Can't make numbers work, can you?

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  • Can't make numbers work, can you?

    Hi all

    I've spent all day creating a new spread sheet which will allow me to calculate costs for 'buy to sell' and/or 'buy to hold' properties.

    I've used formulas based on funding the entire projects with bridging finance for 6 months (against an unencumbered property) with the option of either mortgaging at 75% LTV or selling after 6 months.

    Based on the numbers I've put in, it's almost impossible to make any money!!

    An example for consideration....

    Purchase cost £200k

    Legals (Solicitor / broker / estate agent sales) £3k

    SDLT £7500

    Refurb cost £30k

    Financing cost £18k

    Total spend £258,500

    House value when completed circa £260k

    That's profit of £1500!!! And that's providing you can find a property for £200k in the first place that could be sold for £260k...OK so that's buy and flip out!!


    Remortgage at 75% LTV gives funds of £195K

    I still have £64k left in the deal (just as well put £64k down and buy a property already refurbished)


    Following stress test of £195k mortgage - minimum rental required of £1300 pcm (145% @5.5%)
    Could only achieve around £1000 pcm (which would still make a PRE-TAX profit of around £400 pcm and 7-8% ROI) but this doesn't satisfy the lending criteria.


    Am I missing something here? What deals do you guys strike to make it work?? Is buying with cash at a massive BMV the only way you can do it?

  • #2
    You need to travel back in time to 2010 and buy then. Then the numbers work. They don't work today because of all the money that has been printed since then.

    Comment


    • #3
      You've forgotten the tax on profits.
      I am legally unqualified: If you need to rely on advice check it with a suitable authority - eg a solicitor specialising in landlord/tenant law...

      Comment


      • #4
        Funding based on the remortgage figures may still be possible. Currently there are a small number of lenders who operate a lower stress rate if a 5 year Fixed is taken out , not everyone's cup of tea but sometimes needs must, the issue is what is the rent going to be in say 5 years when the reversionary rate could be as high as 7%. An additional benefit could be the facility of Top Slicing the rental assuming the applicant(s) enjoy reasonable incomes.This itself could make up for any rental shortfall.
        It's not all doom and gloom but careful consideration has to be given taking a longer term view of funding options and as is often said what are the tax implications going to be!!

        Comment


        • #5
          well. you would need to find a cheaper purchase price.
          you always make money when buying, not when you sell.

          The problem is that this system (and numbers) are now national.
          I noticed this last year.

          I thought it was the local agents pushing up the prices to push the property developers out of the market, btu now that I have seen this, then its the market trend.

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          • #6
            I think the only people who have any chance of making money out of flipping are those that don't have any finance costs and if they can increase the property value by extending etc.

            On Homes Under the Hammer, often people appear to be making lots of money, but they often seem to be the ones who are buying high value properties and then extending etc.

            Comment


            • #7
              Originally posted by Valley_Commando View Post
              Is buying with cash at a massive BMV the only way you can do it?
              If you're trying to make a profit in a short period, probably, unless you're a builder (so the refurb is at cost).

              Buy to sell is not like buy to rent, so the growth in value is income, not capital, so the tax is tough (unless you wrap the transactions into a company).

              But to let is a longer term investment, where you are hoping for a long-term sustainable growth in the property value, while the rental income covers the cost of purchase.
              There aren't many investment classes where it's possible to finance the investment purchase with lending against the investment itself - so it's one of the only possible ways for someone without existing wealth can enter an investment class at all.
              But it's a long-term punt, not a get rich quick opportunity - despite what the TV property porn and property expert "seminars" tell everyone.

              Which is self-evident really - if it was possible to become hugely rich in property investment without large amounts of existing cash, a) why tell anyone else about the opportunity (it's a zero sum game) and b) who could be bothered making TV programmes or conducting seminars?
              When I post, I am expressing an opinion - feel free to disagree, I have been wrong before.
              Please don't act on my suggestions without checking with a grown-up (ideally some kind of expert).

              Comment


              • #8
                Originally posted by jpkeates View Post
                If you're trying to make a profit in a short period, probably, unless you're a builder (so the refurb is at cost).

                Which is self-evident really - if it was possible to become hugely rich in property investment without large amounts of existing cash, 'a) why tell anyone else about the opportunity (it's a zero sum game) and b) who could be bothered making TV programmes or conducting seminars?

                I've always had that opinion, why on earth would you waste your time doing seminars if you was making so much money in property?

                A friend went to a seminar once and came back with this phrase 'you make enough money to wash your face'. I couldn't stop laughing what on earth is that supposed to mean.....

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                • #9
                  Originally posted by Claymore View Post
                  A friend went to a seminar once and came back with this phrase 'you make enough money to wash your face'. I couldn't stop laughing what on earth is that supposed to mean.....
                  Not a fan of Bargain Hunt?

                  Comment


                  • #10
                    Only as rhyming slang...
                    Last edited by jpkeates; 20-03-2017, 11:51 AM. Reason: spelling
                    When I post, I am expressing an opinion - feel free to disagree, I have been wrong before.
                    Please don't act on my suggestions without checking with a grown-up (ideally some kind of expert).

                    Comment


                    • #11
                      Claymore is quite correct , such phrases beggar belief , instead of saying the rent is sufficient to meet the lenders stress calculations or the figures make it a viable proposition , the exclaimed version is" the deal washes its face"

                      Comment


                      • #12
                        To help Valley_Commander , I thought it might be of interest that whilst researching for a portfolio remortgage of 25 properties where the current terms are due to expire within the next 5 years and the borrower is nearing 70 years young , I came across 9 lenders who operate rental stress calculations for 5 Year Fixed Rate loans ranging from 120% @ 5.5% through to a middle calculation of 125% @ 3.49% and topping at 125% @ 4.49: given that there are numerous other lenders whose maximum age is 80 rather the 85 bench mark I set for the research, I am able to confirm that similar stress calculations are available. I do accept however that fixing for 5 Years is not to everyones liking.

                        Comment


                        • #13
                          Originally posted by Claymore View Post
                          I think the only people who have any chance of making money out of flipping are those that don't have any finance costs and if they can increase the property value by extending etc.
                          I would agree there!! How can it be that in this day of record low interest rates you cannot make any money? It's seems to me unless you have a huge wedge on your hip, the chances of making money out of property are precluded by tax tax and more tax. Additional 3% SDLT, a tax on a mortgage, Capital gains tax...the list seems endless. How on earth can you pay tax against a monthly rental income even if you've made a loss??

                          Big Phil makes a budget proposal where the self employed have to pay extra NIC's and the whole country is up in arms yet George Osborne can decimate the private landlord or small time developers and it's just excepted.


                          These really are sad times.

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                          • #14
                            I totally agree. I know loads of people in London & the likes hate landlords but to be honest my tenants say I'm great (& I choose to believe them) & I buy dumps that most people would walk away from. We had been happy covering our costs & having a bit of contingency over. However, we are going to be making a loss when the tax changes kick in. It seems you are being penalised for working hard, not buying fancy TVs or cars, investing your money & trying to build a pension for old age...bitter...a bit!

                            Comment


                            • #15
                              hopelesslydevoted,

                              this is just the way it is. you took risks by buying BTL and you have to accept them now. taxes are one of the biggest in property and always have been. tbh i dont have any sympathies for you. if you bought and would be making a loss on the tax changes you should never have bought as it shows the rental yield was not enough. a poor pruchase IMO.

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