Advice - Building/Selling a house

daveg

Any advise/comments on the following would be much appriciated.

My girlfriends uncle is a fairly big building contractor in Galway. He built a house for us last year out in the country. It cost us €146,000 in total including the site. We had to get the house valued as we remorgaged and we were told that the house was worth €250,000 and the estate agents told us if we ever wanted to sell to let them know as they could sell the house no problem.

Anyway we got to thinking that we could buy another 1/2 sites. Build the same house again and sell it making a profit of approx €100,000 less fees involved. We had a chat with uncle about it and he said whatever we wanted to do he would help us out and thought it would be a good investment.

Would this really be that straight forward ? I wanted to sell our house and build again but the girlfriend won't do that :rolleyes: as she loves the house/area.

dmeehan

a lot depends on wether uncle expects payment before you sell on the new house(s)

other than that, i think any kind of property investment can only be a good one, but look into demand for housing etc in area you intend to build, but seeing as you have already been told by an estate agent that your house would sell no probs, i would think that would be the type of house to go for (if building in the same area)

daveg

dmeehan this is the problem. If we didn't sell our own house we would have to buy 1/2 sites at approx €40,000 each. Building costs would have to be paid in 3 installments - foundation - roof - final payment. I'm sure he would hold off on full payment until completion/sale of the houses but I'd hate to ask...

However if we sold our own we would have the capital to buy 1/2 sites and pay for building costs... but try telling that to a women

Victor

Originally posted by daveg
However if we sold our own we would have the capital to buy 1/2 sites and pay for building costs... but try telling that to a women

And where would you live? Woman's intuition isn't always wrong. It is a bit of a mugs game to risk your own home (even if you have €100,000 in equity) to make more money, but many do it. Remember the estate agent may be embellishing the value of the house to get a fee.

(1) Do you think you can get planning permission? Things are getting much stricter in rural areas and you could end up with a €80,000 site you can't sell. One way to do it would be to make the purchase dependant on FPP.

(2) If houses in the area are selling for €250,000 and sites cost €40,000 and building costs €100,000 then those sites are probably undervalued. You may also be omitting the cost of your (you, girlfriend, family) time and sundry expenses (carpet, curtains, DIY painting, DIY gardening and so on, “the personal touches”) that went into the project. A guide might be what actual prices previous sales in the area have achieved.

(3) Remember there will be added costs in financing the project (a bank would probably arrange bridging finance for you, in particular as you have equity in your existing house), plus VAT (13.5% on the construction and on the sale of the site) / stamp duty (on the site). There may also be design and valuation fees (21% VAT). You might have to register for VAT.

(4) You will be liable to tax. Two scenarios are possible - if you keep your own home you could end up paying 20% Capital Gains Tax. If you sell and develop new houses you be considered a developer by the Revenue Commissioners and end up paying 42% Income Tax.

(5) Note construction inflation is quite steep.

(6) Who owns the existing house (you are not married)? There may be implications (Family Home Protection Act, etc.)

(7) I recommend you talk to a solicitor / accountant / surveyor / property advisor about this before proceeding.

spongebob

Originally posted by Victor
(1) Do you think you can get planning permission? Things are getting much stricter in rural areas and you could end up with a €80,000 site you can't sell. One way to do it would be to make the purchase dependant on FPP.

No new permissions within 20 miles of Galway City,always buy subject to FPP. Watch out for inurements, 10 year lockins.

(2) If houses in the area are selling for €250,000 and sites cost €40,000 and building costs €100,000 then those sites are probably undervalued.

sounds like a 'within 20 miles' price

(4) You will be liable to tax. Two scenarios are possible - if you keep your own home you could end up paying 20% Capital Gains Tax. If you sell and develop new houses you be considered a developer by the Revenue Commissioners and end up paying 42% Income Tax.

Correct, on all the profit.

(5) Note construction inflation is quite steep.

Not in rural Galway

(6) Who owns the existing house (you are not married)? There may be implications (Family Home Protection Act, etc.)

Correct, missus must sign FHPA to sell house #1

(7) I recommend you talk to a solicitor / accountant / surveyor / property advisor about this before proceeding.

All of them

M

daveg

Thanks for the advice/comments guys.

And where would you live

We would have to rent again until the new house is built.

Do you think you can get planning permission

It would be a foregone conclusion we would buy with outline PP. Wouldn't consider it otherwise.

If houses in the area are selling for €250,000 and sites cost €40,000 and building costs €100,000 then those sites are probably undervalued. You may also be omitting the cost of your (you, girlfriend, family) time and sundry expenses (carpet, curtains, DIY painting, DIY gardening and so on, “the personal touches”) that went into the project. A guide might be what actual prices previous sales in the area have achieved.

Sites are still selling in the area for approx €40-€50K. We have spent a lot of effort painting/carpet/curtains ect ect. Were even getting the grounds done in the next few weeks. However the house next door to us was sold for €275,000 and the houses are very simular in size.

Remember there will be added costs in financing the project

This is why I prefer the option of selling our house and building a new one. We wouldn't need any help from the bank if we sold our house/rented while we built a new house.

You will be liable to tax

This is the question I wanted to ask. Thanks for the answer Victor.

Who owns the existing house

We both do 50/50.

I recommend you talk to a solicitor / accountant / surveyor / property advisor about this before proceeding

Will do.

sounds like a 'within 20 miles' price

House is approx 11 miles from Galway city.

Victor

Originally posted by daveg
This is why I prefer the option of selling our house and building a new one. We wouldn't need any help from the bank if we sold our house/rented while we built a new house.

But you would have the cost of renting, you would *probably* lose Mortgage Interest Relief and I suspect there would be Stamp Duty issues. I suspect borrowing the money would be the best option (get accountant to check if you can write off the bank interest). If you have €100,000 equity in your own house, you may be able to borrow against it.

Ultimately it will be down to which set of figures is more attractive once you have factored in the risks.

spongebob

stamp duty not much ..on site 40k @ 5% buy 2

build new house, it becomes primary residence, then sell it, no CGT or Income tax

build next house it becomes primary residence, then sell it, no CGT or Income tax

beware of inurement clauses and the scum that calls itself a planner in Galway. (hint ....read new county dev plan)

M

Victor

Originally posted by Muck
build new house, it becomes primary residence, then sell it, no CGT or Income tax

build next house it becomes primary residence, then sell it, no CGT or Income tax

If you do this too often you will be treated as a developer and charged income tax, not CGT.

spongebob

let himself and the missus take it in turns then

I think the planners will get them b4 the taxman but you are right in principle Victor, they may get away with one more house each, then thats it. They then could be hit going back years if the taxman notes their activities.

you do not pay ANY tax on profits on your primary residence, within reason..... (€0.5m)

M

daveg

Thanks for the reply's so far.

you do not pay ANY tax on profits on your primary residence, within reason

So if we were to sell our house would we not pay the 20% capital gains tax ?

PhilipMarlowe

From http://www.revenue.ie/services/tax_info/taxes8.htm#capital

Gains realised on the following are not chargeable gains:
(x) a gain on a dwelling-house (including grounds of up to one acre) where the house has been used as an individual’s only or main residence (or, under certain conditions, as the sole residence of a dependent relative) during the individual’s period of ownership. In certain circumstances there may be a restriction on the relief or partial relief may be due.

AFAIK, for it to be considered your principal private residence, you must be 'living' there for a min. of 6 months....