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My idea

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  • My idea

    I'm a complete novice, so everything I'm about to say is based on my very limited knowledge, and lots of ignorance, although I've been doing some reading.

    My mum has a 2 bed flat (in a block of flats) that she bought a few years ago for about 80,000. I'm assuming that it's now worth about 100,000. She also has 50,000 saved up. She wants to leave that to me, and her flat too.

    My idea is this :

    She sells her flat for 100,000. Now she has 150,000.

    Out of that, I/she/we buy a 1 bed flat for 120,000, and put aside 20,000 (inc. contingency) for renovating it, and I live on the remaining 10,000 for 1 year (that's not a problem).

    I do up the flat, and sell it for (don't laugh, I can only estimate, and I know very little about this so this might not be realistic) 175,000. So, profit = 35,000 (20% of the resell price).

    Out of that, I then take another 10,000 for myself to live on (or at least just put it aside). Out of the remaining 165,000, I buy another property for 145,000 and spend 20,000 doing it up.

    And so on.

    That's the basic idea, and I'm obviously using very rough figures and I know that there are things that I've not taken into account, but I'd just like some feedback on the basics of this concept. Just an idea of how doable and realistic it is, and any suggestions of how to tweak it if necessary. Thanks.

  • #2
    Re: My idea


    To be honest, when I first read your post I found it quite mind-boggling! My first reaction was: why don't you just use your mum's £50k cash (or, say, £40k of it) as a deposit and get a mortgage? That way your mum wouldn't have to move (unless she wants to of course) and it would be a lot less complicated.

    If that's not something you want to do then I think more information is needed on the practicalities of how your idea would work i.e. where would your mum live, do you have a job already etc.

    I also didn't think your calculations quite added up.

    Anyway, I'm sure more qualified people than me on here will be able to advise you given the right information.


    • #3
      Re: My idea

      A mortgage isn't an option at all. My credit rating, as far as I know, isn't too good, and even if it was, I would never, if I could avoid it (which luckily I can), bother with mortgages, ever. My mum wouldn't get a mortgage as she's retired, and she too has never and would never bother with mortgages. She bought her flat literally with cash saved over many years (and the sale of her last place).

      My mum would rent a flat.

      In what way do my calculations not add up? What have I misjudged? And is this idea, in principle, a good one?


      • #4
        Re: My idea

        What makes you think that you can buy for £120,000 and sell 1 year later for £175,00 in this present economic climate? What is it that you are doing within the refurbishment that adds that value?


        • #5
          Re: My idea

          Having £150k capital would certainly be a good start. However, I would advise caution and maybe not use all of it to start with, just in case things don't go the way you think they will.

          Are you saying that you wouldn't sell the refurbished flat for a year? Why not sell it as soon as it's ready? That way you could do 2 or 3 a year and build up your profit gradually. I agree that you'd be unlikely to achieve anything like £175k on a 1 bed flat you bought for £120k, although this obviously depends on where it is? What area are you thinking of developing in?

          You said that your profit would be £35k but if you started with £150k and resold for £175k isn't that a difference of £25k? Or are you saying that out of the £20k you'd put aside, you'd only use £10k of it?

          There's nothing wrong with your idea, afterall it's how all developers do it who choose not to rent out their properties! But you have to be realistic about potential re-sale values and, believe me, it's hard work and constantly buying and selling is quite stressful. It's true what they say that you make your profit when you buy not sell.

          Anyway, if you do decide to go ahead, I wish you good luck. Also, make sure you do your research before you buy anything.


          • #6
            Re: My idea

            Buildingplans :

            It's my total naivety that makes me think that I can buy a flat for 120,000 and then sell it for 175 after spending 20,000 doing it up. I'm here to learn. What would be more realistic?

            What would I do to add value to the property? I wish I knew. Any ideas on what adds value to a property and how much to spend?

            Kaz :

            It's not that I wouldn't sell the flat for a year. I'd sell it asap but it's good to have a year's worth of living expenses just in case.

            I don't know what area to buy in, I'm looking into that.

            The reason why I said that my profit would be 35k is because : 120k + 20K for doing it up = 140k, and if it were to sell for 175, that's 35k profit. I totally realise that there are buying and selling costs, but for now, I'm just using basic figures because I like to look at concepts first, to see if it's doable in principle. I've only been researching this for a week, so my guesses aren't very educated.

            I wouldn't want to be constantly buying / renovating / selling. Just maybe 2 a year. I don't know.


            • #7
              Re: My idea

              Yes, sorry, you were right, I was including the £10k living expenses!

              With £140k cash of course it's 'do-able'. I only wish I had that much when I started!

              What part of the country do you live in?

              Do you already have a job that you will have to fit developing around or can you devote all your time to it?

              Do you have any skills yourself or will you be relying totally on tradesmen?


              • #8
                Re: My idea

                Hi there,

                I'd say you need to be very careful about getting too excited about this before getting your facts and figures absolutely right.

                Your £35k profit is dubious because you are probably being optimistic about the amount of value you can add to a 1 bed flat unless it is in a very poor condition when you purchase it, but then £20k to spend renovating a flat is a large budget when the place only has maybe 3 or 4 rooms so this may be a little over-estimated unless you plan to go for the luxury end of the market. If you are thinking of doing that then do your research regarding re-sale values very carefully.

                You are also glossing over other important factors such as buying and selling fees, which you have acknowledged but haven't accounted for, and also the fact that each time you buy and sell you are planning to draw £10k from the profits for your living expenditure for the following year.

                This means that to be making a real profit when you sell you need to get back the original purchase price of the property plus the cost of renovation, the cost of buying and selling, your living expenditure and some profit on top.

                It's not going to be easy, in many ways, and in an unstable property market with an uncertain future there's a lot at stake if it goes wrong.

                I'm not saying don't do it, but get your fact and figures straight, do stacks of research regarding costs, re-sale values, the market in your area, what's selling and for how much etc etc.

                Then, and only then, think seriously about the risk you are taking on and make your decision.
                Property for sale in Torquay



                • #9
                  Re: My idea

                  I would just like to commend your general enthusiasm and entrepreneurial spirit.

                  Its always a pleasure to hear people thinking creatively and carving out their own path.

                  Experience tells us its hard if not impossible to predict time-frames for such ventures, especially if you're going it alone as it were. Refurbishment projects evolve by their very nature and plans have to adapt and evolve with them. So an understanding of this is essential.

                  Also in terms of forces beyond our control an ever changing property market needs to be taken into account.

                  Obviously these are general points, but I wish you success if you do decide to go in this direction.
                  East Sussex


                  • #10
                    Re: My idea

                    Originally posted by pearson View Post
                    She also has 50,000 saved up. She wants to leave that to me, and her flat too.
                    In which case, leave it at that, as you are under the Inheritance Tax threshold.

                    However, if your mum were to give you any significant sums of money, even before death, you are inviting a tax liability, even if she dies some years afterwards.

                    Overall, I think you should look at some other way of making money, using your own money instead of your poor mum's, and change your attitude about financial management - someone who claims they can't be bothered with a mortgage and additional claims a poor credit rating, is not giving out a very good business signal in the first place.

                    Just 2c.