The Problem with Buy To Sell
In 2013 in Britain there are approx. 4 million homes with an interest only mortgage.
Source: MSN Money 2013
Following the economic collapse of the American housing market and the subsequent instability of the mortgage funders around the world the incentive to repay these mortgage has decreased as the re-sale value of the properties has diminished.
If the lenders and the purchasers are unstable how effective is the buy to sell method of property development as a means of obtaining and retaining enough money to be economically viable ?
Here is an outline calculation
Investment calculation
Total Property Cost = £100,000
Expenses in buying the property = £2,000
Deposit for property the profit from
the last project = £25,000
Total deposit + buying costs = £27,000
Mortgage = £75,000
Interest rate / month = £312.50
Total interest over 1 year to sell = £3750
Basic return calculation
Total mortgage plus interest = £75,000
+ £3750
= £78,750
Investment return in 1 year
must exceed = £78,750
There are however ongoing costs for the property owner.
Ongoing costs
Interest rate per annum on any loans = 5%
to provide deposit and purchase costs
Council tax per year approx = £1,200
Services costs Elec, Gas, BT = £2,500
Allowable life cost per year = £8,300
= £692/month
= £173/week
= £25/day
Total ongoing cost per year = £12,000
Summary for one building over 1 year
Investment costs = £78,750
ongoing costs per annum = £12,000
Investment return in 1 year
must exceed = £90,750
Rounded up to = £100,000
Buy for £100,000 sell for = £100,000
This is a zero profit option but achieves existence level for all ongoing costs
Buy for £100,000 sell for = £175,000
This achieves a profit of £75,000. Less the total ongoing cost per year £12,000 gives a potential rollover profit of £38,000. This allows for a repeat deposit of £25,000 on a similar property and so allows for an overall clear profit of £13,000
Method to increase Profit from Buy to Sell
Find a buyer for the property before purchasing.
Conclusion
There is no way to make a living as a buy to sell developer without allowing for your ongoing costs per year and the necessary immediate repayment of the capital sum borrowed through a mortgage agreement.
The developer must allow for a variable profit; since they will be dropping back to a basic wage each year.
The developer must allow a fixed timescale for the sale and works.
The developer must allow a repeat sale and a rolling use of the capital fund for deposits to produce greater profit.
The developer must allow for carrying out the minimum works to a property in accordance with the current planning and building regulations standards.
In summary what is achieved is an architectural utility form determined by market aesthetics.
Solution.
Change the buy to sell to a self build purchase scheme financed by a group investment by all the self builders.
The self build form of building incentivises the project and stabilises it financially.
This reduces the deposit amount needed by each individual.
This reduces the mortgage amount needed by each individual.
This allows the self build group to obtain a stronger purchasing power for labour and materials.
This allows the repayments and construction spend timescales to be variable and so financially stable.
Redundant properties should be demolished and new self build antonymous developments created.
This removes the market aesthetic and brings the housing stock into the correct state for our energy, resource, environment conscious age.
Ian K Whittaker
Websites:
https://sites.google.com/site/architecturearticles
Email: iankwhittaker@gmail.com
02/08/2013
14/10/2020
618 words 3 pages