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We have 200k to invest in buy-to-sell. Any advice?

Covering Market, Trends, and Practical (but see LEMON-AID for Building & DIY)
jayproperties
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We have 200k to invest in buy-to-sell. Any advice?

#353534

Postby jayproperties » November 4th, 2020, 8:53 pm

My partner and I have recently acquired £250,000 cash. We want to keep £50,000 as an emergency fund so have £200,000 to invest. 
We want to grow the capital as quickly as possible over the next 3 years, to a level where eventually we can purchase buy-to-let properties and build a portfolio for passive income. 
We're thinking the buy-to-flip strategy. We have family in the building trade and are currently in-between jobs so have full weeks to commit to searching for properties, design, decorating and labour etc.
We're new to the industry so really need as much advice as possible. What would you do in our situation? Is it worth taking out bridging loans to free up more of the cash per flip? Is there a way to maximise profits for doing more than one project at once? or best to start slow. 
We appreciate any comments. Thank you.

Mike88
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Re: We have 200k to invest in buy-to-sell. Any advice?

#353535

Postby Mike88 » November 4th, 2020, 9:01 pm

My only advice is make sure you buy in joint names and keep all receipts to minimise Capital Gains Tax. Getting family in the building trade doesn't necessarily help as they will want to be paid even mates rates in cash in which case you cannot write off any money you give them for CGT purposes.

AsleepInYorkshire
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Re: We have 200k to invest in buy-to-sell. Any advice?

#353544

Postby AsleepInYorkshire » November 4th, 2020, 9:42 pm

jayproperties wrote:My partner and I have recently acquired £250,000 cash. We want to keep £50,000 as an emergency fund so have £200,000 to invest. 
We want to grow the capital as quickly as possible over the next 3 years, to a level where eventually we can purchase buy-to-let properties and build a portfolio for passive income. 
We're thinking the buy-to-flip strategy. We have family in the building trade and are currently in-between jobs so have full weeks to commit to searching for properties, design, decorating and labour etc.
We're new to the industry so really need as much advice as possible. What would you do in our situation? Is it worth taking out bridging loans to free up more of the cash per flip? Is there a way to maximise profits for doing more than one project at once? or best to start slow. 
We appreciate any comments. Thank you.

I've 40 years experience in the construction industry in a commercial capacity as a quantity surveyor. Before serious illness I was also fortunate enough to have my own small building business. I started with nothing and made a living until illness got in the way. I built three or four new homes per year. In your shoes I would sooner invest in the 8/1 shot at Chepstow next week.

This is really a very serious game and you can very quickly get your fingers burned. If you must try then go very slow and keep it very small and make a note of every little thing that goes wrong. Then multiply that by the number of projects you want to take on at any one time and you'll have some idea of how the little problems will scale up with the business and they will.

Many years ago (too many) I noticed one of my smaller subcontractors had two new tippers. I asked him how he felt about his success of building up from one tipper to eight. He replied he was happier when he had one.

AiY

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Re: We have 200k to invest in buy-to-sell. Any advice?

#353564

Postby vagrantbrain » November 4th, 2020, 11:54 pm

All I can say is it's a brave move putting £200k on the line to do up a house that may well be worth less when you've finished. With housing approaching an all time high and the oncoming wave of redundancies and recession it's pretty certain that house prices will take a tumble, and with it goes any profit margin. In normal times your profit margin would be pretty small if the property only needed cosmetic or minor repairs, bigger profits come from the work that amateurs or semi-pros don't/cant do - and this can go very wrong very quickly. Here be dragons IMHO..

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Re: We have 200k to invest in buy-to-sell. Any advice?

#353588

Postby Dod101 » November 5th, 2020, 6:39 am

The replies so far remind me of the old question. How can we make a small fortune? Start off with a big one and take it from there.

Dod

Itsallaguess
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Re: We have 200k to invest in buy-to-sell. Any advice?

#353591

Postby Itsallaguess » November 5th, 2020, 6:43 am

EDIT - post deleted.

scrumpyjack
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Re: We have 200k to invest in buy-to-sell. Any advice?

#353620

Postby scrumpyjack » November 5th, 2020, 8:12 am

Dod101 wrote:The replies so far remind me of the old question. How can we make a small fortune? Start off with a big one and take it from there.

Dod


or the old one about investment bankers investing your money until its gone.

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Re: We have 200k to invest in buy-to-sell. Any advice?

#353639

Postby dealtn » November 5th, 2020, 8:56 am

vagrantbrain wrote:...it's pretty certain that house prices will take a tumble...


So what odds do you want to quote me on that?

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Re: We have 200k to invest in buy-to-sell. Any advice?

