Hi all,


I have been looking at some properties lately on a buy to sell basis and wondered what sort of profit margin others would or would not get out of bed for.

You see, being quite new to all of this and therfore inexperienced £10K plus would seem ok to me but what do others think?

In addition am I right in thinking that if a property is purchased BMV isnt it worth trying to get as much as possible back from cash back (Tax Free) while refinancing (eg using 10% deposit) rather than worring too much about realising the profit from the subsequent sale of the property where you would be subject to tax.

One of the properties I am looking at could amount to approx 60K cash back however, to sell reasonably quickly (within 6 months) this would mean I would have to sell BMV myself which would of course as well as the mortgage costs over the holding period eat into my profit. However after all that if successful in selling could still realise a profit of 25K plus. Which I think is ok and thank you very much but again what do others think??

My main question here is: Am I thinking this through correctly as the more I think about it (very dangerous ) the more unsure I am.


Your thoughts would be very much appreciated.

Thanks,

Colin

Hi Colin,

As you say, some of the more professional people on here "wouldn't get out of bed" for only 10k profit, but as I see it a profit is a profit is a profit. If you are comfortable doing a deal and making "only" 10k, then don't let anyone tell you it's not worth doing. With regard to BTS versus BTL I personally only BTL. I would never sell a property unless there is absolutely no option. Having said that, there are many people on here that are mixing the two and making a very decent living at it. At the end of the day there is no "right or wrong". It is simply a matter of what you want to do. Hope this helps and good luck with it.

Best regards John

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As John says a profit is a profit and given that £10k is over 50% of the average taxpayers net income then why turn it down as unlike them yiu didn't have to slog 6 months for it.

I think this is personal choice, and also depends on what type of project you are looking at.

If you are looking to earn £25k per annum then a couple of low margin BTS's should easily cover it, if you want £100k+ p.a then one high margin BTS could also easily cover this.

Whether you find or can take on the latter who knows - but if you are not looking ......

There is no guarantee when taking on a BTS (even if it is BMV) that you will make a profit at all, we've all seen the TV programmes where this happens!

Due dilligence, surveys, strong cost control, patience and unemotional decision-making and a bit of luck thrown in, should be a good combination to producing very healthy profit margins when developing.

Ask yourself another question - how much do you think you are worth per month? So is slogging your guts out for several months going to generate that amount of income for you?

Also be realistic (with whatever market conditions are at the time) about how long it will take to sell, as this interest cost can easily start eroding profit margins relatively quickly.

Some people on here have stated that they steer clear of BTS's altogether as they are too much hassle. I enjoy them and also just adds to the mixed strategy.



P.S - just re-read your post, you have not mentioned doing any work to them, so my ramblings above aren't really directed at just flipping them - sorry

I think the decent profit has to be compared to how long its taken to get it. 2 months with no hassle to get £10k or 12 months to get £10k with hassle isn't too difficult a calculation to make.

Each deal will be different and you may find your profit requirements are higher as time goes on. Plus your greater experience could in itself lead to a higher profit margin as you've turned down some not-so-good performing deals for a really juicy one.

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Thanks for all the replies so far,

The main reason I am not keen to BTL for these particular properties is that the rentals dont stack up very well and one in particular (27% BMV) the rental will struggle to cover half the Mortgage therefore I would have to supplement it any way.

None of the properties I am looking at require refurbishment.

My main goal/strategy is to BTL and agree with the concept of buying and never selling. However this doesnt work for every property unless you have sufficient funds to cash flow the property until it sorts itself out over the years to come. Sometimes with sufficient cash back this can work out ok however as I said some properties just don't appear to work that well due to the amount of surplus required.

I am aware of HMO's but again not always an option in every case.

With this in mind I thought that I could perhaps try some BTS deals in order to build up a sufficient pool of cash to cover some shortfalls that I may come across in the future. Sort of covering my back really.

As stated in my original post I am keen to know whether I am thinking this through properly and as I am new have I missed something glaringly obvious.

Something Christine said about tax. If money is released as Cash back as part of a purchase is this amount still liable for tax as I was under the impression that it wasnt.

Again please correct me if need be.

