Accessing Finance for project to refurb a property and sell it on...

Puzzled89

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Hi - I have a family background in construction so have contacts for renovations etc. I currently own my own home which I purchased and renovated myself. There is now a similar property 2 streets away that I would like to purchase and do the same however all the pillar banks have said no due to income ratios. Is there any institution or product on the Irish market that can help me?
 
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RedOnion

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It's unclear what exactly you are proposing.
Are you looking to buy an investment property to hold long term, or to renovate and 'flip' the property quickly?
They are 2 completely different things from a lenders perspective.
 

Puzzled89

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It's unclear what exactly you are proposing.
Are you looking to buy an investment property to hold long term, or to renovate and 'flip' the property quickly?
They are 2 completely different things from a lenders perspective.
Thanks for the reply - the aim would be to flip within 18 months.
 

RedOnion

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Then you're looking for business lending, not an investment mortgage.
Unless you've got a history of doing it successfully, and about 50% deposit, the banks won't be interested. There are private finance options, but it's expensive, and really only for high value stuff.
 

Puzzled89

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Then you're looking for business lending, not an investment mortgage.
Unless you've got a history of doing it successfully, and about 50% deposit, the banks won't be interested. There are private finance options, but it's expensive, and really only for high value stuff.
Thanks - what would the private finance options be or where would I find information on this? Its €350k house price I am looking for .
 

RedOnion

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Wealthy individuals, or pooling together with friends. It's too small for non bank lenders to be interested.

How much would the house be worth fully renovated?

It's a lot more difficult than people think to make money flipping houses. Where people make profit, most of the money made is from a general uplift in prices rather than value you've added.
And you are carrying out a trade, so any profit is subject to income tax.
 

Pinoy adventure

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Wealthy individuals, or pooling together with friends. It's too small for non bank lenders to be interested.
would the wealthy individual or group of friends have too pay interest on any return earned on there investment ?
Roughly what % of a return would they expect on the OPs price of 350k ?
 
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Puzzled89

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Wealthy individuals, or pooling together with friends. It's too small for non bank lenders to be interested.

How much would the house be worth fully renovated?

It's a lot more difficult than people think to make money flipping houses. Where people make profit, most of the money made is from a general uplift in prices rather than value you've added.
And you are carrying out a trade, so any profit is subject to income tax.
Thanks for your reply - conservative estimate would €450k.

Point on tax taken - it may be better to purchase and hold but as I don't have €100k I don't think any of high street banks are interested.
 

Puzzled89

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Yes roughly €25k (gutting ,skips ,rewiring, plastering, plumbing , painting , furnishing ) and a lot of my own personal labour/time plus finance/mortgage payments for 6 months. As mentioned above I did it on a house 2 streets away already and have contacts to complete the work. Only issue is acquiring finance to purchase property - after that I don't see any huge issue - I know the area very well and have good estate agent to get tenants if holding as investment.
 

RedOnion

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If you can add 100k value for 25k, you should be renovating houses for people and charging them, and no financial risk to you.

You're missing at least (outside the actual renovation costs which look very light to me - I'd be expecting you to be increasing the BER rating to add 100k value, so replacement windows, doors, insulation, boiler, etc might factor in. A 450k house needs a decent enough kitchen):
Stamp duty on purchase: 3.5k
Legal fees on purchase: 2k
Legal fees on sale: 1.5k
Estate agent on sale: 6k
House/Site insurance: 1k
Interest at 8% for a year until you sell and close: 28k

There's a reason every small builder in the country isn't doing this.
 

Gordon Gekko

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Alternative lenders wouldn’t look at a deal that small.

For something like this on a bigger scale, you’d be paying double digits in terms of an interest rate plus a chunky enough arrangement fee.

But let’s imagine they would. Say 12% of the loan amount plus a 2% arrangement fee. That’s €50k of the €100k ‘profit’ gone straight away. And that’s if you get it all done and sold within a year. Add the €25k cost which sounds light to me and you’ve €25k less tax which could be €8k or €13k, so let’s call it €10k.

So all going to plan, you might make €15k with all of that downside risk. And we haven’t even looked at legal costs, estate agent costs, or stamp duty. So, in all likelihood, even with a fair wind, you’d lose money. As the Dragons would say, “I’m out”.
 

Puzzled89

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Alternative lenders wouldn’t look at a deal that small.

For something like this on a bigger scale, you’d be paying double digits in terms of an interest rate plus a chunky enough arrangement fee.

But let’s imagine they would. Say 12% of the loan amount plus a 2% arrangement fee. That’s €50k of the €100k ‘profit’ gone straight away. And that’s if you get it all done and sold within a year. Add the €25k cost which sounds light to me and you’ve €25k less tax which could be €8k or €13k, so let’s call it €10k.

So all going to plan, you might make €15k with all of that downside risk. And we haven’t even looked at legal costs, estate agent costs, or stamp duty. So, in all likelihood, even with a fair wind, you’d lose money. As the Dragons would say, “I’m out”.
What is the downside risk? Left with an asset worth €450k that cost €350k that would rent out at €2,500 a month.... Very short term view above and €15k/20k after tax isn't something to be sniffed at for a years work parttime.
 

Puzzled89

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What is the downside risk? Left with an asset worth €450k that cost €350k that would rent out at €2,500 a month.... Very short term view above and €15k/20k after tax isn't something to be sniffed at for a years work parttime.
Also - I haven't mentioned above but I earn enough in PAYE to cover the renovation costs and also the monthly mortgage payments - so could cashflow for a significant period worst case scenario. Issue is the acquisition finance...
 

Baby boomer

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Have you thought of getting a partner involved? He puts up the cash, or most of it. You contribute the expertise, labour and project management. You agree a mutually satisfactory split of the profits.
 

Gordon Gekko

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What is the downside risk? Left with an asset worth €450k that cost €350k that would rent out at €2,500 a month.... Very short term view above and €15k/20k after tax isn't something to be sniffed at for a years work parttime.
Short-term view? :)

If you’re going to have a go at someone’s view, at least get your numbers right.

Excluding legals (say €5k), stamp duty (€3.5k), and estate agent’s fees (€6k), the OP might make €15k based on his projections.

That’s a net €500.

And if prices fall, the OP could end up losing money!
 

Puzzled89

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Have you thought of getting a partner involved? He puts up the cash, or most of it. You contribute the expertise, labour and project management. You agree a mutually satisfactory split of the profits.
Thanks for the reply - that's is a good idea however I am open to suggestions how to find someone like this- who trusts me and I trust?
 

Puzzled89

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Short-term view? :)

If you’re going to have a go at someone’s view, at least get your numbers right.

Excluding legals (say €5k), stamp duty (€3.5k), and estate agent’s fees (€6k), the OP might make €15k based on his projections.

That’s a net €500.

And if prices fall, the OP could end up losing money!
Such is life "Gordan Gekko" Such is life
 

Gordon Gekko

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Such is life "Gordan Gekko" Such is life
I was taught many moons ago that investments that at best deliver nothing and worst case scenario lose money are best avoided. Call me old fashioned, but €15,000 (or €500) isn’t much of a return on €450,000 and doesn’t leave much room for error.
 

Puzzled89

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I was taught many moons ago that investments that at best deliver nothing and worst case scenario lose money are best avoided. Call me old fashioned, but €15,000 (or €500) isn’t much of a return on €450,000 and doesn’t leave much room for error.
If you’re going to have a go at someone’s view, at least get your numbers right. - Investment is €350,000 - at best an asset worth €450,000 at worst a newly renovated 3 bed semi in Dublin.

Point taken that may need to hold house until renovation costs paid back by rent.
 
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