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.

Every housing market is different. I would do the maths based on the deal. Sounds like you know your local market well enough and sounds like a fun project

She would have to put in so many hours on this project she would be better off getting a part time job with a tradesman and learn that way or any sort of other part time job with an hourly rate instead.

I doubt you will make any profit whatsoever on this project unfortunately and you could end up losing money. The cost of materials has risen to ridiculous levels and along with the additional costs mentioned above, you aren't even counting the interest on either borrowing the best part of £200k or losing that interest if you already have the money invested. That will cost a minimum of £600 every month.

Why would it be worth more that 2 doors down sold at the height of the market?

Don't forget council tax, utilities. Estate agent fees. Capital gains tax. Scaffolding, skip hire. Solicitor fees. And the time it will take to sell - you can't market it if you let it out.
£1200 to buy, same to sell fees
£3000 estate agent commission (1.25% +VAT)
£1000 council tax (no idea on this but guess for six months)
£3,500 boiler
Already almost at £10k.
Capital gains? Depends - is all the above plus £20k? So £30k on top of £148k so £178k, you sell for £200 so £22k profit capital gains allowance is around £12k... so tax on the £10k so ... £8k profit. I assume your DD and DH are not 'paying' themselves. And you are charging interest on the loan.
Is all that work worth £7,000ish? That's it if you get it for £148k. And I haven't even included any surveys or building control or licence fees.

I used to flip properties and a couple of times it would have been just as profitable and a lot less hassle to have bought and let it sit and resell six months later. I went ahead as my enjoyment was in design - and I always did houses up to very good standard, not just 'good enough'. That was my USP. I generally broke the ceiling price on the street as my design and finish was excellent.

@Diyextension no one is doubting that things can be done inexpensively by yourself and that’s great if you’re staying put but selling in a market today, the conveyancer/surveyor and likely lender will want to see evidence of building control involvement in a build like that (another cost) and even if it is a build within PD, you’ll need a certificate of lawfulness. And FENSA certs for the windows/doors… You can get indemnity insurance but nowadays even that may not resolve the issue to the satisfaction of interested parties. My point is, if the OP and her DD are to do this properly, they need to account for all of the costs properly and anticipate what any potential buyer or lender might insist upon.

What condition is the roof in?
Is there any damp?
Do the drains and rainwater goods need repair?
Do you want to create off street parking?
Do you want to drop the kerb?
Do the windows need replacing?
Does it need a new security system?

These are all costs that add up.

Yes everything i’m doing falls under building control and will all be signed off, just because someone is not paying “professionals” 100’s of pounds a day it doesn’t mean they are cutting corners. Although most people think that. I would like to think that any work i do is as good or better than paying someone to do it as the one big difference is I have unlimited time to make it the best i can.

It sounds like the op is just refurbishing and not planing any structural works ?

If the cottage is in a desirable location in a pretty village and would be worth £200-£210k when refurbished then the fact that it has already been reduced to £160k means there's no profit in flipping it. If it was financially viable to do it up and sell it on then a builder would have already bought it. I would probably buy it to live in but wouldn't touch it as a profit making exercise.

£3,500 for a boiler…. ?
https://www.screwfix.com/p/vaillant-ecofit-pure-825-gas-combi-boiler-white/344KK?kpid=344KK&cm_mmc=Google--Datafeed--Heating%20and%20Plumbing?kpid=KINASEKPID&cm_mmc=Google--TOKEN1--TOKEN2&gad_source=1&gclid=EAIaIQobChMIrJLKwbjyhAMVGJVQBh06HgR1EAQYASABEgL_svD_BwE&gclsrc=aw.ds

if the op’s husband hangs the new boiler and cores the flue out then you will only be paying the plumber to pipe it up and commission it.

@Diyextension no Gas Safe engineer is going to finish installing a half fitted boiler bought from Screwfix and put their name and guarantee to it. You are making really unrealistic suggestions here.

i take it you have never hung a boiler before ? They are extremely heavy and any plumber would be happy that it is on the wall ready for them , its hardly half fitted its just hanging on the wall. My plumber or gas engineer if your being posh had no problem with it , i even hung all the radiators on the walls …..is that being unrealistic too.? Maybe i should have let him do it and then he could have charged me more money for something i could easily do myself ?

