Renovating property to sell on

Ikozma

I'm considering buying a small property to do up and sell on. Does anyone know the taxes and fees that need to be paid when selling a property, and I presume I'd have to set up as self employed.
I have a small house in mind and would be paying for it myself but just want to know if it's viable to make a profit on it when selling with the taxes and fees that would be taken from any profit
I'm handy at trades and building work but not so much when it comes to taxes and fees
Thank you

brisan

Ikozma wrote: »

I'm considering buying a small property to do up and sell on. Does anyone know the taxes and fees that need to be paid when selling a property, and I presume I'd have to set up as self employed.
I have a small house in mind and would be paying for it myself but just want to know if it's viable to make a profit on it when selling with the taxes and fees that would be taken from any profit
I'm handy at trades and building work but not so much when it comes to taxes and fees
Thank you

Are you going to live in the property while you do it up ?
If its your PPR no tax will be due

https://www.revenue.ie/en/gains-gifts-and-inheritance/cgt-reliefs/principal-private-residence-ppr-relief.aspx

Ikozma

Ikozma wrote: »

................I presume I'd have to set up as self employed.
................

Nope.

Ikozma

brisan wrote: »

Are you going to live in the property while you do it up ?
If its your PPR no tax will be due

https://www.revenue.ie/en/gains-gifts-and-inheritance/cgt-reliefs/principal-private-residence-ppr-relief.aspx

No it won't be my private residance, I'd hope to do it as a business, do up a property, sell and move onto nxt one

JimmyMW

Ikozma wrote: »

No it won't be my private residance, I'd hope to do it as a business, do up a property, sell and move onto nxt one

33% on capital gains, plus buying and selling fees stamp duty etc

wowy

Speak to an accountant. The fact that you're deliberately purchasing the house just to renovate it and sell it on is possibly running a bit close to the wind for CGT; the gain may be taxed as income (so subject to income tax, prsi and USC instead). This is especially relevant if you do it a few times.

On the proposal - imo you'd want to be getting the house at a very good price, or else be confident that the works you do yourself (at nominal nil cost) will add enough value to make it worthwhile. Realistically the best value-adds I see are things like insulation, windows, heat pumps, smart wiring, etc, but they all need to be certified or supplied/installed by 3rd parties, so how much serious value-adding work is there that you can do yourself?

Claw Hammer

JimmyMW wrote: »

33% on capital gains, plus buying and selling fees stamp duty etc

If the o/p is going to make a business of buying houses and selling them on, it would be deemed trading and liable to income tax and possibly VAT.

brisan

Claw Hammer wrote: »

If the o/p is going to make a business of buying houses and selling them on, it would be deemed trading and liable to income tax and possibly VAT.

From experience that's how it works
It all depends what receipts you can furnish to show expenses incurred
Unless as was previously stated you can get the certifiable works done cheap there is little or no profit if you pay tax on profits

JimmyMW

Claw Hammer wrote: »

If the o/p is going to make a business of buying houses and selling them on, it would be deemed trading and liable to income tax and possibly VAT.

True enough, cost of selling and stamp will be due regardless

Ikozma

What percentage of profits are we talking for tax?

brisan

Ikozma wrote: »

What percentage of profits are we talking for tax?

Depends what they look for
CGT 33%
income tax will be at your normal tax rate plus PRSI and USC

Ikozma

There sure is a lot to come off any profit you might make

Do you have a job at the moment?

Ikozma

Augeo wrote: »

Do you have a job at the moment?

Yea, part time at moment though

Well if it's considered your property endeavours are liable to income tax then perhaps you have some scope to be paying at 20% rather then the higher 40% rate.

You'd really need to be sure that there's any profit at all to be made before looking at how that will be taxed. As others have pointed out there might not be scope for this to be a profitable venture.

DubCount

This is a difficult way to make money. Can you really add sufficient value to make a profit? Dont forget a lot of people feel property values are going to fall in 2021 - can your value add exceed any underlying loss from property price deflation ?

If you do go ahead, you should get tax advise from an accountant. Its money well spent. From the discussion so far, its more likely to be deemed liable to CGT in my view as it would not meet the "badges of trade" rules to be deemed trading income, but that needs to be confirmed. Then there are issues around whether you can/should register for VAT.

