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.

I'm with those that say don't do it. The buying a place, doing it up a bit and turning a decent profit days are well over. Only buying so close to where you are narrows down your choices and profit. And your profit margin is way too tight.

With out current salaries we'd never be able a mortgage big enough to buy something usable as an Airbnb.

Exeter/Plymouth/Bristol are to far away to make it practical either.

On the other hand my folks own a flat perfect for an Airbnb for my parents don't like that idea so it just has regular tenants

My are getting old and are very set with their ideas.

I think you have 2 huge restrictions

Firstly you need to ask your parents exactly what restrictions they have on this money and which businesses they approve of

Also don’t have to have a massive place to do Airbnb type place

My friend, when her children aren’t there (both at university) let’s out a couple of rooms, neither en-suite, they share what was the family bathroom (she has the en-suite) and provides them with a continental breakfast in the morning.

She lives in a very ordinary 4 bed house but it is close to an airport/town/city so has a high occupancy rate when she does it.

The second restriction is one you are imposing on yourselves of where you live and the unwillingness to travel any sort of distance for work.
Restricting yourself to a 25mile radius for property development when you live in London might just be doable but where you live there just isn’t the housing stock to make it viable or a lot of businesses viable that rely on people coming to you.

The only suggestion I can offer is something on the Internet where your dh can work from home. (If your parents approve)

The problem here is that what you are describing is self employment not a real business. A real business has mechanisms in place so that, sooner or later, it become self running at which point you can either sit back and enjoy the income or sell it. What you want to do here is do you houses and run the figures through a plc (very wise choice of course). There is nothing wrong with what you want to do if you are happy being self employed but it’s definitely not a business. When you are unsure of whether you have a business or not the question you need to ask yourself ‘would someone buy this off me?’. If you want to create a business then you are going to have to think a little harder about the tasks involved (finding suitable properties, negotiating purchases, planing improvements, working with subcontractors, marketing properties, selling properties, accounts and so on). Then you need to find ways to formulise these tasks (what make a good property to purchase, how much can be spent on improvements relative to house value etc) and create a plan to hire in people to complete these tasks so that eventually the business will run without your input at which point it becomes a real business I.e. an asset which can be sold.

her net profit is less than £40k per house, each of which takes a year’s work (although admittedly not full time). As she once confided, she’d be better off financially cleaning those houses, not building them.

Do you really think that? That part time cleaners make 40 k a year? They really don't.. I think 40k a year for part time work is pretty damn good, and so would most people tbh.
Look OP, yes, you do need to factor in all the thing a mentioned above, but there are people on here saying they would need to net 100 k to make it worthwhile for them, and not everyone needs to earn 100 k a year. I have a business that, at present, earns just enough to get by and not have a boss, and hopefully this will grow. I started out with tiny profits, significantly bigger every year, and since it's going in the right direction I'm ok with that.
I would be content with 50k a year, because even factoring in NI, pension and holidays (what holidays anyway there aren't any really with your own business!) I would still be much better off than I was working in the NHS.
It all depends what you need and what your personal circumstances are. Start small, learn on small projects. I do actually think that fitting out camper vans is a better business for you though.
You probably should talk to your parents and say that the money needs to be spent on a business that you and your husband think is a better fit.

My husband doesn't really like computers and likes to do things with his hands (quite literally).

ifnot more or less my point exactly. We don't need that much, and I'm sure as we get better, we'd make better profits.

My dad is definitely starting to lose the plot, his latest business idea is to import electric scooters (Vespa type) from China but only because he thinks nobody else is doing it. It turns out there's ample competition. He has no idea how to use a computer and can barely use a smart phone, and he's not even that old!!

If your husband only likes to do things with his hands, that pretty much rules out any kind of business. Unless someone else is going to do the admin, finances and costing for him, it would be much more sensible to train for a trade. You know this already, right?

Who is going to research the local market and the properties, cost up the renovations, calculate the profit margins, order the supplies, book the tradespeople and project manage? Can he deal with stroppy tradespeople? Does he know when someone might be pulling a fast one? You said he can't deal with stress either. Can he cope with difficult people?

What is your business plan for the food truck? What kind of business? Where would your husband get the training in catering that he needs to run such a business? What is the local competition, where would you park it, what are your expected costs and profit margins? Does your husband have good enough interpersonal skills to create a rapport with the customers? Who will do the admin for this business? Will it be you?

You keep saying that "you don't need that much" and you aren't setting out to get rich. If you set your sights low you are preparing to fail. This isn't the right mindset for a business owner.

My husband is the best people person I know. So much that I'm pretty sure he would have been a great counselor.

The food truck idea is completely out of the question because my dad wants to get super involved, but he honestly has no clue of what's profitable in this market. Our concept is fairly unique to the area (Mexican Seafood).

You don't need to train to do it, beyond food handling and all of those certificates that can be done online.

I would do the budgeting and admin side of things. He'd deal with the tradespeople and any jobs he can do himself.

My dad is dissolving/selling the main family business as he and my mom want to fully retire.

I think flipping house would take the best from husband's skillset. I think as long as we get £28-£30k net annually to start with, is very good place to be.

The alternative is a BTL but I think with that type of budget we're looking at an annual £6k profit. Which is still more than the bank

Having just quickly read through your replies I think Mariagatzs12 the problem is not just your parents putting in restrictions but you also adding your own restrictions.