Do you really think that a vaillant boiler from screwfix is any different to one you would get from a plumbing supplier??? They are all made in the same factory 🤣. Or is screwfix a bit low end for you ?

It wasn't the vendor's estate agent who told you how much it would be worth once renovated was it?

Surely she could get a job and earn £15k in the year it will likely take for all this to go through? And your DH will get nothing out of it so it's a net loss in terms of pay per human hours worked.

I think your projection of selling it for £200k+ is ambitious. For a house of that value spending £20k is likely to lead you to just about breaking even in the current market. What houses sold for 2 years ago is irrelevant.

You will need to factor in additional mortgage, council tax bills etc. if you are not able to sell it in the time frame you are anticipating. This could either be due to delays in completing the work or the house being sat on the market for longer than you hoped, or delays in the purchase going through even under offer. A £15k potential profit does not sound enough to mitigate these potential risks.

I think you have a mix of people on this thread:

1. Those who just seem peed off at the idea of someone flipping a house and therefore venting that it’s a terrible idea / you’re immoral.

2. Those who have no idea about the cost of renovation and quoting for things like scaffolding and skips and the such.

3. A few who have done this sort of thing before and know how cheaply it can be done if you do the work yourself / do all the prep work so you’re minimising trades time.

For a small house doing everything except gas and electric commissioning yourself, 20k is easily doable, and I’d even say half that is depending on what you are renovating. I’ve spent 30k on our 4 bed house in London and have built a large garden room, renewed all pipes and electrics, new flooring downstairs with new subfloor and insulation throughout, new bathroom and toilet x 2, kitchen redone with basic ikea type stuff, redecorated all round, mains water pipe replacement and associated plumbing, smart lighting and things like ceiling speakers, new column radiators all round, re plastering of three rooms alongside repairing channels cut for rewire and plumbing and a raft of other things. Only things I paid trades for were installing new boiler, new consumer unit hooked up to my new wiring and additional circuits and commissioning a new gas hob. Have a spreadsheet of it all and as above - around 30k in a 120 square meter 4 bed house. If you are handy there is no reason you can’t do 98% of everything, and as it’s my own property, I am more invested in it than some day rate tradesman so do a more thorough job, or at least nobody has walked in and gone oh, what a mess that is! The garden room as an example I think insignificantly over engineered as wanted it done right.

I think even in a potentially difficult market if you get the place for the right price then you’re correct, there is a nice profit to be make and when I get a bit of time I am likely going to try something similar with all the knowledge, tools and skills I’ve built up doing my own work.

Just go for it. It's not going to break you whatever you do. Can rent it out to cover payments if it doesn't sell anyway and see how things go. Sounds like you have it all covered

Totally agree with this, this is how people start off. Who cares what the equivalent hourly rate is, you start of at the bottom when you embark on new things. In 10 years time she'll probably have a portfolio and be managing or overseeing projects for properties worth a million

Good on her and good on OP for being able to find a project that she can start with.

People have got no idea about hard work or incentives or working upwards or ambition it seems. Its really sad.

I think it's great that your DD wants to take on a project like this OP, fair play to her and I hope it works out well for you all. For me personally it wouldn't be enough return for the effort

@Luddite26 tax will be due on the whole rent income, you cannot deduct any mortgage payments or mortgage interest if the house is registered in the daughter’s name. After making sure all certification is up to date, paying for credit checks and possibly an agency to manage the tenancy, it is a marginal business at best - hence why many LL are selling up.

For everyone on the thread who is from the school of DIY, remember the OP is hoping to exceed the ceiling price on the street selling in a declining market. Buyers (esp first time buyers and their conveyancers if you read other threads on the forum) are looking for any reason to either chip the price or pull out - an uncertified boiler, electrics etc will fall into those categories - assuming of course that you can find a non-busy tradesman looking to entertain your hopes of him making himself liable for your DIY work signed off using his qualifications he spent years and £00’s earning. This is not the same as DIY in a house you are staying for the next 10 years in, it is supposed to be a business and currently the model is marginal at best.The OP is funding this potential venture by using her own house as security so she is rightly asking what she may have missed.

