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BillyShears

Flipping Versus Speed Of Sale

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Something I just thought of concerning flipping houses.

If the purchaser has to use a mortgage to buy the house, then they have to pay interest payments on that mortgage between the time they buy it and when they sell it. That must erode into their profts. Fine when houses are "flying off the shelves", but when houses are taking a year to sell. Assuming a 150K mortgage on a property, then if it takes a year between purchase and sale, that's £7500 in interest charges, not including costs of setting up and clearing the mortgage. A small amount in times when properties are going up 20% a year, but when prices are largely static, and margins likely to be smaller, more important.

I don't remember this being discussed in programs such as "how to be a property developer". Generally they had their budget, and "profit" made seemed to be the raw difference between purchase and selling prices.

Has this been glossed over, or have I just failed to notice it.

Billy Shears

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Guest Guy_Montag

Ideally you buy off plan for £1000, & sell on completion before you're asked for the money.

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Something I just thought of concerning flipping houses.

If the purchaser has to use a mortgage to buy the house, then they have to pay interest payments on that mortgage between the time they buy it and when they sell it. That must erode into their profts. Fine when houses are "flying off the shelves", but when houses are taking a year to sell. Assuming a 150K mortgage on a property, then if it takes a year between purchase and sale, that's £7500 in interest charges, not including costs of setting up and clearing the mortgage. A small amount in times when properties are going up 20% a year, but when prices are largely static, and margins likely to be smaller, more important.

I don't remember this being discussed in programs such as "how to be a property developer". Generally they had their budget, and "profit" made seemed to be the raw difference between purchase and selling prices.

Has this been glossed over, or have I just failed to notice it.

Billy Shears

I have watched a number of Sarah Beeny's programs where it is made very clear the 'developers' have made a loss taking into account the things you have mentioned.

Oddly, it does not seem to have diminished anyone's appetite for renovating 2up 2down terraces. They see the odd program where it is equally clear someone has made 75k by extending and renovating a property in the right location and they assume they will fall into that category. An odd mindset. As odd as the one prevalent on here.

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No, you're completely right.

They tend to ignore transaction costs of buying and sellingas well as any possible CGT, thus inflating the notional profit. They also tend not to factor in the time costs - if you were doing this yourself and putting in four weeks or eight weeks work on a property you would be better off allowing a "wage" for the time when working out your real profit.

I'm sure you can still make a profit this way sometimes, but it's probably not the easy lottery win the programs suggest.

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I have watched a number of Sarah Beeny's programs where it is made very clear the 'developers' have made a loss taking into account the things you have mentioned.

I must have missed, or failed to remember, those ones.

Oddly, it does not seem to have diminished anyone's appetite for renovating 2up 2down terraces. They see the odd program where it is equally clear someone has made 75k by extending and renovating a property in the right location and they assume they will fall into that category. An odd mindset. As odd as the one prevalent on here.

For renovating two beds, "Irrational exuberence"?

For here? Well I'm seeing prices fall in the place where I live. Is it really an odd mindset for me to think that it's quite likely that houses are going to continue to fall around here given that current prices do not seem sustainable by any calculation?

Billy Shears

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Guy in work has just bought a house.

After lots of negotiation got it for £126,500 with vendor paying stamp duty. It turns out that the guy bought the house 12 months ago for £125,500 and has paid for new windows, kitchen, driveway, GCH, skimmed walls etc.

Plus 12 months payments on a 100% Mortgage!!!

Reckon thats a LOSS of about £18K myself :blink:

TB

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  • 301 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% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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