Get filthy rich from property!

As self-builders have learned, where there's mud - there's profit. Harvey Jones finds out why.

Despite the recent upwards tick in house prices, the days of expecting a massive increase in your equity every year are over.

But there is still one way of reaping double-digit returns from property, provided you don't mind getting your hands dirty.

Building your own home from scratch is a daunting job, but you don't need to be a builder or an architect to tackle it (you can even buy off-the-peg kits). And if you build a handsome pile somewhere nice, you could end up with a fat chunk of spare equity that you can sit back and admire.

The average self-builder has between 25% and 35% worth of equity at completion, according to Buildstore, which offers practical and financial help to people building, renovating or converting properties.

So if you spend, say, £300,000 building your own home, including the cost of buying the land, you could be the proud owner of a £400,000 des res at the end of it.

But unlike the profits enjoyed in the recent property boom, you will really have worked for your money.

Here's mud in your eye

Construction time again

Yet the cycle might be swinging back in favour of self-builders, with inquiries to Buildstore on the up.

Related goal

Sell your home

If you want to obtain the best possible price when selling your home, then these ideas should help.

Do this goal

Land is also getting cheaper. The price of the average plot is now £123,084, down from £145,871 six months ago and £160,105 last year. That's a serious change!

The number of plots available has fallen - there are currently 5,200, compared to 6,000 in November, though Buildstore argues this is because the plots are selling so quickly. What's more, up to 700 new plots are added each month.

And with house prices no longer in free fall, you might even have a sniff of a profit on the finished article.

But how do you get the money to start your build?

Adopt this goal: Sell your home

Borrow and build

A dwindling number of people may have enough equity in their existing home to fund a build, but most will need to borrow.

Buying your first house is a big step, but many first-time buyers make these classic mistakes

A fair few lenders pulled their self-build projects once the credit crunch kicked in, including Coventry, Scarborough, Newcastle and West Bromwich building societies, and Woolwich.

But Ecology, Norwich & Peterborough and Lloyds all currently offer self-build mortgages. They will typically lend you the money in five "stage payments", paid in arrears after you have completed each section of your build.

The drawback is that if you can't afford this on top of your existing mortgage or rent, you may have to sell up and move out of your current home, to live on-site in a caravan during the build.... which sounds like fun. For the first week.

Buildstore tackled this problem with its "Accelerator" mortgage range, offered by a panel of lenders, who will release up to 95% of the land and building costs in advance of each stage, rather than arrears. Whils some of the panel have since pulled out, there are still a fair few exclusive deals to choose from.

Watch this video: Three massive first-time buyer mistakes

Dreaming is free. Everything else costs money

You need time, energy and patience to build your own home. Most people spend two or three years dreaming before taking serious action. They might then need a year or two to find the right plot, up to 18 months for the build, and another six months for landscaping and tying up the loose ends.

How busy are you right now?

You also have to budget carefully for all your costs, including legal fees, stamp duty, surveys, inspections, insurance, architects' and engineers' fees, materials, labour and service connections.

And like every building project, from the 2012 Olympics to replacing my kitchen floor last summer, you will invariably trash your budget and deadlines.

The planning process on its own has reduced grown men to tears of impotent frustration. You need a strong nerve, because there is a lot of money at stake.

Filthy. Rich

Self-builders will tell you that bargaining with suppliers, pleading with planning departments and tussling with builders will take over your life, but the results make it all worthwhile.

And there are tax benefits. It is one of the few legal ways to escape stamp duty on your home (aside from becoming an MP). You will pay duty on the land, unless it costs you less than the £175,000, then you escape it altogether. Indeed, with the change in Stamp Duty for first-time buyers, self-build is now a great option for those looking to build the first home they own.

If the home is for your own use, you can reclaim VAT on labour and materials (although not on professional services such as architects and solicitors). You can't reclaim VAT if simply extending your existing home.

And unlike buying a new-build property, you don't have to fund the developer's profit margin, you pocket that yourself. Although I should mention that house builders haven't been making much in the way of profits lately... in fact, they haven't really even been making houses.

Best of all, if you get it right, you have a house built to your own personal specifications, and equity to spare.

If you're interested, visit Buildstore.co.uk, whose Plotsearch search mechanism helps you locate land around the country. In fact, Buildstore is running an Affordable Self Build Weekend on the 15th and 16th of May, so if you're interested in building your dream home, be sure to check it out!

The days of making easy money from property are over. To get rich these days, you first have to get filthy.

This is a lovemoney.com classic article, originally published in June 2009 and updated.

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