Fancy a big renovation project?
Thu 24 Sep 2020
From finding that spending sweet spot to doing renovations in the right order, here’s how to make a success of fixing up your new home...
Everyone likes a bargain, so the idea of snapping up a great property in need of modernisation is hugely appealing.
Renovation projects are a brilliant opportunity to make money on a property investment, but the work that comes with them is not for the faint-hearted.
Investing in a fixer-upper isn’t a guaranteed profit-maker either, with spiralling costs and other potential pitfalls. However, here are a few tactics you can take to maximise your chances of success.
Know your market
Location is key. If you can identify a property in a desirable location and get it for a price that factors in the cost of doing work, then you will offset risk.
Property developers often use the following rough calculation when considering a purchase: will the property be worth 20 per cent more than its price plus the cost of building works once it’s complete?
“The most important thing to consider before buying a property is how it will be sold eventually,” says James Forrester, managing director of Barrows and Forrester estate agents.
“Is it in an area that will sell? What is the ceiling price of houses on that street?”
Make sure that what you decide to spend on renovations stays below the difference in what you paid for the home and what it might worth once it is finished.
Who will be buying from you?
Identify your target buyer. If the property is likely to be bought by a family, consider what might be important to families when making decisions about renovations.
“The biggest market is usually second-time buyers. Homes that people are going to spend the next ten to fifteen years in,” says Forrester.
“They want to be able to just move in, and potentially to add value. Which is why doing loft conversions isn’t always advisable.”
Shell out for a survey before you buy
Invest in the most comprehensive survey available before committing to a purchase.
A RICS homebuyers survey will set you back £400 on average, but it will save you money in the long term as hard information about the work required will enable you to negotiate the purchase price of your property down.
Marc von Grundherr, director of Benham and Reeves, says, “Make sure the property is structurally sound. Older properties can hide a whole host of surprises so a structural survey is absolutely key.
“A lot of people go ahead and exchange and then get the survey when they get a mortgage, but this could be an expensive mistake. Even if you think you’re getting a bargain you’ve got to make sure the bones of the property are alright.”
Keep a tight rein on the budget
The cost of renovations can be the difference between making a profit and a loss if you’re planning to sell the property quickly rather than live in it for a few years
“Treat it like an investment and don’t get emotionally attached,” says Forrester. “Have your costs nailed down and sacrifice plans to keep them low if you need to.”
For buyers who are planning to spend several years living in a property before selling this isn’t such a consideration.
But if you’re fixing up to sell quickly, try not to get carried away and overspend on fittings you won’t live there long enough to appreciate.
A survey will help you find out about structural problems or issues like damp or asbestos that generally cost a lot of money to fix.
It’s impossible to budget when you don’t know what you’re budgeting for, but the survey will help and you can always bring a builder along to a second viewing to price up potential work (but remember to add VAT to their quote).
“When you’re working on your renovation costs, it’s always better to be pessimistic on your budget,” says von Grundherr.
“If you think your kitchen is going to cost you £8,000, add a bit to that in case you have to move a waste stack or a boiler. Over budgeting will make you much happier.”
Be practical about funding
Getting a mortgage might be more difficult for a major renovation project.
Banks generally won’t lend against homes without functioning kitchens and bathrooms. But bargains can be found at auction for cash buyers.
Banks might also ask for a bigger deposit to secure a mortgage on a major project.
Another consideration may be having to rent somewhere else for a few months while work is done. If you don’t have the money for this, then doing renovations, room by room can help with morale.
A loft conversion or kitchen extension could make the property more desirable, but it won’t always add value and could actually make it harder to sell.
“Loft conversions can definitely lose you money. The UK average for a conversion is £30,000 and the average added value is £25,000,” says von Grundherr.
Be strategic and do your homework based on what buyers in your area go for.
“There is always a risk of overdevelopment,” says Forrester. “The market dictates what people are prepared to pay for your street. Don’t create a five-bedroom property in a place where people don’t pay five-bedroom prices.”
Doing renovations in the wrong order can result in costly mistakes.
For example, get the electrics checked before plastering the walls or you might end up with holes in pristine plaster.
Dodgy electrics and plumbing should come up on your survey, so get those done before you do structural work. It’s also a good idea to finish walls before installing new carpets or flooring.
Go for a neutral colour palette and use interiors magazines and Pinterest to find a look that will be appealing to most vendors.
You can save money at all stages of the renovation, from the cost of tins of paint to deciding to keep existing radiators and only making the most necessary changes.
Consider the visual impact of your property as a whole. Does the outside space let it down? Could a lick of window paint improve the kerb appeal?
Make the value work for you
“Decide for yourself what you consider to be a good return,” says von Grundherr.
“Property developers might want 20% but even 10% is okay, especially if you live there for a while. But zero profits or a loss? What was the point of all that effort?”