I know "Homes under the Hammer" make this look like easy money. IMHO its far from easy.

Claw Hammer

DubCount wrote: »

This is a difficult way to make money. Can you really add sufficient value to make a profit? Dont forget a lot of people feel property values are going to fall in 2021 - can your value add exceed any underlying loss from property price deflation ?

If you do go ahead, you should get tax advise from an accountant. Its money well spent. From the discussion so far, its more likely to be deemed liable to CGT in my view as it would not meet the "badges of trade" rules to be deemed trading income, but that needs to be confirmed. Then there are issues around whether you can/should register for VAT.

I know "Homes under the Hammer" make this look like easy money. IMHO its far from easy.

A one-off will not meet the badges of trade but a series of them within a relatively short time would, particularly if the properties are never rented but sold on when upgraded.

brisan

Have you done all the sums to see if there is a profit to be made on it
From experience you have to get the right property in the right area at the right price
If you factor in work that will need to be done by certified tradesmen there may not be a lot of profit in it
Can you get brickies ,plasterers ,chippies etc at good rates
Can you source materials at trade prices ?
Having cash rich but receipt short tradesmen friends may help out

antiskeptic

Ikozma wrote: »

I'm considering buying a small property to do up and sell on. Does anyone know the taxes and fees that need to be paid when selling a property, and I presume I'd have to set up as self employed.
I have a small house in mind and would be paying for it myself but just want to know if it's viable to make a profit on it when selling with the taxes and fees that would be taken from any profit
I'm handy at trades and building work but not so much when it comes to taxes and fees
Thank you

If it's not your PPR (and beware faking it being your PPR) then 33% on the capital gain, as the man said.

You would also have:

estate agent fees on sale. You can cut these by going DIY with the likes of Moovingo. Certainly worth considering given the typical 1% of sale price + 23% VAT agents charge.

solicitor buy and sell fees. Beware here of going cheap as chips with your solicitor. They can make mistakes and you'll pay.

stamp duty on buy

professional photographer (you'd be mad not to employ one)

survey - unless you're experienced I'd not forgo this as you could end up buying trouble. Trouble is: how to find a pragmatic surveyor who won't just tap the walls and stamp on the floors.

any prof fees/certification for structural works you do (and perhaps, depending on how fussy the to be buyers surveyor, already done)

any certification of extension works (existing or new) re conformance with planning/building regs. If not planning to extend, make sure you have a cert for any existing extensions at the time you buy, these just being passed on to the next buyer

..etc.etc.

..these simply adding to the cost of doing business. The 33% would be on the gain made after all costs going in, including these fees.


Some other things to consider:

If the house you're looking at isn't registered on Land Registry (and many, especially older properties which haven't been sold in recent times, aren't) then you've got to get it registered before you can sell it again. It costs (I think €400??). But mores the point: it can take time to get it registered and you can't really sell until it is. If buying unregistered then

a) get advice on how long it will take and consider whether that fits in with your projected sell date.

b) sit on your solicitor to make sure they get and keep the registering process moving.


-

You need a RECI for any electrics, shy of changing light switches and the like

-

There are limits to how much you can plough into the property before it's considered a new build. And new build means you have to charge VAT. Murky area that's hard to get hard advice on. If you're tidying up a property: fine. If you're buying a single storey cottage with loads of land and planning on retaining the front wall and knocking all else, finishing with a large 4 bed then beware. Beware too planning: if too substantial the works then it won't be considered a refurb but a new build.

-
There's a lot of regs there too. Project Supervisor Construction Stage and paperwork associated with same. Notification to authorities and all that. You can choose to adhere or to duck. But there's risk. And you need insurance. Which means adhering to rules lest it be voided. Again, you've to decide on the risk you run. All risks will cost you some, and then some. Or you can trim insurance to cover total loss and the like - not cheap but less that all risks. Again - something you've to dig into as there isn't a product ready made for you.

Bringing other contractors on site - well that opens up the whole insurance field. Bringing a few uninsured mates on site. Minefield. It's all great, until it goes wrong.



