Remortgaging to buy 2nd property

[Dumplings23]

Hi, was hoping to get some feedback if possible. We currently own our house with 46% LTV. We were thinking of remortgaging to release equity and buy a property to renovate and sell on. We would be able to remortgage and have enough to buy 2nd house outright and enough to do it up.

Has anyone done this before? Thanks

If you have never renovated before, now is not a good time to start because costs for materials and trades are very high. We haven't done this but did have a short term loan (about 6 months) to buy a house so we could work on it and get all the messy renovations done before we moved in.
It worked out fine but it was during the 2008 housing crash so we bought a bargain and luckily we are in a very desirable area so had no issues selling.

I appreciate we haven’t renovated a house before although have slowly done the house up we’re currently living in over the last 9 years. We have enough in the budget to get in trades people but have friends in the trade. My dad is also an electrician.

Apart from that.. is there any reason why you wouldn’t recommend it? It’s a steal of a house and projections look good.

If it is a good deal and stacks up economically, why haven't any redevelopers snapped it up?

Our current project only made sense because it is listed and so wasn't worth the potential risk for developers given the price it was on for and all the faffing that you have to do before starting work.

It may be that you can get stuff done at mates rates because of your dad which might make it financially sensible but just be cautious.

Plus don't forget capital gains tax if you aren't living in it and you will have to do tax returns when you sell.

Yes its possible depending on your affordability etc but whether it is a wise decision is only one you can make. I would suggest a mortgage broker would be your first port of call as that will tell you whether its possible, before you decide whether to actually do it.

A good market hides a lot of bad developers. It has been a good market for a long time. I would consider what would happen if the market does fall and your exit strategy of selling doesn’t work out. Can you afford to keep it long term as a rental? Probably yes but you need to consider this

How confident are you about the Reno costs? How much contingency have you factored in?

The main drawback I can see is you'd be back to square one with your mortgage after working so hard to reduce it over a number of years.

I may not even get a chance at it because it’s being sold at auction - developers will have a much higher budget than mine. It never went on with an estate agent as it’s a probate house.

Houses down the road sell for close to 400 and this house is on at 200. One house sold for 655 last year but beautifully done and has an extra bedroom and extended kitchen out the back.

I know it’d be putting us back on the mortgage front but essentially it’ll be a free house.. if we rent it out, or chose to do it up? Can cover both mortgages if needed but obviously don’t want to do this long term as it’s not financially beneficial. Luckily we’re still young enough and have built enough equity in our current property that we can still have it over 30 years, so will be a ok monthly payment.

I guess there’s a lot of ifs and buts but until we’re brave enough to go ahead, we’ll never know? I just wasn’t sure why more people didn’t do this if they were able to. Am I missing something glaringly obvious?

I think more people don't do it for moral reasons. It's certainly not something I'd do with my money.

If it’s on at auction the asking price will be artificially low because it’s just a starting price and the lower it is, the more people come to the auction to have a go. If it eventually goes for double don’t be surprised.

Secondly, you need to pay 10% of the money in a cheque that day, and you need to pay the remainder within 28 days. If you’re doing it with a mortgage you’re unlikely to be able to bank the deal in time - at which point you forfeit your original 10%.

Developers work with private banks so have a long line of credit, and they are VAT registered which means they sometimes only make a “profit” on the exemption alone; they often just do development to keep their trades in work during quiet times.

Source: DH in the trade.

Can I ask what you mean by moral reasons?

Have you got an Agreement in Principle?

Also you know you will probably have to pay 10% on the day.

am sure you know all this already

Edited to ask is it a Conditional or Unconditional sale?

Thanks for the info. This one is by modern auction so I believe it’s a 4.5% reservation fee. Having never been to an auction before.. you’re probably right and will go for a lot more than the asking price. If anything, I hope to learn from it.

Have mortgage approved and they have said they can do it within the 28 days.

Have offer in principle and its 4.5% (modern auction) which we have enough to cover up front.

Have you done this before?

How would I know if conditional or unconditional?

There are a number of houses in our area that were bought cheaply and then done up. They’re still for sale in their done-up state. One has been on the market for around 10 months, is on its third estate agent with an asking price £130,000 less than it went on for originally.

By all means do it if you want to, but don’t expect a massive return.

Something to bear in mind, thank you. There isn’t a lot of property on the market in our area and the last house on this road sold pretty quickly after being done up.

maybe I’m being naive.. just seems like there’s more pros than cons at the moment. May change when we view it tomorrow though!