Your idea sound's feasible, but the budget for work seems very low.

"two doors down sold for 195k two years ago"

That would be a major red flag to me on your idea of the profit. That same house may not achieve that price now. It could also be that by the time you are finished the prices have taken another little step back. Seems risky to me but good luck.

She would have to put in so many hours on this project she would be better off getting a part time job with a tradesman and learn that way or any sort of other part time job with an hourly rate instead.

This was pretty much my response too, albeit more politely put! It is a lot of hours and effort to (potentially, with a fair wind, it's not guaranteed) get £15k in the bank.
You need to be able to earn the equivalent of a reasonable hourly wage and turn a profit on the lump sum investment for this sort of work to be worth it, which £15k will not give you.

I have a trade. I obviously do a large chunk of any DIY at home, including most of the work when we extended a few years back (I was on maternity leave at the time). I'll happily invest my time and save the cash on my own home where I can squeeze it around every day life as-and-when because I live there, and the payoff is having the space around me just as I want. I'm not doing it to add value. However, there is no way I'd do what you're suggesting at that profit level, as it would be more profitable with less (no!) risk to use those hours being regularly employed/self-employed.
Also as your DD, and presumably your DH, don't have a trade, it will take longer to do each task than a qualified and experienced tradesperson, further adding to the pit of hours with low return. Even with my experience and knowledge, there are times when I pay for something I could do myself as I would rather go out and do e.g. 6hrs work then immediately hand all that money over to a plasterer to complete a job in my home, than spend 10hrs dicking about to get a nearly-but-not-quite-as-good finish, even if the plasterer does it in less than the 6hrs I worked for to get the money - their specialist experience brings an efficiency that I can't match even with more knowledge than most. Doing this is cost neutral to me, but I've gained 4hrs and saved a lot of hassle.

I think you are viewing this through a very rosy lens if you're seeing it as a business/financial opportunity for your daughter, given how many people who are not your daughter need to front up cash or put in lots of work for free/for mates rates in order to have any prospect of making any money at all on it. It would be a rare 20 year old with the practical and financial nouse to pull this off solo, and whilst I'm sure she has the work ethic there's a lot more to it - which you clearly know given how much involvement you plan to have.

If you were to frame this as more of a family project, it would sit slightly more comfortably with me - I'm still far from convinced that there's any money to be made on it, but at least that feels more like a learning project for her (and your son). As you're describing it here, though, she gets to walk away with any profit made, but it's made through the unrealistic and not replicable business model of a LOT of work being done for free by people who aren't then sharing in the profit. It's pretty clear that if you attempt this particular project paying market rates to tradespeople, it's not financially viable. And sure, she'd ultimately (hopefully) come away from it with more skills than she had to start with, but not enough to fly solo to do it again. So I guess my question would be, supposing you collectively pull it off, what's the next step?

It might be worth noting that the current Government plan is for the SDLT nil rate threshold to be reduced back to £125,000 from 1 April 2025. Obviously the Election and result could change that but worth considering if your daughter loses her first time buyer exemption on this property. Also the Council tax rate should be considered as the LA's are allowed to start charging double on properties that have been empty for more than 12 months (was previously 2 years) although I'm not sure if that is being applied from this April or next.

@NonmagicMike you've missed off the following people

4. A few who have done this sort of thing before - post pandemic - and know that the cost and availability of materials and tradesmen has changed beyond all recognition, and that trades are so in demand that it's almost impossible to get a tradesman to turn up for any jobs, let alone a small job where the homeowner has done all the prep work. The cost of materials has risen at least at the same price of food and there are still shortages in basic supplies. I have also sold a house in last two years and the paperwork is now immense, with guarantees and dates needed for absolutely everything.

I have bought and renovated many houses over the years but would not touch another one in the current market.