How to Flip Property? | Flip or Flop?

Over 23,000 people in the UK are predicted to flip their properties in 2021... but are they doing the right thing?
On this week's episode of Money Matters, Paul gets into the nuts & bolts of property his twelve-year-old son, Jude, has been working on.
Now, with this property, you might think that looks can be deceiving. However... seeing is believing...
Watch not to find out whether to flip or not to flip? That is the question...
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[@PaulSmithTouchstoneEducation]

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[@propertywithjacob6919]

Good advice. For those just getting started: Buy, renovate, rent, refinance or BRRR is a relatively safe option. Reliability of knowing your mortgage will be covered by the rent and the large financial payout in terms of value-added to the house (can be extracted through a sale or refinance)

[@Andy5c]

Have to also include tax on the rent yearly, maint, ect... also the capital growth is invisible profit unless you do 1 of 2 things. Sell when markets high, then you are back to paying CGT and hence contradict your stratergy. 2 remortgage and pull some more cash out but then you are highly geared should market fall and could then struggle to finance such a large debt if house value doesnt stack up. Not quite as clear cut as you are trying to make out.

[@rollerrevolution7044]

You'd probably be unlikely to refinance after 1 year (as this particular example was) even with an 8.8% increase but you could if you really wanted to. However, if you decided to keep it for longer and the prices kept rising, then it's definitely worth doing. This example was at and 80% loan to value but if you wanted to bring that down in a couple of years (presuming the prices rise) you could always remortgage onto 75%, 70% or lower and still be able to take money out - or at the very least you could lower your gearing. xx

[@PaulSmithTouchstoneEducation]

Hi Andrew, I bought my first flat in 1982 in London for £9,000. Today it is worth over £300,000. The only issue (for me) is I sold it in 1984 for £30,000. Should I have kept it or sold it? Paul

[@Andy5c]

@@PaulSmithTouchstoneEducation Depends on if the £30k you sold it for was used as a deposit for 3 more flats that were then worth £900k!! Like I said its all paper profit until the money is in your pocket.

[@PaulSmithTouchstoneEducation]

@@Andy5c it was turned into a brand new shiny XR2 (loved it though) and yes reinvested the rest back into property. I do sell the odd property from time to time.. I am sure we can agree "horses for courses.." thank you for your input. Paul

[@bouwah85]

Andrew is spot on too

[@leonfontaine2449]

My guy Phil Dunphy. love this

[@cleto6184]

Great tutorial Paul. Very well executed Abd explained. Thank you very much. I have booked for Monday. Very interesting. Regards

[@PaulSmithTouchstoneEducation]

Glad it was helpful!

[@andredeoliveira4125]

Great video Paul, very clear and informative. Keep up.

[@PaulSmithTouchstoneEducation]

Thank you!

[@huston1986]

Nicely explained, keeping it is the way to go

[@vincentmoses9770]

Very enlightening

[@antoniosollazzi7240]

You convinced me already thanks

[@darylpike8547]

I never thought about it like that 🤔 I can't wait to be on the course on 23-24/3/23

[@shaunwatts4412]

Great vid!

[@PaulSmithTouchstoneEducation]

Thank you Shaun!

[@healthiswealth8153]

absolutely! would never sell an asset

[@liudmylamartin-roberts8263]

Great in theory. I wish I had your builders that do the work for that money!

[@PaulSmithTouchstoneEducation]

Thank you 🙏🏼

[@imranmohd3050]

Have to take into account the monthly getting taxed either via corp tax if your running through ltd company or income tax

[@PaulSmithTouchstoneEducation]

Of course, managing your tax bill is critical, however not having any profit because you are not doing property is far worse in my view! Tax is a first word problem (ie a good problem). Paul

[@val_3020]

What if it’s your first property and main residence and you want to flip it? How long do you need to “live their before selling to not pay tax on the profits ?