#353744

Postby modellingman » November 5th, 2020, 12:20 pm

jayproperties wrote:My partner and I have recently acquired £250,000 cash. We want to keep £50,000 as an emergency fund so have £200,000 to invest.
We want to grow the capital as quickly as possible over the next 3 years, to a level where eventually we can purchase buy-to-let properties and build a portfolio for passive income.
We're thinking the buy-to-flip strategy. We have family in the building trade and are currently in-between jobs so have full weeks to commit to searching for properties, design, decorating and labour etc.
We're new to the industry so really need as much advice as possible. What would you do in our situation? Is it worth taking out bridging loans to free up more of the cash per flip? Is there a way to maximise profits for doing more than one project at once? or best to start slow.
We appreciate any comments. Thank you.


This isn't a particularly active board, so I am quite curious about how you ended up putting your debut post here. Curiosity aside, it is probably worth reading an earlier thread from this board: viewtopic.php?f=13&t=23024

A particularly relevant comment from that thread is

Mike4 wrote:The point that jumps off the screen at me and no-one has mentioned so far is the principle "invest in what you know".



That is pretty good advice.

You appear to be wanting to get involved in two very different property-related businesses: buy-to-flip and buy-to-let. Neither is a passive business and both provide quite a lot of scope for getting it badly wrong. For buy-to-flip, money is made on the purchase. For buy-to-let, you need to be temperamentally suited to being a landlord. Unless you get lucky, having a very good understanding of the markets and businesses that you are planning to be in is probably a reasonable starting point.

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Re: We have 200k to invest in buy-to-sell. Any advice?

#353774

Postby johnhemming » November 5th, 2020, 1:48 pm

dealtn wrote:
vagrantbrain wrote:...it's pretty certain that house prices will take a tumble...


So what odds do you want to quote me on that?


The question on house prices (or other investments) is one where the substantial money printing of the BoE needs to be taken into account. It is quite likely to find its way into asset price inflation if it does not find its way into CPI inflation.

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Re: We have 200k to invest in buy-to-sell. Any advice?

#355449

Postby Charlottesquare » November 11th, 2020, 9:47 am

Mike88 wrote:My only advice is make sure you buy in joint names and keep all receipts to minimise Capital Gains Tax. Getting family in the building trade doesn't necessarily help as they will want to be paid even mates rates in cash in which case you cannot write off any money you give them for CGT purposes.


What capital gains- given stated intent this is a trade with Income Tax and Class IV and NI consequences.

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Re: We have 200k to invest in buy-to-sell. Any advice?

#355450

Postby Charlottesquare » November 11th, 2020, 9:48 am

Charlottesquare wrote:
Mike88 wrote:My only advice is make sure you buy in joint names and keep all receipts to minimise Capital Gains Tax. Getting family in the building trade doesn't necessarily help as they will want to be paid even mates rates in cash in which case you cannot write off any money you give them for CGT purposes.


What capital gains- given stated intent this is a trade with Income Tax and Class IV and NI consequences.

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Re: We have 200k to invest in buy-to-sell. Any advice?

#355457

Postby bluedonkey » November 11th, 2020, 10:05 am

Charlottesquare wrote:
Mike88 wrote:My only advice is make sure you buy in joint names and keep all receipts to minimise Capital Gains Tax. Getting family in the building trade doesn't necessarily help as they will want to be paid even mates rates in cash in which case you cannot write off any money you give them for CGT purposes.


What capital gains- given stated intent this is a trade with Income Tax and Class IV and NI consequences.

Agreed.

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Re: We have 200k to invest in buy-to-sell. Any advice?

#355461

Postby Charlottesquare » November 11th, 2020, 10:16 am

I should have mentioned to the OP, as someone who has worked full time in property investment and development for over twenty years now, a few words on the business model.

1. External lenders may increase profits on the upside but they also increase risks, nasty things happen, projects delay, costs overrun, title issues need sorted if say selling out houses from newly created estates, and when they do the nice chap at the bank who lent you some short money may suddenly show you his teeth and bite (post 2008 was a very good example). Caveat Emptor.

2. Whilst increasing the money pool by borrowing may increase the number of projects possible it can bring things crashing if one goes off the rails- if property development is plate spinning the secret is keeping them all spinning and not letting the first to fall knock over another etc. In addition banks do add frictional costs and usually involve delays to projects so the extra deals possible from leverage may be a bit of a mirage..

3. As I said above, as you describe things it will be trading not investment, the tax will accordingly follow this reality, so remember to budget for same.

