Buying another house?!

Discussion in 'Plumbers' Talk' started by rama, Mar 8, 2006.

  1. rama

    rama New Member

    I was wondering how many of you pros out there own more houses than you live in. It seems to me that I go round improving peoples houses and they make as much money or more than me for less work and less effort. Hence my thinking that I should get into this property development game. After all as a corgi reg person with my skills, knowledge and contacts surely I should be better at it than some of these useless twits you see on TV who don't know one end of the spanner from the other. Currently I live with my fiance in our jointly owned house. If we were to buy another house and do it up then what are the tax implications. After all 2 of us, own 2 houses or does it not work like that. Would it be better for each of us to own one house, one we live in and then one to buy and sell on. Any one know of any good websites on simple to understand Capital Gains Robbery. I don't know if I fancy the hassle of being a landlord - rather buy and then flog it. I know that this is not truely a plumbing question but it is the only forum that I really ever read!
  2. Jimbo

    Jimbo Screwfix Select

    Principle Private Residence Relief makes your main place of residence exempt from capital gains tax for the time that you are living there. Everyone can elect one property as their principle residence, but you must show that you do actually live there.

    If you are buying and renovating houses, you won't be able to claim this relief. Instead, you should set up a limited company through which to trade. In this way, first and most important you are personally protected legally. Next, the total profits of the company will be taxed, obviously your wages and costs (including interest) are taken off the profits.

    Hence, you will need an accountant and should involve professional advice as soon as possible if you are seriously considering this. A couple of wrong moves could easily bankrupt you.

    The main problem with this trading model is the amount of capital required. You need to move the houses extremely quickly as the interest payments will quickly eat into your profits and while you hold property you are extremely exposed to market volatility (even at a local level).

    For this reason imho undertaking this with a view to doing the work yourself isn't really an option. Commercial mortgages are much more expensive than domestic, this is why labour saving methods are priced accordingly (like projection plaster for example).

    The money is generally made in buying at the right price - then just get the work done asap and move the property on. Hence the money is in the project management, rather than the actually hands-on work.

    It is possible to make a go of this I am sure but you need to go in absolutely with all the facts. The implications of failure are just so severe simply due to the amounts of money involved.

    Hope that helps.
    candoabitofmoststuff likes this.
  3. Bitty

    Bitty New Member

    Good advice, Jimbo.

    Rama, the reason why so many twits seem to make it work is because of the increase in property prices over the last few years; without this, most would have gone under. Obviously, they haven't actually made as much as they think, since the next property they buy has also gone up in price a similar amount.

    Can it be done? Yes, but it can just as easily go pear-shaped as explained by Jimbo.

    Could you claim that the second house is yours, therefore avoiding capital gains tax? Yes, but you'd be telling a fib, and if you get caught... (IR are looking out for such suspicious transactions; 'hmm, this house is being sold twice within 6 months - let's have a looksie...'

    Your current home is jointly owned - clearly, it is your main residence. Even if it wasn't, I understand that if you buy and sell a house too quickly, you could be investigated to see is it was a 'genuine' buy or simply done for profit.

    Don't dismiss becoming a 'landlord'; if you buy a tatty house in a good area, once done up you should be able to charge a reasonable rate. You can even give the landlord's responsibility to a company, but obviously this'll eat into your profits. Going this route, you are looking at the longer term. The houses will be buying themselves, and should provide a good pension.
  4. rama

    rama New Member

    I fully appreciate that the rising market has allowed some to make money where before they would not. On Jimbos idea of setting up a company and this is a nice theory, but if you set up a ltd company which takes a few hours and costs a couple of hundred quid, you wont really be protecting yourself because anyone lending you money, will shift the liability from the company to the directors.

    My point as for house ownerships is that currently if I own half of one house, tax free, then can I own half of another house also tax free. My fiance being the other half of each obviously. Therefore we have a house to live in and a house to do up. The thing with having houses to let is that obviously there needs to be people to put in them and at present am cautious of a too much supply and not enough demand. Also say you own 10+ properties and are mortgaged up to the hilt, then surely whenever you want to pay, the chancellor takes his 40% so you have to have a strong market and a good length of time (10 years+ ?)

    I am sat at home at the moment, doing the accounts and tax and it just makes me think that is all this self employment worth the trouble.
  5. Bitty

    Bitty New Member

    There is another way of doing it, but you (and t'other half) will have to not mind living in squalor for a time: sell your current house and buy the largest (or with a comfortable plot which you could extend into), tatty house in the best possible neighbourhood. Move into it while you do it up!

