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A friend got made redundant just over a year ago.He had worked for the same company for twenty years and got weighed out with about an £80 package.He was offered a job immediately but at around half his salary and he asked me if I thought he should take it or buy a house and renovate it.

My advice based on the fact that he is a very practical sort of chap was to have a go as,after deductions and expenses the new job would only be worth around £15k. He bought a bay fronted terrace at auction for £77k and spent £15k and a whole year renovating it.He made an amazing job and it is now the best house in the road.He just sold it for £115k and reckons that all things taken into account he has made just short of £20k.He admits that he made 1030 starts and 430 finishes so probably far fewer hours that the other job would entail.

He has been out looking for another property this week and he reckons that the market is totally overloaded with nothing moving.He looked at a similar house and the agent admitted that they have not had a viewing since the autumn,despite having reduced it from £109,995 to £99,995. I suggested a bid of £75k.

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A friend got made redundant just over a year ago.He had worked for the same company for twenty years and got weighed out with about an £80 package.He was offered a job immediately but at around half his salary and he asked me if I thought he should take it or buy a house and renovate it.

My advice based on the fact that he is a very practical sort of chap was to have a go as,after deductions and expenses the new job would only be worth around £15k. He bought a bay fronted terrace at auction for £77k and spent £15k and a whole year renovating it.He made an amazing job and it is now the best house in the road.He just sold it for £115k and reckons that all things taken into account he has made just short of £20k.He admits that he made 1030 starts and 430 finishes so probably far fewer hours that the other job would entail.

He has been out looking for another property this week and he reckons that the market is totally overloaded with nothing moving.He looked at a similar house and the agent admitted that they have not had a viewing since the autumn,despite having reduced it from £109,995 to £99,995. I suggested a bid of £75k.

I hope he is paying his tax on the £22K.

a lot of effort and risk for £6K...less tax.

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A friend got made redundant just over a year ago.He had worked for the same company for twenty years and got weighed out with about an £80 package.He was offered a job immediately but at around half his salary and he asked me if I thought he should take it or buy a house and renovate it.

My advice based on the fact that he is a very practical sort of chap was to have a go as,after deductions and expenses the new job would only be worth around £15k. He bought a bay fronted terrace at auction for £77k and spent £15k and a whole year renovating it.He made an amazing job and it is now the best house in the road.He just sold it for £115k and reckons that all things taken into account he has made just short of £20k.He admits that he made 1030 starts and 430 finishes so probably far fewer hours that the other job would entail.

He has been out looking for another property this week and he reckons that the market is totally overloaded with nothing moving.He looked at a similar house and the agent admitted that they have not had a viewing since the autumn,despite having reduced it from £109,995 to £99,995. I suggested a bid of £75k.

It seems a very low level of profit, which is fine if he enjoyed doing it, etc. However, I'd be nervous that the profit could easily turn into a loss - especially buying this year... no viewings on 99k, 15k doing up costs, plus a min of 20k profit = 90-35 = 55k. Call it 50k since he deserves a pay rise.

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I hope he is paying his tax on the £22K.

a lot of effort and risk for £6K...less tax.

I think the 20k is after subtracting the doing-up costs (I assume your 6k is 20k - costs).

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I think the 20k is after subtracting the doing-up costs (I assume your 6k is 20k - costs).

no the poster said he netted 22K from the figures provided....less purchase costs, legals etc, and sales costs.

so its even less than I first posed.

no my 6K was the bonus he had from not taking the 15K job. should have said 8K.less the legals and fees of buying and selling.

EDIT heres the arithmetic

sold 115-costs 15- purchase 77 = 23 net.

job was 15. bonus = 8

less legals and fees.

Edited by Bloo Loo

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no the poster said he netted 22K from the figures provided....less purchase costs, legals etc, and sales costs.

so its even less than I first posed.

no my 6K was the bonus he had from not taking the 15K job. should have said 8K.less the legals and fees of buying and selling.

EDIT heres the arithmetic

sold 115-costs 15- purchase 77 = 23 net.

job was 15. bonus = 8

less legals and fees.

He actually cleared £19,500 after all legal and agents fees.I don't think that you can look at it that way as he has most likely worked a 25-30 hour week whereas the job, including travel,would have been 45-50 hours.The point is that he was able to this in 2009-2010 but I think that it won't be possible in 2011 unless he can steal somewhere. It's a Suffolk town BTW.Bit run down.

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Fair dues.

It's possible to turn a profit if you improve a property, even in a weak market. He's improved the housing stock and if he has profited from his work then good for him.

Of course it will be harder and harder to perform the same trick.

As a new property investor, I can congratulate him on gross an annual salary of £19k. So the average house is only about 10 times his current salary.

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Fair play to the bloke for creating his own employment. However, it is very, very high risk isn't it? What if he does another one but this time it takes 6-9 months to sell after putting it on the market? Also what does he live on whilst doing up the house?

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Bloo Loo makes a salient point here. He has Capital Gains Tax to pay.