4. The big money is often changing use from commercial to residential, not for the faint hearted, expensive , often takes years and need to know what you are doing re planning process/art of possible/costing etc. The two individuals I work for started out in the 1970s buying and selling and over time gravitated to more holding for investment with a smaller amount of dealing, we really are these days a commercial property investment business dabbling in development and these days that tends to be overages etc on sites sold rather than actively doing all the work. I, at sixty, am the youngest involved, the energy needed and ability to learn myriad new skills outside one's comfort zone quickly is really a younger person's game.

5. Because there is a big pool of individual house buyers for existing houses then the market tends to price reasonably correctly leaving little room to make a profit flipping. I am sure there are some profits out there but they will be more elusive and every so often you will buy a lemon/overpay. There is more profit usually in going after planning gains re change of use (we could often multiply our investment/costs by 10) but there is also far more risk. (the secret is trying to never pay much more than existing use value for an old building in case say residential planning turns out tricky/impossible, but these days such sites are really hard to find)

6. Ensure you build a good team, project managers, planning consultants, architects, surveyors, solicitors, accountants(that's me) etc

7. The golden rule, never to be broken, never run out of money mid project

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Re: We have 200k to invest in buy-to-sell. Any advice?

#355494

Postby TUK020 » November 11th, 2020, 12:00 pm

shares in Taylor Wimpey look quite attractive.......

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Re: We have 200k to invest in buy-to-sell. Any advice?

#355498

Postby Mike4 » November 11th, 2020, 12:08 pm

jayproperties wrote:purchase buy-to-let properties and build a portfolio for passive income. 


This is the most worrying part of your whole post to me.

I've been buying to let for 24 years now and "passive' is perhaps the last word I would ever use to describe this business.

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Re: We have 200k to invest in buy-to-sell. Any advice?

#355529

Postby Mike88 » November 11th, 2020, 1:32 pm

Charlottesquare wrote:
Charlottesquare wrote:
Mike88 wrote:My only advice is make sure you buy in joint names and keep all receipts to minimise Capital Gains Tax. Getting family in the building trade doesn't necessarily help as they will want to be paid even mates rates in cash in which case you cannot write off any money you give them for CGT purposes.


What capital gains- given stated intent this is a trade with Income Tax and Class IV and NI consequences.


The intention initially is to grow capital via buy to flip.

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Re: We have 200k to invest in buy-to-sell. Any advice?

#355729

Postby Mike4 » November 12th, 2020, 7:33 am

Mike88 wrote:
Charlottesquare wrote:
Charlottesquare wrote:
What capital gains- given stated intent this is a trade with Income Tax and Class IV and NI consequences.


The intention initially is to grow capital via buy to flip.


Buy-to-flip strikes me as near impossible nowadays due to 1) the high frictional costs of buying and selling property (SDLT in particular), and 2) the difficulty in finding opportunities to 'buy cheap' when there is so much public demand for property and the ease with with sellers can obtain full market value from other buyers.

Or maybe I misunderstand the concept of BTF.

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Re: We have 200k to invest in buy-to-sell. Any advice?

#355732

Postby modellingman » November 12th, 2020, 7:44 am

Mike88 wrote:
Charlottesquare wrote:
What capital gains- given stated intent this is a trade with Income Tax and Class IV and NI consequences.


The intention initially is to grow capital via buy to flip.


Yes, but the activity might well get classed as a trade by HMRC. See https://addictedtoproperty.co.uk/property-flipping/ for a bit more detail.

Buy-to-let is not usually classed as a trade even though, with the exception of borrowing costs, it is pretty much taxed like one.

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Re: We have 200k to invest in buy-to-sell. Any advice?

#355748

Postby Mike88 » November 12th, 2020, 8:57 am

modellingman wrote:
Mike88 wrote:
Charlottesquare wrote:
What capital gains- given stated intent this is a trade with Income Tax and Class IV and NI consequences.


The intention initially is to grow capital via buy to flip.


Yes, but the activity might well get classed as a trade by HMRC. See https://addictedtoproperty.co.uk/property-flipping/ for a bit more detail.

Buy-to-let is not usually classed as a trade even though, with the exception of borrowing costs, it is pretty much taxed like one.


Thanks. I didn't gain the impression the OP was intending to be involved in a trade. Over the next 3 years I assumed he was intending to buy cheap houses, one by one, renovate and sell at a profit in order to build up capital possibly using auctions such as the people on the TV programme "Homes Under the Hammer". After an initial period, and as things progress after buying say a couple of houses, wouldn't then the business issue come into play? As he only has £250k to spend there will be no stamp duty if he buys and then completes before 31 March 2021.

My assumption was that CGT would be his main concern, initially at least, but that will depend on whether he is flipping or running a business in the eyes of HMRC.


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