    Just over 10 years ago, I bought my very first property, a delapitated two bed flat, for £51k. I lived in it for about 4 years, doing it up to a good standard. Sold it for £145k and bought a (very tatty) house in a fantastic area for £190k. Did this up and sold it 3 years ago for £415k...

    My current house also needs modernising, but had to be good enough to live in as I now have two lil' kiddies. The first flat could only be tolerated by myself... The second house (now married) needed a couple of months work before we could move in - thankfully the in-laws were easy going.

    So, if you can hack the mess, it ca be done! :)
  6. Bitty

    Bitty New Member

    Just seen your other post.

    Yes, when you ultimately sell the rented houses you will pay tax on the gain you've made. However, if left long enough, the house will have hopefully paid for itself - perhaps even giving you a small income along the way - so you shouldn't have any mortgage to repay (in theory :() It's definitely a longer term project.

    'Fraid your idea of 'you each only own half the house so...' doesn't work as it would clearly also apply to everyone else too!

    I've always wanted to be in the position of having enough cash to own my main house outright, and also have enough to buy a second place. The idea then would be to live in one (main) while refurbishing the other. With no mortgage on either, this could be done without pressure of time. When done up, sell main house and move into the refurbished one. Repeat!

    Unfortunately, with two kiddies, that plan has gone out the window (expensive lil' bu@@ers... :(). The nearest I've got is my current situation: house bought outright - no mortgage - and enough cash in the bank to a) do it up and b) keep food on the table! Just sent the wife out to work part-time (which I should add she did voluntarily...); I refurb in the mornings and look after kids in the afa' - I really can't complain!
  7. rama

    rama New Member

    The house that we currently live in has had a lot of work done on it, and whilst it only drives me a little bit mad it drives my better half crazy. Her dad was continually knocking things down and building them up again when she was growing up, so sometimes she feels that she has only lived on a building site. It is a shame about the owning 2 halfs of 2 houses as to me this seems pretty fair. I gather then that you are also not able to put our nice house 100% in her name and for me to have the other house in my name, do it up and sell it. I guess that because I would not be living there then I still have to pay my CGT even though it was my only house. Of course if we were to break up then one of us could be stuffed!
  8. Bitty

    Bitty New Member

    In theory you can do that. Obviously, you take the risk of herself telling you to 'sling your hook' once she has the house in only her name (I mean, what else does she see in you? Only kidding... :))

    You probably would get away with it, but if you don't, well :(

    Also, if you were to do it up quickly (which you'd probably want to) and sell it on, it might raise suspicion that you were doing this only for profit. I honestly don't know how likely it would be for you to get caught doing this - possibly not very. I guess you could always argue that you were selling your newly done-up house 'cos you just realised you couldn't live apart from herself any longer...

    There certainly is money to be made in property, but it's not as straight-forward as many people think. Chosing the right property is probably the single most impostant factor - if you were to anticipate an up-and-coming street or area, it could be a good move.

    The safest way is the way I did it, but you need to have a tolerant partner (or no partner at all as with my first flat :()

    If you do decide to put house 'one' in only your partner's name, then as soon as you buy another place, change your bank details, etc, to that address to make it seem more ligit.
  9. Jimbo

    Jimbo Screwfix Select

    What I mean by protecting yourself, is that you protect yourself from being sued personnally if something goes wrong. Obviously the bank would want personal guarantees from the directors and probably a charge over their own home, unless the company had plenty of other assets.

    Also look at the tax. Small companies rate is 19%, CGT is 40% although you do have a small annual exemption.

    You also need to consider VAT - sorry I don't know enough about this area to give any proper advise.

    I think you really should get away from the "we'll beat the tax man" mindset, this will only get you fines and interest to pay at best, and possibly much worse.

    As with anything in business, if its worth doing, it is worth doing properly. If you earn the money, you pay the tax. Look at it this way - the more tax you pay, the better off you are!

  10. superstripper

    superstripper New Member

    I seem to remember an accountant advising me once that there are only VAT benefits now if the property being renovated is listed, or if the property is a new build, but I'd be interested to hear if this is still the case. There was something else about not paying VAT on building work on extensions if the "new part is not physically connected to the old". Never really made much sense. The other advice given was that sometimes sellers of property get jittery when they see it is a ltd company that is buying their property, and could put up the sale price accordingly.
  11. rama

    rama New Member

    I am not trying to "beat the taxman" - more over do things sensibly and know what my options are. There is nothing more I like doing than handing over a high proportion of my earnings to a government that I don't want only for them to pi55 it away on stuff that I don't agree with or want.
  12. Jimbo

    Jimbo Screwfix Select

    couldn't agree more :(
  13. ­

    ­ New Member

    The only tax free way to do this is to live in the house you are renovating as you do the work. A mate of mine has done this for about the last 15 - 18 years and, after about 8 house moves, now owns a property worth £2.5m+, all paid for. He's in his mid 40's.