[@ikennachinwike7127]

Thanks Paul, very clear and elaborate as usual. But did you say remortgage after 6 months?? I never knew that was OK 🤐

[@PaulSmithTouchstoneEducation]

Hi Ikenna, using commercial mortgages you can remortgage straight after work is complete. I believe Virgin Money is 4 months, most BTL lenders are 6 months. Paul

[@marcodeci3951]

Paul i would like to see a video about getting around CGT

[@MrNessav]

Great to see it clarified. Does this work or do you do this in London ?

[@PaulSmithTouchstoneEducation]

Hi Ellas, I have done this all over the UK. My first flat was 269a Roman Road, East Ham. We have students with 1 or 2 BTL in London all the way to £20m plus portfolios. Good luck! Paul

[@peterwilson3733]

Best man on KZbin 🎉

[@PaulSmithTouchstoneEducation]

Thank you Peter, very kind!

[@squareandcompassconstructi6010]

I'm intrigued to know what asset protection can be used to protect your investment in the case of a down turn in the market? (Atleast with flipping you're limited)

[@stevenm1225]

Would love join the program. In the break down there was no mention of agent management fees, end of year accounts and maintenance costs.

[@PaulSmithTouchstoneEducation]

Hi Steven, I gave a net cashflow (ie after all costs) per month and from memory I used £300 per month which is very realistic given current rents and low mortgage costs. We have many other videos going to that level of detail if you want to look at videos done by Abi in particular. Thanks for watching! Paul

[@stevenm1225]

Thanks for the reply Paul. I’m booked on the February online seminar. I’m sure we can cover this topic in more depth. Look forward to to program. Steven

[@romanjaskowiak8288]

It’s depends on financials situation

[@mattyy01]

Great inspiring content as usual Paul - Thoughts on a couple of flips on your primary residence to increase capital - to then re-invest into BTL? I'm going to be a first time buyer in the next year to paint the picture.

[@PaulSmithTouchstoneEducation]

Now that Matt is the exception that proves the rule!!! Yes on PPR flip away as zero CGT! Great point. Paul

[@aminaakram6779]

Do you then pay capitlal gains on the 23K if you sell? And what abouy minus the costs?

[@rowenadelmo6365]

Hi Paul how can 12yrs old bought property.? How do you do that just curious. Thank you

[@vincentmoses9770]

Would you not need to add in the Estate Agent Fee and Legal Fee when you sell it?

[@marielonghorn5977]

Please can I have a book on serviced accommodation please Paul

[@linsjoin]

Any vids on creative tax strategies would be welcome. Thanks

[@PaulSmithTouchstoneEducation]

I have done loads Linsjoin. This channel is full of tax, pensions, capital allowances, enjoy! Paul

[@jamesandange1]

You might have forgotten to factor in a few things here. Even though you could save a couple of thousand in selling fees if you hold, you wouldn't be getting a full year of rental income because you have lawyers to wait for with the purchase and reno time. So maybe would it be 4 months of rental income out of the 12? Or can you get access prior to contract exchange like in Australasia?

[@PaulSmithTouchstoneEducation]

Yep we often do EDC with keys undertaking... As long as you are making great money just enjoy!

[@vikaschopra-progress9743]

I have property fully paid off needs just a bit of work should I pull money out of it. Do a buy to let mortgage and is that a remortgage? Then can use that for other projects.. How do you find these run down properties? Do you get planning permission beforehand to do works on them? Thanks and very informative video

[@PaulSmithTouchstoneEducation]

Hi Vikas, well done you! Great idea to remortgage / release equity and go buy more... just make sure you have correct education & support. Decide to buy new ones in limited company vs personal name etc... If you look on this channel at the "Property Investing With Abi" series Abi covers finding properties, doing efficient refurbs etc... She releases an episode every Sunday. Last week was on exactly this. Good luck, Paul

[@georgegeorgiou2915]

Quick question....if you keep it but sell it layer down the line, what's the capital gains tax implications? I guess you will still need to pay CGT, right?

[@paulglaser649]

Paul, How am I going to find a property that is so much below market value that this method works?

[@TommyHyde-n2z]

Hi Paul, you didn't mention the cash required for the 20% of the BTL mortgage, or am I missing something? Assuming 27k would be required for the deposit? Please correct me if I am wrong..

