First time flipping - have we considered everything?

[Oncetwicethreetimesalady]

We have just put an offer in on a 2up 2down terrace. It’s a deceased estate and not been updated since the 80s. It’s small but in a pretty location in a desirable village. Plan is for us to lend dd the money out of our mortgage (which is flexible and effectively paid off). She will pay us back once it’s sold (including interest that we will have paid in the meantime). Dd (20) will pay for the renovations out of her savings/income. She has no other property so she won’t pay capital gains when she sells.

Dh, aided by dd, will do the majority of the work- he has the skills to fit new bathroom and kitchen, lay new flooring and decorate. He and dd recently worked together brilliantly at my mum and dad’s house, fitting a new utility room and new electric heating etc etc. We will just need to get professionals for boiler/plumbing and rewiring (and laying carpets upstairs). We have budgeted 20k for renovations. it will be a no frills finish but we’re very good at making ordinary things look their best. We have previously done a major extension/remodel of our 4/5 bed home and also renovated our previous terraced house.

They were asking £180k but reduced it to £160k. We are offering 148k. Estate agent says would be worth £200-210k when finished. two doors down sold for 195k two years ago. We’d hope to spend 170 all in so there should be a decent profit we think.

Yeah, we are thinking it will be an amazing learning opportunity for her and she is itching to take on the project. She is a serious grafter and with her dad onboard they are an incredible team. He is likewise a very determined and committed grafter. I have no doubt they will do whatever it takes to get the job done.
@SpicyNoodleSoup it always amazes me what some people will send on kitchens and bathrooms. When we made over our current house we did three bathrooms and a big kitchen on the budget most people would spend in one bathroom! The end result was nice enough for the house to be featured in two national magazines as well.

@StormsAreNeverNamedAfterMe stamp duty relief is a good point thanks. These are the things I hadn’t thought about. But, any first time buy round here would be normally be under £250k and she couldn’t possibly afford more than that anyway so not a problem here.

I am a BTL investor & have also renovated a number of properties. I don’t think your numbers are realistic and there’s not much profit in this.

Buy for £148k

Renovation cost of £22k (this is very low. I would budget £10k for a 1 bed flat not needing a rewrite or new boiler).

You’ll pay council tax (assume 6 months) £600

Water rates, gas & electric daily rates for the duration of the renovation (assume 6 months) £250

Solicitor buying & selling feed est £2,500

Estate agent selling fee (assume 2% on £210k = £4,200

You will be liable for CGT (you must be resident in the property to not pay it and live there for at least a year). The allowance drops to £3k this next tax year, then you pay 24:28% depending on tax status.

I estimate that there’s circa £15k max in it.

15k profit for dd on this would be amazing. How on earth else could she possibly make that kind of money doing anything else? It’s certainly a lot better than uni debt.
however, you make a great point about CGT if she has to live there for a year to avoid it. That definitely needs thinking about.

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Then you just tell whoever she is living in it while its being done."

Really not as simple as that. Got to prove it's genuine occupation not just to get tax relief. If Hmrc look at it they will look at where you are registered for doctors. Work, social life etc, voting, utility bills. plenty case law to back Hmrc's view as to what's genuine occupation as opppsed to staying there for a couple of months but not really.

@tigger1001 She can actually live there if needed. Closer to work for her than we are now, utilities would be there anyway, drs surgery wouldn’t need to change cos there isn’t one in that village. How do Hmrc check your social life tho??

Why doesn’t she buy the house to live in and renovate rather than presenting it as a flip project? She could just sell it in a few years time when she’s paid down on the mortgage etc?

Where you socialise. More of an issue if a distance between where you actually live and where you say you live.

But basically where is your life. There is a number of cases where Hmrc can use. It's far more about quality of occupation rather than quantity. And also the reason they believe the house was purchased. First flip may get away with it being cgt but if she does this in the future even living it while renovating Hmrc can look though that and determine she is trading and tax it as income tax and not cgt.

It won’t be CGT free if she never lives in it as her home!

HMRC won a court case where they determined that the owner didn’t live in it because utility bills were too low to cover heating, showers, cooking, etc.

She may not need to change her doctors surgery or dentist etc but she should need to ensure they all have her address correct. Same with car/insurance etc

Basically she would need to have as much proof that she actually is living there and her intention is is live there as her home, not as a renovation project.

it really is as simple as that , as long as someone is paying the council tax on it and the utilities then nobody is bothered. Hmrc are not interested unless your doing a few every year then they might be.

i know lots of people who have done it and not one of them have had any issues.

"it really is as simple as that , as long as someone is paying the council tax on it and the utilities then nobody is bothered. Hmrc are not interested unless your doing a few every year then they might be.

i know lots of people who have done it and not one of them have had any issues."

Just because they are not disclosing tax doesn't make it right though - they just haven't been caught.

And yes Hmrc can be interested. Is it worth the risk of it hanging over your head? Why not factor the correct tax into any potential profit? Why try and tax evade? Because that's exactly what it is.