    He now just builds new single houses or pairs as he wants and lives a very comfortable life. He's given up the renovation game as he's made his money and doesn't want to be living on a building site anymore.

    Paying 40% tax on your profits is really making the whole thing unviable imho. You take all the financial risks and carry out the work just for the gvt to take it and spend it on pikeys.
  14. Cornish Crofter

    Cornish Crofter New Member

    As opposed to buying and reselling at a profit, we have successfully bought a number of properties over the years for renting out.

    The first property we bought was a flat for £13,200 in Plymouth simply to cut our teeth. We did have a few financial headaches with a complete loser of an agent, who gave us two nightmare tenants in a row!

    It was then we learned the value of finding and recognising a good letting agency from one who shouldn'tbe trading. The second agent set about evicting the 2nd problem tenant on my instructions, and with a bit of encouragement from me. Believe me, it's a sobering experience when you have to clear up loads of mess, including used syringes, with needles from dustbin ares etc.

    The fees paid to a good agent are worth every penny. The agent is just up the road from the flat and costs me around £40 a month. It would have cost me more than that just to go and see the tenant once.

    The flat is still ours and, although the rent hasn't gone up much over the years, the value is around £80,000, representing a profit of around £65,000 over 7 years or so.

    The second was a one bed cottage in a dire state of repair. The property was uninhabitable and needed complete gutting before we could let it out. With the benefit of hindsight we should have got the work done by someone else. Instead I did almost all of it during evenings and weekends. That property took me 3 years. The interest payments plus the lost revenue from rent would have easily paid for a team of builders to go through it like a dose of salts, but I did learn a hell of a lot about building - probably most of what I know now!

    That is now rented out too, and I have enjoyed a healthy capital gain. The mortgage interest payments and the repair costs (not upgrade costs) have been offset against the rent received for tax purposes. Negotiation with my neigbours here has secured vehicular access and eliminated an assumed pedestrian right of way through the garden. At some point I hope to extend this property adding at least one and possibly two bedrooms. Hence the new kitchen layout I decided on would lend itself well to a 3 bedroom house.

    Whilst we were working on this, an opportunity presented itself to us to remodel the downstairs of the house we were in at the time, thereby impoving our lifestyle and increasing its value. We ended up combining our kitchen and dining room into a large kitchen diner. The house was built in around 1980 with a serving hatch between the two rooms. Nowadays there is a big demand for kitchen diners, not separate rooms.

    As I am now self employed, it made perfect sense for me to carry out most of the work to our recent property. It took me around 8 weeks on my own to renovate the ground floor of this one, fit a new kitchen, bathroom and central heating. My clients were just reorganised around the project!

    The house we live in is our current project. This will probably be converted to two properties, each with 3 reasonable sized bedrooms.

    What have we learned

    Recognise the realistic potential with a property.
    Be able to quickly assess the structural condition of a property.
    Assume that all wiring and plumbing is probably completely shot, unless you can satisfy yourself to the contrary.
    Take a good look at the house that you have. How can you inrease its value with minimum outlay? Any profit made here is potentially free of CGT.
    Be realistic with timescales. Good financial planning depends on this. We learned that not being able to rent out one house when we hoped does put a strain on the finances. General rule of thumb - add 50% to the estimated time elapsed for known work, then there's the unknown.
    Make friends with the Building Control Officers. I am on first name terms with ALL the BCOs at the local council, and some of the planning officers.
    Keep on good terms with the neigbours. I know of one person who has overdeveloped (IMO) his property. He is likely to receive little neigbourly help to further his ambitions whilst he is there.
    Cast the net wide when it comes to ideas. My wife is much better at making design decisions than I am, although we discuss ideas and approach projects as a partnership.
    Keep an eye on profits. One property of ours is subject to a "maintenance charge" payable to my business. That legally adjusts the profits to make best use of personal allowances.

    I suggest you have a read of a few issues of Property Ladder as well.

  15. furious_customer

    furious_customer Active Member

    I think the above post should be deleted - looks like an SEO company trying to build links.
    rogerk101 likes this.

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