Know your hidden costs when buying a second property

If you are anything like me, you will just jot down a few numbers on the back of an envelope to see if a deal will work for you, and often make a decision based on emotion rather than logic! You get that excitement in your stomach at the thought of embarking on your next project, yet somehow in the rush to forge ahead, you overlook some of those all-important and sometimes hidden costs that could cost you your profit!

I am always staggered when I see how many costs there are to bear, and so I carry out a simple outline exercise, which I’m sharing with you below. Just take a minute to look if you are considering buying a doer-upper for the first time.  This one according to my figures (and i have included absolutely everything!) will still bring you over £20k in profit – perhaps more if you can make further savings along the way and don’t have all the fees I have included. But dont forget to add a little contingency into your costs, something will always come up that you didn't plan for!

Based on purchasing a leasehold property for £150,000, allowing a further 10% (or £15,000) to do it up.  You will see that that same property would need to be sold for over £206,000 to make a 15% return on your investment. 

Remember that these days any property information is openly available for the public to see, so regardless of the fact that Jo Public can just move in to a beautiful new ready-made home, with warranties, and fresh smelling paint, they will still see that less than 6 months earlier (and this is how long you will need to hold the property for), you purchased the very same property for £56,000 less than its current market value.  So you may lose one or two potential buyers along the way that can’t see the big picture.

But fret not, there will always be a buyer who appreciates the blood sweat and tears you have endured to create the space they now desire so much, and should understand the costs you have covered, such as refurb costs, bank charges, VAT, service charges and utilities, capital gains… the list goes on! So cross the I's and dot the T's, and make sure you have fun along the way!

Purchase price                                  £150,000

Stamp duty                                         £5,000

Possible Mortgage set up cost           £2,000  

*often added to the amount you are borrowing and can be paid back at the end of term or when it is redeemed)

Possible Broker Fee                           £800                   

Mortgage Valuation fee                     £350   

*you may be able to arrange for mortgage valuation and home buyers’ survey to be done at the same time to save some money

Home buyers Survey                        £350

Legal fees                                         £700    

*get a fully inclusive quotation, to avoid more hours than planned being billed

Refurb Cost                                       £15,000

Possible Management costs if leasehold

(Licence fee to sub-let)                 £150     

Management pack                         £500     

Service charges for 6 months        £500                     

Utilities for six months                    £300

Agents re-sale fees @1.35%          £3,337  

*based on resale value of £206,000

Re-sale Legal fees                          £750

Possible capital gains tax             £5,200


Total spend                                        £179,773

Total profit                                         £21,027  (based on resale of £206,000)

Lisa Gershinson