Accessing Finance for project to refurb a property and sell it on...

[torblednam]

From https://www.charteredaccountants.ie/taxsource/1997/en/act/pub/0039/tb/sec0021-1-tb.html

Guidance as to what constitutes “trading” is available from case law and from a set of rules known as the Badges of Trade



From https://www.accaglobal.com/my/en/te...dges-of-trade.html#THE-NUMBER-OF-TRANSACTIONS

THE NUMBER OF TRANSACTIONS
A single transaction can amount to a trading activity, it is more indicative if there are repeated and systematic transactions.

I cannot find an equivalent Irish source


Finally

'the Revenue Commissioners are prepared to give an opinion on the classification of income as trading in accordance with the guidelines issued in Tax Briefing Issue 48 - June 2002 on Seeking Revenue Opinions on Tax Consequences of Certain Complex or Unusual Transactions.'

Starting at the end, what's being discussed here is neither complex nor unusual; the OP would get short shrift there.

Moving on, that very ACCA source you quoted contains the following:

The way the sale was carried out
HMRC states in its guidance that it is always a pointer if a transaction follows that of a ‘undisputed trade’. The case CIR v Livingston and Others 11TC538, involved three unconnected individuals that together bought a cargo vessel. The vessel was converted into a steam-drifter and sold for a profit. The purchase was the first vessel the three individuals bought. An assessment was raised on the profit which was upheld as a trading profit. Within the decision the judge stated:
‘I think the test, which must be used to determine whether a venture such as we are now considering is, or is not, in the nature of “trade”, is whether the operations involved in it are of the same kind, and carried on in the same way, as those which are characteristic of ordinary trading in the line of business in which the venture was made.’

The source of finance
Determining the source of finance is important when deciding whether a trade is carried on. Finance taken out to purchase an asset, in the first instance may indicate that to repay the debt the asset would have to be sold.

This was demonstrated in the Wisdom v Chamberlain – CA 1968, 45 TC 92; [1969] 1 WLR 275; [1969] 1 All ER 332 mentioned above."

Revenue have looked and will look at this sort of transaction, plenty of people have tried to argue CGT treatment, particularly if they were carrying CGT losses out of the last recession. One of the key things they will be interested in is the financing.
If the OP procures finance on the basis of a stated intention to flip / sell, he absolutely will be trading. If he makes a loss (which there's a not unsubstantial chance of) you can be certain he'd be advised to return the activity as a trade and seek to set the loss against his other income...

 

[Gordon Gekko]

Interest: 64,260 - not an actual cost -

So it’s more like unicorns or magic beans?

If it’s such a great investment and the end result is paying circa €450k to develop a property worth €450k, why not just buy a property for €450k?

Madness like this and complete mispricing of risk is what contributed to the last crash.

It’s a completely hairbrained scheme with half-baked ideas in relation to financing and tax. It might as well be written on the back of a beer mat after a few pints.

 

[Brendan Burgess]

There was a TV programme on this in the UK a few years ago.

You should get the Box Set and watch them.

The conclusion was that any increase in the sales value of the property and any profit came from the increase in property values and not the refurb. And that was in the UK where tradesmen were available and did the jobs at reasonable prices.

So really you are making a short term bet on the property market. That is very risky. You might do a superb refurb job very cheaply which might increase the underlying value by €30k but a market fall could easily make the property unsellable.

If you are doing this with your own cash, fair enough. But if you are paying 5% interest on the borrowing, you could get into deep trouble very quickly.

Brendan

 

[Steven Barrett]

So it’s more like unicorns or magic beans?

If it’s such a great investment and the end result is paying circa €450k to develop a property worth €450k, why not just buy a property for €450k?

Madness like this and complete mispricing of risk is what contributed to the last crash.

It’s a completely hairbrained scheme with half-baked ideas in relation to financing and tax. It might as well be written on the back of a beer mat after a few pints.

People tend to be over optimistic with plans, it's human nature. In this case the cost of refurbishment, the amount of time it will take to flip it. They also downplay the risks involved in it.

That is why there are so many accidental landlords in this country.

Steven
http://www.bluewaterfp.ie (www.bluewaterfp.ie)

 

[NoRegretsCoyote]

The conclusion was that any increase in the sales value of the property and any profit came from the increase in property values and not the refurb. And that was in the UK where tradesmen were available and did the jobs at reasonable prices.

I remember watching one of these UK shows about 2009. The guy had bought and flipped about 20 houses over the preceding decade and made about 20% on average on each. He thought he'd discovered a pot of gold!

Never a mention of the doubling in UK prices that had occurred over the same period.

