Equity release - anyone know much about it?

Stan 24v

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Hi all

As above really, does anyone have any experience of it? I assume, judging by the amazing houses on this forum, that some of you will have, so it would be very much appreciated if I could pick your brains. Below is a post I submitted to the National landlords Association forum, please feel free to give any 'helpful' suggestions based on previous knowledge etc.

Thanks
Stan

Hi all

Not sure if this is the right place to post this, so if any mods want to remove then no worries.

My girlfriend and I currently live in a 3 bed terrace near Swansea. She bought it from family a few years ago and has circa £30k equity in the house. I am in the RAF and leave in just over 3 yrs, with a gratuity lump sum. We want to get into property development soon, with a long term plan of buying & selling and/or letting. We discussed waiting for my lump sum but then decided we should start earlier so that when I do get it, we're already on the way to realising our aims, which then means it will give us a nice financial boost when we do receive it.

So, we've had a look at properties in the area and there are plenty around, with good potential. I believe we could buy a house for £60-70k with a ceiling value £110-120k in the local vicinity. The advice we seek is how to go about releasing money to purchase and renovate one. Some options we've considered:

A) Sell the house outright, but and live in the new one whilst renovating.
B) Sell the house outright, buy a new one to live in and another to renovate.
C) Ask the mortgage provider / bank to release equity from the house therefore stay where we are but increase the mortgage.
D) Take out a loan - not sure if this is a good idea, or even allowable.
E) Form a consortium - two of us individually put money in then ask family members, we think we could possibly get 5 in total at circa £3k each.

We haven't sought any professional advice as yet, we're in the really early stages and as I've recently joined here (for another property) I thought some of you may be able to offer some helpful advice.

Thanks in advance Stan
 
30k equity aint a massive amount to do much with. What's the current mortgage on the property you live in? Its current value?

Are you property developing? Or letting? Letting is going to slow your plans down considerably as its more a long term investment. Developing is more risky, a property can make or break you.
 
£68k and worth £100-110k, it's not an expensive place. There are plenty of properties around £60k that would / could be worth £100k. Only want to start small for first few houses at least and turnaround should be relatively quick.

We're pretty much covered with plastering, electrics, small plumbing / building and roofing jobs. Thinks like kitchen and bathroom fitting are covered too.

No plans to rent until there is son decent money in the kitty i.e. 5+ houses done.

My basic maths (very rough) were:

£15k in
Buy a house £60k, with 10% deposit - £9k left
£1k fees - £8k left
Then use that to renovate, depending on what needs doing but we'd consider that as best we could before purchasing.
 
This is very hard to give advice on because peoples situations can change radically and most people who generally want to get into developing, don't really have much knowledge about it. As Darren has said above, £30k isn't a great deal of money and especially when it's equity rather than hard cash. To make headway into property developing, you need capital. Not as much as you'd think but you do need it to get off the ground initially. If you're looking at £60-70k houses then that will make things easier as a 10-15% deposit interest only mortgage would be next to nothing per month. Mind you, that's assuming they will give you an interest only mortgage at 10-15%..!

I have a a few flats rented out and also do a bit of property development with my sister on the side (as she does a lot) and the best advice I could offer is - always prepare for the worst! So for arguments sake, let's say you get your £30k cash from your equity, a consortium (which I wouldn't do btw), or from another source (assuming you keep your current house to live in because you'll need somewhere). The chances are, you're going to be looking at £10-15k for your deposit and legal fee's (being conservative). This will leave you about £15-20k for renovations and ongoing payments and whilst it might sound a lot, it isn't and this is where another property can bleed you dry if you're not careful.

You need to know exactly what you are going to do to the property to get it to a finish in order to sell it. How much the materials/fixtures/fittings will cost and how much professional tradesmen will cost for stuff like plumbing/electrics/windows and how long the projected work will take to complete. Rule of the thumb with a terrace is usually 6 weeks to 3 months assuming it's straight forward with no hiccups. With old houses, you need a good survey and most surveys will pick up on issues of damp, structural issues and rot etc. However, you'll need enough money to overcome these issues should you encounter them after taking possession because then, they become your problem and the worst thing in old houses is damp and rot and believe me, it can cost you a fortune to repair - even in a terrace.

With terraces in particular, damp and rot repair will chew through your money quicker than you can imagine and I know a few people who have been landed with crippling costs by having to replace floors and joists and then having next to nothing left for the rest..!

Do your sums and don't over extend. Keep a tight reign on the finances and ensure you have enough fall back money to pay the bills for about 6-12 months on both properties in the event of a worst case scenario. If you're sensible and start small for quick turnaround and small profit, you'll be fine. If you do complete a successful first project and enjoy it - get an accountant before the next one for finances and tax! Do a few and you'll soon start reaping the benefit with regards profits which will then allow you to either move on to slightly bigger houses to renovate for better rewards or try the buy to let route.

Good luck :smashin:
 
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Thanks, that's the plan.

Pretty much everything is covered unless its major structural work or gas.

Our house was a similar type, it was ok and run down. We've damp proofed it ourselves, new kitchen and bathroom, plastering etc and done it all for <£7k. The plan is to sell this anyway, but as we want to get into developing we'd lol to stay here for the first house or two if possible.

There is a house a few doors up which has just been done. They've spent a little more on it but also advertising it at £120k, so the margin is larger.

There are properties around here which are structurally quite good, but need renovating; ideally that would be the aim but we're aware nothing is that simple lol.

The consortium idea was due to some family members wanting to do similar, and son of them are the handy ones with building etc.

Thanks for the advice.
 

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