According to gov.uk
“You do not pay Capital Gains Tax when you sell (or ‘dispose of’) your home if all of the following apply:

• you have one home and you’ve lived in it as your main home for all the time you’ve owned it
• you have not let part of it out - this does not include having a lodger
• you have not used a part of your home exclusively for business purposes (using a room as a temporary or occasional office does not count as exclusive business use)
• the grounds, including all buildings, are less than 5,000 square metres (just over an acre) in total
• you did not buy it just to make a gain

If all these apply you will automatically get a tax relief called Private Residence Relief and will have no tax to pay. If any of them apply, you may have some tax to pay.”

so, not living in it necessarily for a year but you can’t have bought it just to make a gain. That does need thinking about.
she could live in it for a while and have a lodger to cover some costs I suppose. I’m not sure if that would be appealing to her though.

@DragonFly98

people who do this have very little morals houses are places for people to live in not for you to make money from. At first I thought you were buying a home for your daughter but no it's just a way to make more money

Indeed. Plus the screwing over of the recently bereaved.

Bunch of sharks.

yes, it will be a lot of work without a guaranteed or large potential payoff. And yes if there is any tax to pay it’ll def be a non-starter.

Boiler new relocating 3k wow that is a bargain. Currently doing this at the cottage and all our quotes over 5k

i renovate houses. Things not mentioned:

1. insurance - you’ll need it and it is expensive if the property is empty.
2. if you are turning this into a business consider registering a company before you start and buy it in the company name. You’ll then pay corporation tax offset against the cost of renovation.
3. Whether or not it was mortgaged when you bought it. It affects whether or not a future lender might lend against it. Some companies have rules about the number of mortgages you can have within a specified number of months on the same property.
4. If she is declaring this as her property I think the rules to avoid cgt is that she has to hang onto it for 9 months?
5. no one likes a cheap finish. You’re likely to be asking for the max price with minimum spend - you can’t do this on £20k and get everything certified by regulated trades. Similarly no one is going to pay top price for a refitted boiler, a partially reused kitchen, the same windows and doors, same roof but with a lick of paint and a cheapish carpet.
6. Electric boilers seriously affect your EPC rating. An EPC rating that is too high = not eligible for a rental property. This affects your potential buyers pool.
7. Property investors buying BTL need certified works. Boilers, electrics etc.
8. Survey costs. If I was going to risk the family home security, I’d want to survey the hell out of the house.

£15k sounds a lot, but for a bright girl in these conditions, I’d wager she could live at home and earn a lot more than that in the same time frame?

@HeddaGarbled ahahahaha
how is buying a property at a market rate “screwing over the recently bereaved”?
you could just as easily say they are profiting from the death of a relative.
Should no one ever buy a property off a bereaved family? Then there would be a helluva lot worse housing shortage than we have already.
The proposal of taking raw materials (whether that be a house or whatever) adding value through your own hard work and then selling for a higher price is how the vast majority of businesses and people make their money in a capitalist society.
i suppose capitalism is inherently morally questionable but personally im not willing to disengage and run off to any communist country atm cos i think its pretty clear they also have some quite clear moral issues.
what do you do for a living out of interest?

@Netaporter all things we need to think about thanks

Some of the responses you get on here really make me laugh 😀. “ oh the morals , oh what a waste of money and effort “. “ you’ll never make any money “ blah blah blah. Fair play to her , how can someone wanting to do a bit of work and get on in life be a bad thing ? Most 20 year olds think life revolves around the little screen they hold in there hands 24/7. You should be immensely proud of her op for wanting to get stuck in. Ive done plenty of renovations over the years and its hard/ dirty work but extremely rewarding when you’ve done/ built something yourself with your own hands.

good luck to all of you 🙂.

@Oncetwicethreetimesalady if your DD is genuinely interested in this sort of work, why doesn’t she doing an apprenticeship in plumbing/electrics or both?

Thanks. I guess I should be proud of her for wanting to give something a go and step out of her comfort zone. Even if this isn’t the right project, she will find something (not necessarily a house) that has potential and go with it. She does have a couple of other business ideas already that maybe would be better right now but perhaps the housing market is just too unfavourable.

@Netaporter yeah that would be a good route if she really wanted to get into property. Her current job has lots of potential for progression though so got to weigh that up. Lots to think about.

Heres an example of how little things can cost when doing the work yourself.

there was a narrow doorway from the house to the old conservatory. Ive built a new room in place of the conservatory so had to make the opening wider to accommodate a 2’6 door and to centralise the frame into the hallway.

The cost for 2 lintels , 1 concrete, 1 steel, 1 bag of cement, 1 bag on sand , and 3 bags of ballast has been 62 pounds. The door frame ( not fitted ) yet , was £30. Less than £100 in total. Im guessing if i had to pay someone to do the work then it would have been 5-10 times that amount ?