sold it on the day I took ownership for £25k more because I could immediately see it was under priced.

The people selling weren’t bothered, they had bigger places to sell. They wanted rid quickly.

In terms of viability of projects, the rule of thumb is that the resale value needs to be 20% higher than your costs. So if you buy for 150k, spend 25k on the refurb, another 20k on fees and bills (stamp duty, legal, estate agent, bills such as council tax or electricity while you have the house etc), that takes your outlay go 195k. 20% on top, and you’d need a resale value of 235-240k for it to make sense.

You also need to consider things such as business running costs, like accoutant’s fees, things like pension contributions which your husband probably gets as an employee etc.

@Oliversmumsarmy

Good for you! But not everyone can buy property during a recession and not everyone is lucky to be able to buy a severely underpriced property! If it was that easy, everyone would be doing it.
I’ve worked in the property/ building sector since the mid 90s. I have seen a lot of developers who gained and lost money on property. Just because you gained from substantial property price rises in the past, doesn’t mean you will still make a profit if prices fall or are stagnant.

I also don’t stick to one area.

Over the years I have developed a knowledge of many areas and know when things are over priced or under valued and have bought at auction for cash.

I am just getting back into it after a break because of dps illness and went through an auction catalogue picking out things I could be interested in and what they would go for to see that I still know my stuff.

One place had a very low guide price and I forecast anything under £280k would be a good price it went for £270k

Another had a huge guide price

Say £650k I thought it wasn’t worth more than £430k
It went for spot on what I thought.

Looking to dip my toe back in next month.

I thought it was quite difficult to get an interest only mortgage these days as in you need a 25% deposit or to be earning 6 figures?

@JoJoSM2 one of the case studies I have follows those numbers pretty much. His pension is laughable and the least of our problems.

I'm also very aware you need to put decent materials but not the best nor the most luxurious. Probably the cheapest kitchen hownes would be more than enough given the local market.

I saw it when my parents decided to sell my childhood house when I was a teen. Nobody wanted to pay for their marble bathrooms and kitchen, nor the mahogany and much less for the sauna in their bathroom! It was to their own particular taste and obviously in very good condition they never got that money back.

Thanks for your input JoJo very helpful.

Going off at a bit of a tangent here, but, considering your husbands expertise, would you consider doing up narrowboats instead? This is a huge market at the moment, and refitting the interior of any boat is a specific skill your husband obviously has.
Re houses, I think it would only work if you can do the majority of the renovations yourselves (including plumbing and electrics) and live in the property (or a caravan) to save on costs. Otherwise you could find yourself working your fingers to the bone for very small reward (like a few pounds an hour each when you work it out at the end, or maybe not even that). You would also have to be prepared to move around the country to find the best property deals. I can't think of a harder or more stressful way to earn a living tbh!
I know 200k sounds like a lot of money, but sadly, these days, with regards to property and renovations, it isn't. We did up our house (we have no intention of selling) and it only increased its value by what we spent at the time. Alright, we didn't lose any money, but it is only now that the value has gone up, several years after the work was done. You won't have the luxury of time.
It is not a business I would consider unless my start up fund was around a million. Sorry.

long the narrow boats is a very good idea but pretty much nonexistent where we live, we'd have to relocate

The other thing I keep seeing cropping up are Tiny Houses, that might be worth looking at with his skill set.

I had to Google tiny houses. They're very cute! I also thought of a camping field business but my dad didn't like that idea at all!

Have you ever done up a house? For instance your own house?

You sound really clueless to be honest I don't want to be cruel but I seem to know more about what is involved than you do and I have never been a property developer myself. I just know what I do from talking to friends who have done it, reading on here and watching property shows (personal interest).

The homebase thing made me laugh. If you are doing a development building project you wouldn't be buying your materials from home base!

I seems to me this gift from your parents could be amazing and you have sort of plucked property out of the air as it used to be really lucrative.

I don't think you have the skills and knowledge between you to make it a success.

What you could do is still invest the money in some sort of ongoing business if you do have experience somewhere else or have noticed any local gaps in the market?

I know you wouldn't go to homebase... What means is that he knows the suppliers and brands, etc...

No, I've never done up a house myself (my exH was allergic to DIY) but did design a beautiful games room.

I don't need it to be extremely lucrative. Just an annual net profit of £40k (including my husband's salary) would be more than enough for now.

My dad ran/runs completely different types of businesses with no relation or experience. He had a clothes factory, a couple of restaurants and a couple of hotels. He had no experience whatsoever, his original background was law and philosophy!

I'm not saying I'm like my dad or anything but surely if he could I can. It seems substantially more profitable than a BTL

I think you have boundless optimism and positivity, which are wonderful traits to have.

But I think they are also blinding you to the sheer graft, time, skills and cost of property renovation as a job. You have no experience, no contacts, no skills (apart from the yacht thing) not much as a starting budget. The boom days - if they ever truly were - of flipping houses and making bazillions profit on the side in a few months are long gone.

I'd urge you to focus on a business concept that is something you actually know about with the financial gift.

Op property development is massively involved compared to the other businesses you mentioned. You sound very naive about what’s involved to be honest.
You need such a good understanding of the market, which I don’t think you sound like you have. If you really want to do it could you try and find work in an estate agents or investment firm for a year to get your head around it a bit more.

15 years ago it was easy to make decent money out of it but the market isn’t as fast anymore. And if you aren’t seriously clued up you could just find yourself on a fast track to losing 200k.
Do you even know what areas you want to focus on?

My family have a property development business and you’ve really got to know the market, the areas which are most profitable and preferably some practical skills or knowledge. My husband is an architect so that helps obviously.

yes Set up as a company but remember you will be paying corporation tax on any profits (if made) as well as income tax and national insurance on any salary drawn.

We'd only do it within a 20-25mi radius from where we live. He does have trade contacts.
If you speak to my husband he seems a lot more clued up than me.

My job and experience is fairly niche content policy/management as well as BPO management. My options would be to open a consultancy firm (which I almost did) but I like my job and working in an office with other people but I digress.

The business is not for me, it's for my husband really, I'm just the investor (via my parents).

For the house we'll hopefully complete soon we thought if a fixer upper but with a baby we decided against it

My husband could also start his own boatyard business but you need way more than £200k to start with.

Op as several people have said it’s not just a trade contact thing. It’s knowing surveyors, architects, auction companies, “buyers clubs.”
As well as en encyclopaedic knowledge of the market.

I also would strongly advise against it if you are staying local. It’s normal for one area to be buoyant for a few years and then level out/go flat. I’m sure if you’d told people a few years ago London would get incredibly slow, and prices would drop they wouldn’t believe you.
What rough area are you in?

I’m REALLY SORRY to bring Brexit into this OP but do you think you’ll be able to navigate the market in the event of no deal?