-

Timing. Unless you are getting this property for an off-market song, now probably isn't the right time to be trying to flip a property. Whatever costs you think you'll put in (and I imagine I might have outlined a few not thought of) it's sure-fire too cost you more. I moved a flip property on recently and was feckin' delighted to be shot of it. I'm looking at other flips languishing and price dropping, looking at the in-the-doldrums market and am thanking my lucky stars to be out. Powder dry territory, in my view.

He who dares wins. But probably only if long enough in the flip tooth to be able to assess the risk.

antiskeptic

I know "Homes under the Hammer" make this look like easy money. IMHO its far from easy.

This.

I've done it a few times and have always made well out of it.

But a decent chunk of my doing well out of it had to do with timing (aided by luck). I bought my first mid-2013, which was the absolute low in the market. Property investment was "dirt on your shoe" and I paid buttons to someone needing cash. A good time to buy is bottom of the market

I bought just below a mini boom that ran into 2018 - I put 10K unforeseen costs in (on 80K estimated), but the market added 20K unforeseen onto the price between my buying and selling. Point: a good time to buy is when the market is rising fast.

It was only experience built up which gave me a decent wedge from the last property. I know how to buy well now: that opened up the potential profit. But what would have been a really good outcome got nibbled away at by Brexit-talk and Covid. A bad time to buy is when the market is flat and uncertain but prices haven't dropped.

Like now.


Be generous with your margin for error. If, after doing all your sums, you can see €100K (before CGT) gain for an 8 month turnaround (getting keys to giving keys) then you might be on to a good thing. But if your date-to-market sees you add the finishing touches in October then you've 5 months from that 8 already gobbled up in dead time.

antiskeptic

Ikozma wrote: »

No it won't be my private residance, I'd hope to do it as a business, do up a property, sell and move onto nxt one

Next one = business.

You're out of CGT territory and into setting up a business. That means setting up a company, tax returns, corporation tax (which isn't, unfortunately 12.5% ), payslips, accountants.. and all the rest.

There isn't a hard and fast rule to time periods between one off flipping (liable for CGT) and flipping one after the other (making it a business). And no accountant is going to give you a fixed time - they'll give pointers but leave the risk to you.

One every 3 years? Maybe? Who knows?

brisan

antiskeptic wrote: »

This.

I've done it a few times and have always made well out of it.

But a decent chunk of my doing well out of it had to do with timing (aided by luck). I bought my first mid-2013, which was the absolute low in the market. Property investment was "dirt on your shoe" and I paid buttons to someone needing cash. A good time to buy is bottom of the market

I bought just below a mini boom that ran into 2018 - I put 10K unforeseen costs in (on 80K estimated), but the market added 20K unforeseen onto the price between my buying and selling. Point: a good time to buy is when the market is rising fast.

It was only experience built up which gave me a decent wedge from the last property. I know how to buy well now: that opened up the potential profit. But what would have been a really good outcome got nibbled away at by Brexit-talk and Covid. A bad time to buy is when the market is flat and uncertain but prices haven't dropped.


Be generous with your margin for error. If, after doing all your sums, you can see €100K (before CGT) gain for an 8 month turnaround (getting keys to giving keys) then you might be on to a good thing. But if your date-to-market sees you add the finishing touches in October then you've 5 months from that 8 already gobbled up in dead time.

Keys to keys should be 4-6 months all going well
its possible to turn a house in 8 weeks and have it on the market,
Granted not on your own but time is money unless you bought cash
If you buy in the right areas its possible to have a couple of buyers lined up before you finish work

antiskeptic

brisan wrote: »

Keys to keys should be 4-6 months all going well
its possible to turn a house in 8 weeks and have it on the market,
Granted not on your own but time is money unless you bought cash
If you buy in the right areas its possible to have a couple of buyers lined up before you finish work

Agreed. But unless you're very lucky with your timing you'll have quiet sale times of the year to deal with.

Think the fastest I've ever seen (someonr else do it) is 6 weeks. But that would take a well oiled flip machine. Not someone embarking out in that field.