Thanks again,

Colin

Colin,

Equity release up to the open market value (demonstrated by survey) at the time it joins your portfolio, is tax free.

However if you buy to sell, that is trading and is subject to income tax.

If you Buy with the intention to let but subsequently sell, you will pay Capital Gains Tax. CGT is calculated on the difference between (PP + Purchasing Costs) - (Sale Price -Selling Costs). Whether you have also released equity or not is irrelevant.

This is why we heard of many people in recent years who were stuck in the CGT trap. ie they had released too much equity and now if they sold, would not have enough capital to pay the CGT.

This should be changing with the proposed flat rate CGT. We shall see.

Onwards + Upwards

Phil

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I would also like to suggest as others have that a profit margin is a very personal decision similar to choice of career or job.

It also depends where you are in your life at that point.

Some people are happy working at Tesco at 12k-14k pa, others like to be office managers or small business owners at 30k pa, others need to be entrepreneurs or consultants and would struggle at less that 80k-100k pa income.

BTS is probably a bit like that.

Other variables would be how busy you are on other profitable projects at the time.
If you are earning 10k pcm anyway, you wouldn't want to spend a month on a property to make 6k.
If you are earning 10k pcm, then you may get excited at the thought of making 25k clear on a BTS.

I share many others views that BTS is not really for me at the moment.

I did think a bit after reading Jeremy's post about maybe doing 1 high value BTS pa and netting 100k.
It sounds good, although high value BTS are fraught with their own challenges too. (cost of financing, empty for 18months, etc)

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Think Philip hit the nail on the head- acceptable profit depends on the investor and their circumstances. At the moment I’m happy to settle for 10k profit if the deal does not require more than 2 months of work- but I know a few people who would not do that deal.

I’ve been mainly concentrating on BTL but I’ve come across a few BTS that have great figures- tempted.

BTW I've got a really good BTS off - I'll PM you with the details.

Regards.

I have a cash pot at the moment, however;

I have 3 BTS on the go, lets say I pulled out 10K cash on each, thats 30K TAX FREE net profit.

The mortgage reapyments are as follows

976, 1003 and 1550 so £3529 pcm or £42,348 for a year.

So if you dont sell for a year, do you have £12,348 to pay the rest of the mortgage, then what would you do if there still not sold after a year.

You would need to get rid fast and quite possibly at a reduced price with little or no profit.

Rent the bloody things out - just had to do this myself!

Thanks Jeremy, I was quoting examples so punters don't get burnt.

They are rented out by the way

Colin,

This post is meant to be constructive (before I start).

I found Tim Ferris's The Four Hour Work Week quite instructive in simplifying this dilemma. He asks the reader to put a post-it note in front of him every day with the figure of "worth per hour" on it. He gives guidance on how to work out this figure. Let's say that you want to earn £200K this year broken down as follows:

£50K from earned income (salaried job or whatever)
£100K from capital value increase of existing portfolio (say 5% increase per year on a £2M portfolio)
and £50K from BTS opportunities.

You divide the £200K per year by the effective number of working days in the year (200 days for a round figure). Then you determine that you will only really work 4 hours per day doing really useful work, the other "working hours" being unproductive. Therefore, your £200k earnings over 200 working days is £1,000 per day, and with only 4 hours of really useful work done in any working day, that's £250 per hour.

With this in mind, and now considering the BTS profit part of your yearly plan to earn £200K, it's simply a matter of either determining how many BTS opportunities you will execute during the year, and how each one will become part of your £50K target profit. You could do one at £50K, or 10 at £5K. Equally important is the time you spend on each, and you must try to calculate that as accurately as you can. On a BTS last year, I thought I had an opportunity to make £65K and worked out that I had spent less than 150 hours in total on it. In the event, I could not sell it at a profit at all, so turned it back to a BTL.

Personally, having made that plan at the beginning of 2007, I had worked on selling 8 at £5K profit each, and in the event, have sold 10 by this week. So I was happy with the result. Perhaps because I had set a figure of £5K per property, I was able to achieve the result. Had I insisted on £10K per property, I am pretty sure I would not have sold 10, and may have sold none.

I hope this example helps.

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Thanks everyone for al your replies very useful information and advice.


Thanks again and have a good Christmas.

Colin