If you dh doesn’t like computers then even property development isn’t viable as researching areas before you buy takes a lot of searching and reading online.

Recently, for our own family home, I looked at a few places in a particular area that looked amazingly good value.
Then I did a bit of research because it looked too good to be true and found a development in the future would probably end up blighting the area

Even when you have bought a place there is looking where you can get the best value carpets, wooden flooring, tiles etc from

Even DIY kitchens are all done on line.

If you think your df is losing the plot maybe taking the money is a good idea. Better than it being squandered on Chinese Vespas

I think you do need to sit down with your dh and look at how you go forward.

And do look at maybe getting rid of some of your own restrictions

Please don't do a food business with no prior knowledge of the hospitality industry. I am positive and I want to encourage you, and lots of things you can learn fairly quickly (I learned a bunch of new skills for my business), but the world is full of people who are pretty good cooks, or have a cute idea for a food van, but have no real experience in food service.
They lose EVERYTHING. Please trust me on this. My family was in this business, I was, my DP is currently, and with 20 years of experience on both sides of the line (foh/management and cheffing) he is VERY cautious about opening a new place. Profit margins can be very tight, the market is very fickle and your costings have to be bang on, let alone the H &S stuff and the permits etc.

If you think your husband would have been a good counsellor, then he should consider retraining in this area rather than starting a property developing business. I did suggest that you audit his skills, qualifications and experience before you consider a business. If you don't do it now, you will find yourself doing it after your initial business idea fails. Has he done a business start-up course? If he doesn't do this he won't understand what's involved in running a business and the chance of failure is very high. He will probably discover that running his own business isn't for him.

In the property development business you're proposing, your husband wouldn't be the business owner, due to his lack of experience and computer skills. As you said, he would be the employee. So it's much more sensible to focus on companies or trades where he could continue as the employee. The major part of your business is the acumen behind it. You and your husband don't have this. You don't have the necessary business skills or contacts either. If your husband only wants to do the joinery and isn't skilled in the other aspects of the business you really are doomed to failure. You will pour £200k down the drain.

Agree with oliversmumsarmy.

He barely finished his GCSES, training for something like counseling would need A levels and uni, academic skills are not his forte.

I can do all of the online research.

I've worked in online fraud detection and SEO my research skills are fairly decent.

Why are you talking about research skills, OP? Why does online fraud detection qualify you to be a property developer? Your thinking makes no sense at all.

You need knowledge and understanding of the business sector you want to enter. There's more to it than googling. Anybody can look stuff up on the internet but if you don't understand the business, you're wasting your time.

Do you seriously think that looking for your own property online qualifies you to be a property developer?

I've been looking at building a extension this year and everyone (builders/architects etc) that I've had round to quote have told me that Brexit is going to have a massive affect on labour and materials costs and that my timing is terrible.
I would think the UK will go into recession due to Brexit and there is likely to be a global slow down if the cornavirus increases its effect on China in particular.
Not good timing op.

I would suggest your husband becomes a handyman or goes back into the boat business and you ask your parents for the £200k to pay off your mortgage.

I only mentioned because somebody said he needed computer skills (which I have).

Paying off the mortgage is not an option. Buying a BTL is though.

I know how complex catering is, most people I know which tried it fail miserably, so as romantic as the idea sounds I wouldn't do it.

Right, unfortunately running a business involves a completely different skill set to doing up houses or cooking food. If you’re not willing to learn how to run a business, anything you try will most likely go under very quickly. But it’s not too late to learn now!

Regina that's where my dad comes in handy. Yes, he's losing the plot a bit, bus has successfully been a businessman for 50 years.

Camper van conversion sounds like a much better fit for you guys.

I bought some houses years ago and renovated them and sold on...made decent money but huge rising market in East London which is long gone. I am selling one this year to release cash and will probably buy a few places up north or Folkestone and let them long term with lowish rents... not looking for capital growth but better income than leaving money in bank with very low interest rates...the days of buying a cheap wreck are long gone..at least 10 years for London... everyone is looking for them and there s none left.

Property is all about timing and now is not the time. He would be better off being employed in the trade for a few years, where he can train up at someone's else's risk/expense and make contacts. Then strike when the time is right.

Also, you are talking about setting up using only your parents' investment. Why? The standard model is that you borrow money and the profit you make (hopefully!) exceeds the interest you pay. Have you heard of 'gearing'?

I doubt anybody else would invest in us. I get business dividends from the one they're thinking of dissolving my sister is getting a BTL. Because I'm not so convinced passive income is best for us ( and my dad thinks my husband has a lot of potential ) is that he's letting have more "flexibility". But everything is within the rules of what he thinks it's s good business. Many are extremely outdated. I think he was a good businessman at his prime, but for the past 15 years not so much.

I doubt anybody else would invest in us.
I'm afraid that that tells you all you need to know.

I think my husband is very concerned about losing his income, so he says it's a good idea in principle, but would have to keep his day job. Which means I'd see him even less as he works weekends for around 6 months. I think it would also be extremely exhausting for him, last year he had 60 HR weeks and whenever he was home he'd be asleep.

Try it on one house before calling it a business and see how you get on? It's likely to be sat on the market for months as market not great, which will eat into profit but it would be good experience to see if it's worth doing it as a business, having just done my house up, knowing people in the trade, it still costs a lot as these people you know still need to be paid a day rate. Plumbers / electricians are so expensive!!