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.

I really wouldn't be flipping houses with the economy/ housing market as they are now.

Also, I really wouldn't believe what the sellers estate agent is telling you about the value of a done up house. Obviously, they want to persuade you to buy the house so will tell you what you want to hear! If one sold for 195k two years ago at or near market peak, you might get a fair bit less, especially as the market is continuing to fall.

It's admirable that your DD wants to develop practical skills and I would definitely encourage her with this, just not in a potentially loss making project.

If I were you, I'd approach estate agents directly, explain you're a cash buyer, and aim to buy a house that way. Anything on the open market has already been rejected by builders as too pricey in the current market.

Then I'd buy a house my DD wanted to live in longer term. You could do up the house, with no worry about falling markets, because it would be her home. And she would be working in a job - perhaps learning a trade - and earning an income at the same time, to pay off the money.

Then when eventually completed, she could live in it, and rent out a room under the government Rent a Room scheme, tax free, until she's ready to sell and take on another project.

Bear in mind that if you are doing all the work yourself, it'll take much longer than employing trades, and if house prices aren't rising, you won't be benefiting from capital increases to offset any costs.

From the sums you're talking about, CGT may be covered by her personal allowance, but have a look at the 36 month rule - sometimes if you buy and sell a property within three years, you can be hit with CGT even if she claims she's living there.

When this was a popular topic for tv programmes in the late 90s/early 2000s, the vast majority of “profit” that was made on the renovated houses was purely from an increasing market. The margins would have been the same if they’d done nothing to the house, just waited for the prices to increase.
I think this has given a false impression of the profitability of such projects.
And construction/materials costs have increased significantly since then.

@Diyextension I put in £3500 as I thought that's the price the OP put in for it, or maybe it was something else. Anyway that's a detail - I also didn't add in the carpets fitting etc and lots of the minutiae, which all adds up. Anyway I stand by my post as I have been there, done that and second what @Persipan says; relying on mates rates is unrealistic in terms ir replicating the model, and those getting mates rates can also be unreliable.
Though I do take exception to everyone saying it's a falling market. Obviously it depends on location, but I thought house prices went up this last quarter?
OP I think using the project as a learning experience is fine, and any profit would be a bonus. But I'd look very very carefully if there's any other way of learning the skills that doesn't require tying up a much cash , reliance on reduced labour and an unknowable timescale.

Your costs are far too low.

Four rolls of 50m masking tape for painting yesterday cost £25!
Twenty five pounds...

Should have gone here
https://www.toolstation.com/pinnacle-masking-tape/p67832?utm_source=googleshopping&utm_medium=feed&utm_campaign=googleshoppingfeed&mkwid=_dm&pcrid=null&pkw=null&pmt=null&gad_source=1&gbraid=0AAAAAD-vLcVII72m7b7Bjhq0XtdhHvbLQ&gclid=EAIaIQobChMIgOSrh8bzhAMVo5ZQBh15UQzbEAQYAyABEgJA2PD_BwE&gclsrc=aw.ds

good reviews too 👍

They are taking a house that is uninhabitable, and turning it into a house that someone can live in. And doing it through a lot of hard work. The sellers could choose to do the same, if they wished, so no one is being ripped off.

And there is a much greater shortage of property to rent than property to buy.

Bloody hell, are they making it out of platinum now?

Have a look on rightomve. They’re easy to spot- entirely grey house with cheap white kitchen and bathroom suite.

Reduced £20k because everyone who comes round bar a few very inexperienced first time buyers says they would gave to rip out the kitchen (at the very least) and start again.

Council tax?

I am not sure this is flipping. Isn't flipping buying a property, holding it and then selling it for more than you paid ? Clearly only works in a rising market.

This to me seems like renovation which is different. Renovations can actually add value IMO. Flipping though is just speculation.

Obviously if the local market is falling like many are atm there are addition risks involved as the asset is depreciating all the time it is held. Add to that the current issues of getting good trades at decent prices and the fact that material costs are still very variable could lead to any renovation being an interesting and less than lucrative experience in the current climate. People take their chances I guess.

you've got lots of responses so i won't add my noise to that, but by disregarding the value of the labour provided by your DH, because he's her DF, really skews the viability of this project. fine if they're doing it for fun, but if your DD is attempting to kick start a business / career being reliant on free labour (or mates rates) gives a false impression of whether it is a sensible move

Obviously whilst paying the mortgage that is money that she could have been saving- so not just the cost but the loss of savings.

Sorry OP, I would be astonished if your daughter made any profit on this at all.

Two years ago the market was higher. Of course the estate agent - who is working for the seller, not you! - says you'll get the price you want.

I've watched enough property shows to also ask you - have you got a contingency budget at all?

No this is what flipping means. Buying a house, doing it up cheaply and selling for a profit.

I really doubt you can do it all for £20k. Secondly, the market has changed significantly from 2021 so I don't think you can rely on selling prices from then. You would need a good backup plan to deal with a) not selling it for a while and b) not getting the price you want upon sale

Flipping is dead in this market... people are making huge losses.

I would never buy flipped house, especially in this economy. But I guess it is just me. Reasons why: I know it will be done as cheap as possible (and this post proves it), you know someone DIYd most of it (I would like professional to do the job), all charming details normally are ripped out, because too expensive to restore for flippers.

I live in very affluent London area, and sadly quite few flippers are sitting on the market two years in. It is always very obvious when houses are done on cheap. Unless you will find someone extremely desperate for that location, I can't see how you will manage to flip it in the next 5 years.

The profit margin seems low and the EA could be exaggerating the price achievable when renovated. Have prices increased in your area in the past two years since the £195k sale?

Your DH seems to be doing the bulk of the work and giving away the profit (if any). That might give your DD unrealistic expectations of flipping as a business. If she had to pay trades to do what your DH does for free, there would probably be nothing left.

Nope. Not nearly enough in it, you’ll lose money or be stuck with it.

Don’t worry, they won’t make any money on this.

OP isn't coming back... I hope they've decided against this scheme.