first time developer

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camrock

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I am looking at purchasing a house with a large garden. The house also has a garage which has been converted to a 1 bed flat.

The house and flat while stucturely fine need modernising.I know from previous experience this will take 2-3 months to get right.
My intention is to attend to this work straight away while applying for planning permission for house no:2

The garden is sufficently big enough ot build a similar sized house(approx 1200 sq ft) in the garden, making it a smei-detached.

I have put together the following calulations, and am curious for your thoughts, - have i covered everthing.

The Price for the extension build was given by a builder friend, and can be done a bit cheaper through direct labour, but if i choose this root i will need self build insurance costing €2150.

I am also unsure about calculating the Vat implication on the build,and if i am renting out house 1 and flat do I have to charge vat on the rent.

I am allowing 12 months in total to have both houses ready for sale.

Purhase Price 250,000 -----------------Sale Price of 2 houses 490,000
Stamp duty @4% 10,000 -----------------------Less total costs 403,784
Upgrade existing prop. 30,000 -----------------------GROSS PROFIt 86,215
Legal ---------------3,000 ----------------Less Capital gains@20% 17,243
development Fee ------4,700 -------------------------------PROFIT 68,972
Build of house no 2 ---90,000 -----------Rental for 8 months @950/pm 7,600
12 mths repayments ---7,284 ---------------------------NET PROFIT 76,572
architects fees ----------800
estate agent fees -----8,000

TOTAL COSTS ------403,784
 
what happens if you don't get planning permission for house #2?.
 
I was planning on going interest only any way. The rent from the flat and house will more than cover interest only repayments. If i dont get planning i am in the same boat as nearly every one else buying investment property - waiting for capital appreciation.

I am quite confident i will get planning, i have already met a city planner. There is a number of similar dvelopments which have been approved, with one of them being complete.
 
camrock said:
I was planning on going interest only any way. The rent from the flat and house will more than cover interest only repayments.
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Even after tax and other expenses have been factored in? In the same vein have you crunched the numbers on this proposed investment to make sure that it's viable, that the potential benefits outweight the costs and that it is the most suitable investment of the available alternatives for your specific circumstances and needs?
 
brodiebabe I have used this fella before.He designed a house and looked after the planning process previously, so Im sure he will do it for the same again, as this time its more straight forward.

ClubMan I feel this is a good project, I am pretty confident of my failsafe if i dont get planning can carry me over as if it was a straight investment purchase.what other alternatives can give this sort or return. I appreciate it has an element of risk, but if it works it has a great return on outlay.

I still feel property is still where its at, if its in the right location.


"buy land, because god aint making any more of it"
 
seems you have a good idea of what you are doing-i would go fo it..

my father always said that about land as well, and its true.
good luck.
remember the little people when you are rich .
sudden.
 
Sudden thanks for reply.

Also looking @ 3 bed property expecting to buy for €165k with a rent of 650PM. already approved for comercial mortgage with bank @ 3.25% but have to put up deposit of 20%,while i can do this would I be better going to a different bank that will accept a 10% deposit, or using existing investment property as collateral. If i go for a 25 year annuity mortgage the repayments will be €645 PM, so i would have to pay insurance,etc out of my own pocket.This would be a yield of 4.72%, which i think is not bad.
The alternative is to go interest only where I would be paying only €368.56/PM.


looking forward to your thoughts.
 
camrock
i come here looking for advice too -so i am not an expert.
i am just like you ,using this forum as a sounding board.


personally-i would buy the 165k property using an interest only mortgage and use the difference between mortgage repayment and rental income to build up some cash savings that you could either invest or pay down the capital portion of your loan if that becomes neccessary.

also, have you looked at ulster bank rates, if you have a good ltv and switch to them you coud get a god rate.
sudden
 
Thanks Sudden

Just checked out Ulster bank on the web.It doesnt state that its for investment mortgages specifically, but it states the following 2.9% over 20 years @ < 60% ltv - 2.9%, 60-92% LTV 3.1%.