[@evka24]

Love the math

[@nag9439]

Hi Paul, Watched many of your videos, you seem to invest mostly in Doncaster. You don't like to travel to other cities to invest?

[@PaulSmithTouchstoneEducation]

Hi Nag, yes I invest where I live. I have a portfolio in Yorkshire and I lived in Scotland for almost 20 years so I have a decent portfolio around my family home up there that I still own. Paul

[@simonmeasures6826]

Hmrc would likely view you as a trader and imcome tax would apply not CGT

[@evka24]

What’s sgt? Tahnsk

[@damme91]

how can a 12 year old be able to buy a property you need to be 18 to take legal ownership of the property?

[@PaulSmithTouchstoneEducation]

He owns a company (no minimum age on being a shareholder) that owns the property

[@5-minutes-relax]

Great video. I am just confused. If someone could help me out with numbers that would be great. So, in the example, we have profit of £45000. Assume that we don’t have any other income. CGT allowance is £12300, that’s £32700 left to pay tax on it, but because is less then £50000 (basic income tax rate) we have to pay only 18% of tax. That means we need to pay only £5886. Profit after tax £39114. Assume that we have a job and our yearly wage is (gross) £29200. Added up all numbers and following gov guide line, we are ending up to pay £8892 on tax. So, we are taking home £40508. Is my calculation ok or I really missed something?

[@PaulSmithTouchstoneEducation]

In the example I said assume we do a few of these a year and that is why I used the 28%.. first one will use your allowances for sure. Second one in a year incredibly likely you will be into 28% CGT. Of course if you have a partner, do one a year to use up your combined £25k allowances great idea... I also said I would never criticise anyone for flipping... biggest mistake is to do nothing (in my view). Thanks for watching. Paul

[@5-minutes-relax]

@@PaulSmithTouchstoneEducation Thank you Paul for your answer, I really appreciate it. I did not want to offend anyone. I am just starting out in real estate business and I will choose flipping for my main strategy, because I flipped half dozen property outside of UK. I loved it, every single part of it. Talking to agents, lawyers,builders, vendors etc. It turned out I am not stressful person. I just want to know as much as possible before I invest in my first flip. For me the best way to learn and pick up new knowledge is ask questions. I am sorry if I was unclear at first place. Thank you, Balazs

[@rcaunhyerc]

Hi! So if I have zero starting money I cant do this? No idea about property thanks

[@PaulSmithTouchstoneEducation]

Hi there! Can you pass along your number privately so we can further discuss how we can help your situation? You can send it here: web.facebook.com/YourTouchstoneEducation/

[@rcaunhyerc]

@@PaulSmithTouchstoneEducation Hi I should hear from someone soon according to an email as I am hoping to attend the 2 day Wealth through Property event in August. Thank you for your reply

[@mikeroyce8926]

Paul, surely the 8.8% increase is a paper increase and would need to be sold to become money in your pocket; and selling it would reduce it by 28% CGT.

[@PaulSmithTouchstoneEducation]

How about if you remortgage and release equity? Would that put tax free money in your pocket?

[@mikeroyce8926]

@@PaulSmithTouchstoneEducation Yes that would put tax free money in your pocket, but would you need to pay an arrangement fee (£2,000?) to the mortgage lender? And possibly solicitors fees and surveyors fees if not included in the arrangement fee?

[@PaulSmithTouchstoneEducation]

@@mikeroyce8926 maybe... not always though. RBS called us to say some of our properties had gone up a lot in value (owned for 10 years plus) and would we like more money? We said yes & money was in our bank (fee free / no survey) ..... but normally I agree you would have to pay fees. This is what I call a first world problem! Release £100k tax free equity (or whatever) and pay a couple of grand happy days!!!!

[@johnporcella2375]

Hi Paul, Whist you said that you used the same price for both scenarios, you actually did not! You used £130,000 if flipped, but £135,000 for holding it! You were conservative in in the valuation of the selling price, but somewhat aggressive with the valuation for refinancing purposes! Not comparing like with like, so the final figures may ba a little different...

