Property Development - Pitfalls please

Hi,

I am almost in rented accomodation (I've sold the family pile) and will then be building my own place. I've thought this (as I'm sure have others) that why not buy the land, get the Planning and then commence building. Knowing I've paid 100 for the land, 150 to build it the market value will be 350 plus. So put it on the market as it is being built and if someone buys it up then whoopee 100 in the bag give or take. I have no problem (cough) paying taxes on this money. I'd like to keep this going for a couple of years until I've had enough cash for my retirement or till the market bombs and then I move in finally.

1. What are the give or takes?
2. Is there anything wrong with this strategy?
3. Have I missed anything Tax wise, planning wise etc. that might cripple me.

Thoughts please

One thing to note is that if you do this more than a couple of times in succession then Revenue will most likely treat you as engaging in a trade and tax you on that basis as opposed to as a private individual/owner occupier who does this once or twice. Another thing to note is that there is no guarantee that market values will always yield a significant surplus over and above the site and building costs.

You should also check out planning. This will vary from area to area, but If you receive planning permission for a development there will be a list of conditions associated with the grant of permission. One of the conditions might be that you live in the house and do not sell for a number of years.

Clubman - Not worried about market values - purely from the view that if there is no market it's time to stop and move in. I never thought of the tax thing though - purely me seliiing on my own homestead as opposed to doing large or even small developments

Shoegal - yeah thats one to watch but I'll be careful in planning apps.

quarterfloun said:

Clubman - Not worried about market values - purely from the view that if there is no market it's time to stop and move in. I never thought of the tax thing though - purely me seliiing on my own homestead as opposed to doing large or even small developments

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It doesn't matter - if you become a serial (once off) developer and reseller then Reenue will most likely deem that you are engaging in a trade and tax you appropriately.

So I move into the next banding or is it worse than that?

I know a few people who have bought land and built there own house on it. They would now enjoyed a fairly healthy profit if they were now to sell but most have found that the estimate costs for the build are usually higher than they anticipated and it can be a bit of a bottomless pit especially when you are trying to target a market who will more than likely want high specifications.

Fireplaces, stairs, kitchens and expensive appliances, driveways and gardens may seem reasonable by themselves but can add quite a bit to the cost and often aren't properly factored in properly when you are working out the cost of the build. Its very important to cost these and factor them in when considering the profit you want to make.

As I say this is purely a case of building my hi spec family home and if I get to sell it before I move in take the profit - if large enough and then start again. I've looked into furnishings and cos I've lived in the UK I know enough to get a GOOD deal if I buy the lot.

quarterfloun said:

As I say this is purely a case of building my hi spec family home and if I get to sell it before I move in take the profit

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If you sell it before you move in then you will probably not benefit from owner occupier CGT exemption on any gain. This is separate from any decision by Revenue to class you as engaging in a trade which would have more fundamental tax implications (not just "moving into the next banding") which you should investigate (with the benefit of independent, professional advice if necessary) before proceeding.

150 to build it, good luck to you . you are in for several shocks before before you will clear 100k.

Dunnangall said:

150 to build it, good luck to you . you are in for several shocks before before you will clear 100k.

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In my personal experience this is absolutely correct!

By the way, did anyone watch Grand Designs (Channel 4) last night? Dear 78-year-old woman rattling around in a huge family home on the Devon coast decides to build a small 'round' house nestled in the large garden. Given a detailed spec of 200K and 5 months to build ends up 2 years and 400K+ poorer. But she had a big adventure and developed nerves of steel!

Dunnangall said:

150 to build it, good luck to you . you are in for several shocks before before you will clear 100k.

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Probably but I'm lucky enough to be a cash buyer and cash is king. I also work for a developer and he has offered to advise on direct labour and oversee the project in parallel to my paid architect. The numbers are all "from the air" until prices are in and then we will see. I'm just toying with ideas at the moment. If I thought that investing my money in an Ostrich Farm would generate plenty of cash I'd do that. Everything is open for discussion and that is why I fly ideas around on this forum - to generate feedback and to see if my ideas are founded or not. There is money to be made in property - that is obvious. Big money is made on speculative risk orientated strategy - thats not me - I'm looking for a least risk most gain scenario but I'm not greedy.