Also, under the folowing thread in property investment

which bank offers the best tracker rate for investment mortgages

Delgirl says shes on "2.95% tracker with BOI, LTV 92%".

This is very attractive if going int only,In my case i would only have to put up 13k rather than 33K, leaving 20k which I would use as a deposit on a further property.
 
For what it is worth would hold the 20k as a reserve rather than new property purchase in case of any cost overrun on the main project.
 
appreciate comment markowitzman.

I notice from your other threads you have a nice property portfolio.hope you dont mind me asking is property your main investment area, or do you balance it with shares and so on.
I know a few fellas that through caution to the wind a number of years ago and put every thing into property and are now fabolously wealthy, im talking at a guess 50-80 million.I am a good bit youger than these fellas,and believe property is safe for the next 2-3 years.I would like to dabble in shares but I dont feel comfortable with that sort of investing, then i hear Eircom jumped 15% in a few days and I go i might fancy a punt, but at the end of the day thats real gambling
 
Camrock,

As someone pointed out earlier, i would look at the construction price for the new house, 90k seems very low. What part of the country are you in? The 30k seems reasonable and you could be able to save something here. If your builder does the job for 90k i will be looking for his number.
 
ludermor

this property is in a regional town (outside dublin). €85 per SQ ft would be a good guide rate. I am doing it a bit less through my builder friend and direct labour. using some polish boys for the blocklaying. foundations I will get done through the builder. There are some very skilled eastern europeans in Ireland.I got my home tiled recently, and the quality of work was excellent, on a par with thier time keeping.
 
camrock
Suppose property mostly..........lowish loan to value now with appreciation so have gone interest only.
Shares yes via pension.
Don't bother with punts as a rule. If I really want a punt would buy a call option to limit potential losses and leverage gains.
Instead just buy a good diversification (i hope!) of etfs in an effort to outperform the 3% investment mortgage rate. Always try to max out on pension each year also.
In the long term (15yrs plus) this strategy has a good chance of outperforming the capital and interest approach with significant tax advantages.
The passive approach of etfs is hard to beat in the long term compared to active funds from the return and cost perspective.
Agree on Polish workers.
Best of luck.
 
:D i notice from the postings here that most people calculate their yield by dividing the value of house by rental income. maybe i am completely wrong but would it not make more sense to calclate yield by the amount of money you yourself invested in buying the house?

when calculating yield on property should i ignore total cost of house and instead say for example. return on 20k deposit on house worth 330k with rental income of 9200/year as opposed to saying 9200/year on property worth 330k? am i overlooking something?
or is the smoke from the hippies next door blowing in my direction again ?:D

sudden.
agree on the polish workers,they do good work and show up on time.
 
Sudden

Regarding yield, I like the way your thinking. In the case you described below it would mean a yield of 48%. That would give most property investors a luvely warm feeling inside.It would also stick it to equity investors.

However thats not how it works, unfortunately.
 
sudden said:
:D i notice from the postings here that most people calculate their yield by dividing the value of house by rental income. maybe i am completely wrong but would it not make more sense to calclate yield by the amount of money you yourself invested in buying the house?

when calculating yield on property should i ignore total cost of house and instead say for example. return on 20k deposit on house worth 330k with rental income of 9200/year as opposed to saying 9200/year on property worth 330k? am i overlooking something?
or is the smoke from the hippies next door blowing in my direction again ?:D

sudden.
agree on the polish workers,they do good work and show up on time.
Click to expand...

If you are going to look at the yield on your investment (deposit) then you would need to be looking at your rental profit (i.e. rent less interest and expenses) as a % of it and not the gross rent received.
 
thats what i meant, the real investment is your deposit, the rental yield minus tax etc is your return on your deposit, the house is just a means to an end - with the advantage that ,if you do your sums right, your tennants will effectively buy it for you.

sudden.
 
Because many people believe house prices can never fall, then you could justify a statement like yield = return/deposit as you will never be exposed to a risk of losing more than your deposit.

In the real world house prices do fall. In that world, yield has to take into account the full cost of the property (irrespective of the initial cash outlay) because the full cost is the investment you are risking in the hope of getting a return.
 
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