Check the other costs for the modern auction. You are usually responsible for all the costs of the seller, so all the estate agent fees plus the stamp duty plus all your costs. Also you may or may not be able to do surveys before the sale completes.

I would never touch a house for sale by modern auction. It also explains why other developers will not be interested.

A back to bricks renovation will probably cost at least £100,000 based on prices for our Reno's and the other costs which have been posted on Mumsnet over the last couple of years so you could make money if you get it for less than 250,000 maybe.

I would be worried that the modern method of auction is being used because the house has a genuine issue like subsidence or rotten timbers which would be really expensive to fix and therefore put normal buyers off

My friend tried to buy at modern auction and it turned out that the house was falling down the hill!

Also who is going to project management and what is your timescale?

You seem enthusiastic enough. If you’ve done the maths, know what you are doing, and have the time, then go for it.
Personally I would not entertain the MMA though, but if you do, make sure you set an absolute hard limit.

Another one here suspicious about the MMA. It is also unlikely to go for the guide. Create a spreadsheet so you can see how each £5k increase in sale price affects your profit.

Is there a legal pack you can download and read? I buy at auction. Before thinking about bidding I download the title and plans from the LR and read them carefully (noting restrictions etc) then I view then I get my solicitor to comment on the legal pack. Any obvious signs of roof damage/subsidence etc I take a builder with me to a viewing. Then I bid (or not).

Can you share your numbers with us so we can check you’ve covered it all?

Main points I’d note:

• Don’t forget insurance costs - it is way more expensive to insure an unoccupied house than you’d think.
• Don’t forget the increased amount of STLD due to this not being your only home
• the house could be difficult for a buyer to get a mortgage on when you come to resell because lenders don’t like lending on a property that has had a mortgage on in under a year.
• Don’t forget to include EA selling fees at the end
• Some councils are limiting the amount of time unoccupied properties have zero council tax so factor that in
• If the property doesn’t have off street parking, getting rid of rubbish will be a lot more expensive and trickier

The market isn’t moving very quickly where I am, so double check with another agent about your sums.

HTH - good luck with the project.

My DP just renovated a house to rent. He is obsessed with reusing reclaimed materials, gets everything 2nd hand. We washed old bricks which he then used as a shower wall!! As others have said materials are very expensive right now, but you can get all sorts on Ebay ( tiles, wood, whole kitchens, windows). However, doing it this way takes much longer, so depends on your priorities.
Knowing trades people is a good thing, even if it's just to discuss jobs and costs.
If you have the time and the patience it's a good project and houses do need to be renovated by someone!

Thanks for all your help. Went and viewed it this morning with about 20 other people so don’t think we have a chance! Will watch with interest though and see how much it goes for.

Can I ask why you wouldn’t buy at modern auction please? All the ones I’ve seen recently have been this way

Can I ask why you’re suspicious of MMA? From reading through the legal pack it looks like it was valued at 300k this year. I didn’t realise they priced auction houses so low to get people in. This is the house, but like I said - don’t think we have any chance. The most we could go to is 260.

https://auctions.savills.co.uk/index.php?option=combidding&view=commission&layout=details&id=10889

Doing up a house is still something we are seriously considering, but looks like we need to do our homework a little more. Shame houses in Oxfordshire/Bucks are so expensive - don’t think we’ll have a shot at a house if it’s not auction?

@Dumplings23 I’m suspicious because for a house like that a traditional auction would be more appropriate. Are you sure the lender would lend on this house? It doesn’t have a working kitchen?

I can’t see the legal pack but from the photos I would be considering:

1. Water ingress and damp - what is causing it?
2. You’ll need to be replacing the floorboards almost certainly in the kitchen and possibly elsewhere
3. You may need a rebuild on the garage
4. What is causing the plaster to be blown below the bay window in the lounge?
5. That garden will need a serious amount of Labour and clearance to even understand what else might need doing - eg fencing
6. It needs new windows throughout
7. there is water damage around the chimney flashing and plants growing in the guttering indicate a lack of maintenance on the roof area.
8. It’ll need a full CH system
9. It most likely will need a rewire to bring up to standard
10. It needs a new front wall and driveway solution
11. How much do you need to reserve for the vendors fees (usually a sale fee plus their legal fees)?
12. Obviously it needs a new kitchen and the bathroom integrating into one space.
13. There is no downstairs WC which you would need in today’s market
14. The guide price has to be within 10% of the reserve for a traditional auction - you’d need to check that with the MMA.
15. Get a roofer to check the roof condition before bidding.

What do you think you would be able to achieve sale price wise?