 

[Thirsty]

Renovating for a long term rental is a better proposition.

Still need to work the numbers; and accept that Govt legislation/chopping & changing will impact your rental business.

There's plenty of reasons to be wary / cautious/ careful; but at the same time I wouldn't be paralysed by caution.

 

[Pinoy adventure]

I remember watching one of these UK shows about 2009. The guy had bought and flipped about 20 houses over the preceding decade and made about 20% on average on each. He thought he'd discovered a pot of gold!

Never a mention of the doubling in UK prices that had occurred over the same period.

Whats the name of the programme ?
Homes under the hammer is it?

 

[dereko1969]

What is the downside risk? Left with an asset worth €450k that cost €350k that would rent out at €2,500 a month.... Very short term view above and €15k/20k after tax isn't something to be sniffed at for a years work parttime.

downside is to have a 3 bedroom semi-d in Dublin where the rent is currently €3k - that worst case scenario you can potentially live in - my point is that a 3 bed semi in a decent area in dublin will never be worthless either financially or personally. If you can keep borrowings below €400k in Dublin on a solid house in a liveable area 20 mins from city centre I don't realistically see a long term downside - or am i the only 1 with this point of view on this risk? Rents will for the forseeable future cover the borrowing costs even with substantial drop...

So, the rent has gone up €500 over the weekend? I think you may need to look at your sums again.

 

[Puzzled89]

So it’s more like unicorns or magic beans?

If it’s such a great investment and the end result is paying circa €450k to develop a property worth €450k, why not just buy a property for €450k?

Madness like this and complete mispricing of risk is what contributed to the last crash.

It’s a completely hairbrained scheme with half-baked ideas in relation to financing and tax. It might as well be written on the back of a beer mat after a few pints.

Its easy to be sceptical especially in Ireland - I would like to see if you have ever done anything that made money "Gordan Gekko" or do you just criticise...…….

 

[dereko1969]

If more people had heeded advice like "Gordon's" in 2005-2007 the country wouldn't have been as fecked as it ended up being.

 

[Puzzled89]

If more people had heeded advice like "Gordon's" in 2005-2007 the country wouldn't have been as fecked as it ended up being.

These replies aren't helping anyone - the subject on the thread was a discussion on how to acquire finance for a renovation project in the Irish market. From what I gather the only option is friends and family.... Financial institutions are no longer offering this finance and there does not seem to have been anyone who is an alternative..

 

[Gordon Gekko]

These replies aren't helping anyone - the subject on the thread was a discussion on how to acquire finance for a renovation project in the Irish market. From what I gather the only option is friends and family.... Financial institutions are no longer offering this finance and there does not seem to have been anyone who is an alternative..

You obviously don’t get the purpose of the site. If someone posts looking for advice regarding the best gun to use to shoot himself in the foot, rather than pointing out the merits of Smith & Wesson vs Uzi, people tend to suggest alternatives to shooting oneself in the foot. And rightly so.

 

[Puzzled89]

Anyway if someone wants to discuss - how to acquire finance for a renovation project in the Irish market ?

 

[dereko1969]

These replies aren't helping anyone - the subject on the thread was a discussion on how to acquire finance for a renovation project in the Irish market. From what I gather the only option is friends and family.... Financial institutions are no longer offering this finance and there does not seem to have been anyone who is an alternative..

I was pointing out that your sums were all over the place. You've been told by a number of posters that you need to have an outcome in mind before you start, not an either/or (rent/sell).
No one has provided the answer you deem correct, everyone has said you are unlikely to get the funding required even if you're willing to pay a very high interest rate. Do you not think there's a reason the answer you're looking for hasn't been provided?

 

[vandriver]

I saw a 4 bed in Goatstown for under 2k rent yesterday,so don't be too sure of getting 3k.

 

[Puzzled89]

I was pointing out that your sums were all over the place. You've been told by a number of posters that you need to have an outcome in mind before you start, not an either/or (rent/sell).
No one has provided the answer you deem correct, everyone has said you are unlikely to get the funding required even if you're willing to pay a very high interest rate. Do you not think there's a reason the answer you're looking for hasn't been provided?

House has sold anyway for above the guide price - I never had a chance to be fair...

 

[Puzzled89]

I was pointing out that your sums were all over the place. You've been told by a number of posters that you need to have an outcome in mind before you start, not an either/or (rent/sell).
No one has provided the answer you deem correct, everyone has said you are unlikely to get the funding required even if you're willing to pay a very high interest rate. Do you not think there's a reason the answer you're looking for hasn't been provided?

I was hoping that thered be a discussion on alternative sources of finance in Ireland.