But its a good indicator of the kind of house to be flipping: something that needs a lick rather than a chew.

brisan

antiskeptic wrote: »

Agreed. But unless you're very lucky with your timing you'll have quiet sale times of the year to deal with.

Think the fastest I've ever seen (someonr else do it) is 6 weeks. But that would take a well oiled flip machine. Not someone embarking out in that field.

But its a good indicator of the kind of house to be flipping: something that needs a lick rather than a chew.

We have flipped quite a few houses in the same settled area.
Once word got out that we were doing it up to sell it (let the neighbours know ) we had interest from locals before we finished the job
We have re wired ,replumbed ,plastered new kitchen new windows ,new bathroom, new internal and external doors and flooring in 8 weeks
Granted it takes experience and a few contacts

beauf

Unless you find an unpolished diamond (very unlikely) in a rising market, in a rising area and/or you can provide cheap or free labour, I can't see there is money in flipping in the current market. You could lose as much as you gain very easily.

There's a lot of very old housing stock in Ireland that is too expensive. By the time you've improved it to a good standard, it will be priced out of its own area.

I think its a bit different in the UK, where its a much bigger market so more stock to choose from, and you can wet your feet in more modest projects and areas. You can't over commit as it can just go bust over night.

beauf

brisan wrote: »

We have flipped quite a few houses in the same settled area.
Once word got out that we were doing it up to sell it (let the neighbours know ) we had interest from locals before we finished the job
We have re wired ,replumbed ,plastered new kitchen new windows ,new bathroom, new internal and external doors and flooring in 8 weeks
Granted it takes experience and a few contacts

I think in the current market, you could build up a decent business doing home improvements, and extensions, big demand for that. Wait for COVID and Brexit to pass by. Once the market has stabilized, then move on to bigger things.

ted1

wowy wrote: »

. Realistically the best value-adds I see are things like insulation, windows, heat pumps, smart wiring, etc, but they all need to be certified or supplied/installed by 3rd parties, so how much serious value-adding work is there that you can do yourself?

i wouldn't agree with you.
Insulation- depends on scale, external wrap will never add more than it cost
heat pumps - no thanks, especially if its a retro fit.
smart wiring- most devices are wireless these days.

A good roof, smooth skimmed walls. good skirting,. nice sockets and switches, good windows, possible sky lights to lighten up dark rooms.

good use of space, good built in wardrobes

antiskeptic

antiskeptic wrote: »

...................... corporation tax (which isn't, unfortunately 12.5% ), ................

Just about this, corporation tax isn't 12.5%?

Geuze

Augeo wrote: »

Just about this, corporation tax isn't 12.5%?

There are other rates.

https://revenue.ie/en/companies-and-charities/corporation-tax-for-companies/corporation-tax/index.aspx


Basis of charge
There are two rates of Corporation Tax (CT):

12.5% for trading income
25% for income from an excepted trade (as defined in part 2 of the Taxes Consolidation Act)
25% for non trading income, for example rental and investment income.

CT is charged on the profits in a company’s accounting period. This period cannot be longer than 12 months. If the tax rate changes in the accounting period, profits will be apportioned on a time basis and taxed accordingly.

beauf

I think on a property you get cheap, its going to need at a minimum windows, doors, kitchen and bathrooms. Then you might have heating, boiler, roof, plumbing and or electrical issues. The more you spend the less profit you get back. So its a balancing act. It will be dictated by what the best houses in the area can command. Because thats the best you will get back out of it.

brisan

beauf wrote: »

Unless you find an unpolished diamond (very unlikely) in a rising market, in a rising area and/or you can provide cheap or free labour, I can't see there is money in flipping in the current market. You could lose as much as you gain very easily.

There's a lot of very old housing stock in Ireland that is too expensive. By the time you've improved it to a good standard, it will be priced out of its own area.

I think its a bit different in the UK, where its a much bigger market so more stock to choose from, and you can wet your feet in more modest projects and areas. You can't over commit as it can just go bust over night.

This is the major concern
You have to remember you are doing it up to sell it ,not live in it
Every area has a maximum people will spend so always remember that when doing costings
If at least 10% of the final sales price is not pure profit I would not bother