From the Government website:

Tax on property that's not your main home

You will normally have a chargeable gain if your property is worth more than you paid for it when you sell or dispose of it. However, the first £10,100 of your total taxable gains are tax free (for the tax years 2009-10 and 2010-11).

It's worth bearing in mind that:

•when working out the chargeable gain you can deduct some of the costs of buying, selling and improving the property

•if you have made a loss on the property, you may be able to set that off against other chargeable gains you may have

•if you are living together you can transfer property to your husband, wife or civil partner without having to pay Capital Gains Tax

•if you give it or sell it cheaply to your children or to others, you may be liable to pay Capital Gains Tax

Source: http://www.direct.gov.uk/en/MoneyTaxAndBenefits/Taxes/TaxOnPropertyAndRentalIncome/DG_4016337

Given the information supplied and assuming (for the sake of argument) that all costs can be deducted, he will have a CGT liability on £9,400.

Prior to June 2010, CGT was payable at a rate of 18%. After that, it was changed to 28%.

So, depending on the sale date, he owes HMRC either £1,692 or £2632 as a minimum.

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He probably declared the property his principal residence during the renovation. This avoids all capital gains tax.

During the boom years property development benefitted from both a rising tide floating all boats, and massive tax advantages: no CGT, no income TAX, no VAT. (Although VAT had to be paid on marterials used.)

Now the tide is going out and you're swimming against the stream. But he doesn't need a mortgage so he's in a strong position to keep going. The tax advantages are still there. It's just a question of adding more value than the market is losing.

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What about the mortgage interest costs whilst doing it up too?

Seeing as he didn't have a job I would assume he bought for cash? Or some serious liar loaning going on?

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It's just a question of adding more value than the market is losing.

If the market falls off a cliff, that will be virtually impossible. I dunno. This sort of project during anything other than a static or booming market looks far too risky for a very low yield.

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Seeing as he didn't have a job I would assume he bought for cash? Or some serious liar loaning going on?

He got £80k redundancy. I assume he bought the property with this. Also factored in has to be any interest he has lost from the £77k that he would otherwise have received if it was in the bank over the year (£2300?)

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He probably declared the property his principal residence during the renovation. This avoids all capital gains tax.

During the boom years property development benefitted from both a rising tide floating all boats, and massive tax advantages: no CGT, no income TAX, no VAT. (Although VAT had to be paid on marterials used.)

Now the tide is going out and you're swimming against the stream. But he doesn't need a mortgage so he's in a strong position to keep going. The tax advantages are still there. It's just a question of adding more value than the market is losing.

Indeed. But did he do that?

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He got £80k redundancy. I assume he bought the property with this. Also factored in has to be any interest he has lost from the £77k that he would otherwise have received if it was in the bank over the year (£2300?)

The OP said he got an £80 redundancy package. But I'm assuming now he meant £80k

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He got £80k redundancy. I assume he bought the property with this. Also factored in has to be any interest he has lost from the £77k that he would otherwise have received if it was in the bank over the year (£2300?)

Yes that's correct.The whole point of this exercise was because of his redundancy and that he really didn't want to do this humdrum job for £15k. This guy really is a perfectionist though and the quality of his workmanship is of the very highest order,so yes he has added the value himself by virtue of his hard work.He's not a straightforward speculator,rather more a self employed craftsman for the year,and I have to say that if I was spending £115k it's a house that I would be happy to live in.

My real point however it that even with his skills and having the finance he doesn't think that the market is such that he can do it again.So if you had to borrow the money and pay for the work what chance then?

Edited by profitofdoom

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Yes that's correct.The whole point of this exercise was because of his redundancy and that he really didn't want to do this humdrum job for £15k.

So he's now been out of the job market for a year and is unemployable?

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So he's now been out of the job market for a year and is unemployable?

He's 58 and in a very specialist trade too.One that itself is in the doldrums,hence his redundancy.I think he can probably take the £15k job anytime he likes because he would be a bargain to them.But yes,he is unemployable anywhere else by virtue of his age.

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no the poster said he netted 22K from the figures provided....less purchase costs, legals etc, and sales costs.

so its even less than I first posed.

no my 6K was the bonus he had from not taking the 15K job.

But how do you know that doing up the house was more "effort" than taking the other job?

(I'll concede the "risk" part of your earlier statement)

tim

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Yes that's correct.The whole point of this exercise was because of his redundancy and that he really didn't want to do this humdrum job for £15k. This guy really is a perfectionist though and the quality of his workmanship is of the very highest order,so yes he has added the value himself by virtue of his hard work.He's not a straightforward speculator,rather more a self employed craftsman for the year,and I have to say that if I was spending £115k it's a house that I would be happy to live in.

My real point however it that even with his skills and having the finance he doesn't think that the market is such that he can do it again.So if you had to borrow the money and pay for the work what chance then?

"doing up a house" for profit is always a risk.

There is usually much more certainty of returns by buying a property and reconfiguring it as "more" units than it started out as.

Provided, of course, that there is demand for the smaller units in the particular location, cutting up a 4 bed detached in a cute village is not going to work!

tim

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  • 312 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
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      • Even
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      • up 5%



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