# first time developer



## camrock (31 Oct 2005)

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


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## sudden (31 Oct 2005)

what happens if you don't get planning permission for house #2?.


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## brodiebabe (31 Oct 2005)

Have you got an Architect for the below price?  Seems very cheap to me.


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## camrock (31 Oct 2005)

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.


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## ClubMan (31 Oct 2005)

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.


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?


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## camrock (1 Nov 2005)

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"


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## sudden (2 Nov 2005)

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.


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## camrock (5 Nov 2005)

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.


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## sudden (5 Nov 2005)

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


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## camrock (6 Nov 2005)

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.


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## markowitzman (6 Nov 2005)

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.


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## camrock (6 Nov 2005)

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


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## ludermor (6 Nov 2005)

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.


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## camrock (6 Nov 2005)

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.


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## markowitzman (6 Nov 2005)

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.


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## sudden (7 Nov 2005)

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 ? 

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


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## camrock (8 Nov 2005)

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.


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## dam099 (8 Nov 2005)

sudden said:
			
		

> 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 ?
> ...


 
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.


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## sudden (23 Nov 2005)

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.


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## hmmm (23 Nov 2005)

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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## sudden (23 Nov 2005)

hmmm
my take is that- 
in the real world, your deposit is still your investment, your rent minus tax,costs,mortgage, etc is your yield on that deposit. the value of the house can go up or down and until you own it outright or sell it , its perceived value does not actually put more money in your pocket unless you use its equity which is another,seperate, investment ,
if house prices fell and you were forced to sell,the real money you would lose is your deposit,and the diffrence between the mortgage and sale price which hopefully you would be keeping an eye on and not let get too lopsided.
i suppose thats why they call it investing.

sudden.
and it is because house prices can fall that i think this is a more practical way of looking at it,


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## stuart (23 Nov 2005)

This thread should possibly be moved to the Great Financial Debates Forum as it is a very good example of the issues relating to gearing for investments

Or maybe a separate thread could be started using some of the posts

stuart@buyingtolet.ie


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