[@PaulSmithTouchstoneEducation]

I quite often round the figures John, just to make the mental maths easier. Hopefully end result should not be much different. Main thing is to invest in property!

[@johnporcella2375]

@@PaulSmithTouchstoneEducation Okay! Given that you did it during a break, it was easy to do! Good episode nonetheless!

[@colincroft334]

Need a conversation with you

[@andrewjones9994]

Will you have mortgage payments and why BTL, a lot of your training avoids BTL because of voids, maintenance and bad tenants

[@rollerrevolution7044]

In this instance, Paul is talking about a straight BTL (and only keeping it for 1 year) so yes, you might want to take off something for voids/maintenance, although you'd hope on a newly refurbished home there would be too much of either! He does take mortgage costs into account before the £300 a month/£3,600 per year total. This was just an example but he would (or Jude would) likely put in a Rent To Buy tenant, so therefore NO voids, NO maintenance, guaranteed rent for the next 7 years (that's 25k profit right there!) and a sale price at the end of the 7 year period of £177,500. Touchstone are the market leaders of the Rent To Buy strategy, so definitely worth listening to one of their webinars and watching their KZbin videos. xx

[@andrewjones9994]

@@rollerrevolution7044 thanks, I follow Touchstone Education and attend a lot of their webinars, that’s why I was surprised about BTL, Can you get a different mortgage for a Rent to Buy

[@rollerrevolution7044]

@@andrewjones9994 a regular BTL mortgage is all that's needed. xx

[@andrewjones9994]

@@rollerrevolution7044 thanks

[@PaulSmithTouchstoneEducation]

@@rollerrevolution7044 thank you for explaining! Paul

[@OraEtLabora0]

11:13 who is Fanni? ;) we need team intro video!

[@PaulSmithTouchstoneEducation]

Fanni is our lovely niece and she manages our group finance department. Good idea on the intros Ora!!!

[@qdog5921]

That's great but what happens if you're in London where it really does make sense to sell and take profits now? Also London numbers are considerably bigger too. Would love your input?

[@PaulSmithTouchstoneEducation]

All the same ratios apply in London.. yes property costs more but profits are also more..

[@ritajames7797]

In the UK, are children under the age of 18 allowed to own property?

[@PaulSmithTouchstoneEducation]

Jude is 12 he can own a property but can not get a mortgage until he is 18 years old. However he can own a company which owns the property and the company can get a mortgage. So specifically Jude owns the company that owns the house. Hope this makes sense? Paul

[@jfan6088]

💕💕💕

[@Andyredarmy]

Worrying about reliable tenants

[@PaulSmithTouchstoneEducation]

Hi Andy, I agree that is why we do a lot of Serviced Accommodation (Air Bnb etc) and rent to buy... there are plenty of fabulous tenants too though! God luck. Paul

[@jamiecarter8459]

Can I ask how you how do I raise the initial £85K

[@rollerrevolution7044]

@@martins5369 I think many investors would be happy to lend it to Paul's son, knowing he's backed by the best brains and team in the business. They probably wouldn't lend to any random 12 year old though, lol! xx

[@PaulSmithTouchstoneEducation]

Hi Jamie, as the others say, Jude (my 12 year old) borrowed it off his Granny (my Mum). I got started years ago by saving up and as soon as I had my first I was off, I bought a flat for £9k (this was 1982) did it up and sold for £30k within 2 years... so savings, equity in property or private loans. To do this property you would need sensibly £30k cash and you could borrow the rest. Good luck. Paul

[@jamiecarter8459]

@@PaulSmithTouchstoneEducation good morning Paul. Thank you for your reply. Have a nice day

[@Jo-whoknowshowmany]

For people that have not got family with money, this is not an option.

[@PaulSmithTouchstoneEducation]

@@jamiecarter8459 you too!

[@SteveSmith-hv8or]

Rent it out

[@lorr4bs7777]

Please explain to me how a 12 year old gets a mortgage lol

[@kevinflynn8798]

Higher rate tax payer at 12 years old, well done wee man