Buying property to renovate and sell on

With the historic growth in property prices many people who engaged in property renovation have now made their fortune. However as in all forms of investment, renovating property requires good project management skills if a successful outcome is to be achieved.

  • Financing a renovation project – If you will require finance for your project then you will need to consider carefully the options that are available to you prior to committing yourself to the project. Property financing is covered elsewhere on this site.
  • Assess your skills – having the skills to manage such a project will be vital to success and will define the limit of the complexity of renovation projects you should consider. DIY skills on their own must never be your sole basis for attempting a complex renovation project as your success will be more to do with the planning and managing contractors functions as well as controlling your budget. Take any construction project large or small and you will find that the key function is that of the project manager.

 

Assessing a project

All projects large or small should be approached in the same way and that is through detailed analysis and planning.

Finding a suitable renovation project – In some cases a project just appears and if you are experienced and in a position to make a quick decision, you could benefit from the opportunity. However, if you are new to property renovation you should hesitate and fully assess what is involved. Much can go wrong and unforeseen problems can arise if you are unprepared so it is wise to only consider projects that you have properly assessed and which are known to fit your skills and experience.

  • Local estate agents. Estate agents have good local knowledge. Speak to your local estate agents and tell them what you are looking for and you could be getting a call from them when their next renovation opportunity comes on their books.
  • Property auctions – Auctions are a quick way for people to dispose of their run down property and an ideal place for investors to pick up neglected properties or properties that lenders have repossessed and want to dispose of.
  • On–line property adverts – For sale websites and on–line local adverts can sometimes produce interesting opportunities and are well worth looking at.
  • Local Councils – Councils are always looking to address their housing shortage and sometimes look to bring empty properties back into use. Check with your council to see if you could help bring these homes back into use
  • Keep your eye open and ask – Familiarise yourself with the area of interest and note any run down or empty properties that might soon come up for sale. Often these are owned by elderly people or people who have already passed away but the property may be subject to probate before being sold. If you can trace the family or solicitor concerned and your timing is right, you might find a true bargain.

Planning your property renovation project – Having found a potential project, you are now ready to start preparing your plans for carrying out the renovation work you want to complete. Here are a few things to consider.

  • List of works required – Make a list of all the work needed to bring the property up to the standard you want to achieve. Excel spreadsheets are ideal as they allow you handle a lot of detail and are great for establishing budgets.
  • Planning consent and professional advice – If building work is envisaged then planning consent will be needed. This will usually require the services of an architect to prepare the plans.
  • Building contractors – Sourcing reliable contractors will be essential to your success. Coordinating their building activities for building extensions, removing support walls, plastering and repairing roofs then combining that with internal rewiring, plumbing and installing fixtures will be a major task with larger renovations. Where renovation of properties is to be your long strategy then getting to know good reliable building contractors will be a top priority.
  • Create a project build plan – Using excel spreadsheets set out the order of build for the various activities and for each, put a line on your planning chart to show where that portion of work fits into the overall plan. You will now have a complete plan for the project against which to manage the build.
  • Cost planning – Again using your excel spread sheets, set out your best estimate of the cost of each portion of work showing the cost of materials and labour and enter the costs to match the time frames for that portion of work. This will give you a cash flow chart for the project from which you can determine your financing requirements.
  • Financing – As you will now have a properly structured build plan and cost estimate for the project, you will have the information needed to approach a lender for finance. At this stage, you may find your build costs and your lenders maximum lending do not match. This is quite common but as you have everything clearly set out on your spreadsheets, you can now work towards matching your costs to lending.

Reassessing your Investment property project

As mentioned above, you may find that the costs you have allocated to complete the project may not match your lenders offer. The plans you prepared will now allow you to review each cost and work activity and allow you to easily reappraise your approach to the project.

  • Work schedule – First check if all the alterations you have planned are absolutely necessary as may find you had been allowing for items in the build that will not appreciably improve the final value of the property.
  • Building fittings and materials – Are there lower cost materials or products available that will serve your need but lower your build cost. Sometimes easy install equipment can save on labour costs which can often be more expensive than the materials or fittings.
  • Contractors – Make your own estimates for the work you intend to contract and obtain fixed price quotations for the work from at least two contractors but preferably more. Don’t accept the first price you are given discuss ways of reducing the cost. Always obtain quotations in writing.

Having gone over your plans and confirmed your costs, you will be able to properly assess if the project is manageable and your expected return. If you cant make it fit with your expected returns then leave it alone and look for another project. You will have gained from your experience.

Some things to keep in mind

Everyone makes mistakes and if it is your first renovation project you will likely overspend and the project may take longer to complete than you expected. This is how you build experience. Here are a few of the more important things to consider before you commit to the project.

  • Property selling values – Properties will have a ceiling value which is governed by its location and the values of other similar properties in that area. Building extensions and adding rooms that would require the property to sell above the ceiling value to realise a profit will result in disappointment. Always make sure that before undertaking any new renovation project that you have properly ascertained what the ceiling for that location will be.
  • Individual features – Adding extensions and doing loft conversions will always add value to a property but but not necessarily enough to cover their build cost. As you are renovating for profit you need to apply this thinking to every major addition you are considering.
  • Project duration – It is always wise to allow a contingency for overrun to the project build time. Unforeseen things will arise and cause delay so it is important to ensure that should a delay arise that it does not create a financial difficulty that could derail the project.
  • Project Budget – As with project duration, a contingency should be allowed to your a budget as things will arise that you did not expect.
  • legal and finance services – If the project is to be financed you find a good mortgage broker with experience in renovation projects to help you obtain the most suitable mortgage for your needs. Likewise, finding a solicitor who deals in renovation project purchases will be helpful and you may benefit from their knowledge and experience while you are in the planning stage. If we at Investment-property.co.uk can be of assistance in this area please get in touch.