Property Renovation – Buying a property to let always involves an element of risk. The rental market might falter, bringing down your monthly income. Mortgage interest rates might go up. Tenants might not pay rent on time. When you buy a property that needs a lot of work or conversion before you can let it, the risks grow. The cost of renovating a property nearly always turns out to be higher than the original builders’ quotes, as until work is started, it’s impossible to tell exactly what needs to be done. But, if you can get it right, buying cheap, working on a property and then letting it in pristine condition can make you more money than buying an already perfect property.
Risk and Return
Buying to renovate can work out as the cheaper option, but not always. You need to do some thorough research to make sure that you are buying a property that won’t end up making you a loss. The Royal Institute of Chartered Surveyors warns landlords thinking of buying a renovation project that they should always make sure they get a full building survey done before they commit to buy. A full building survey doesn’t come cheap: they start at around £700. But the costs of dealing with hidden problems such as damp and rot will run into the thousands. In that context, that £700 is likely to be money well spent.
Once you are satisfied that the property you want to buy can be renovated at a reasonable cost, you need to work out exactly what you want to do and how you will do it. If you have some DIY skills and time, then you might be able to do some work yourself, but always make sure you call in the experts for anything you’re not sure about. Get several quotes and don’t just choose the cheapest. If you’re letting a property in a prime area to young professionals, they’ll expect high-quality materials and a perfect finish. If you are letting to students, go for hardwearing and simple.
Costings
All your costs, including surveys, solicitors and renovation need to be taken into account when you work out your profit margin. Find out what the property is likely to be worth once renovated, so that if you choose not to let for any reason you can sell and make a profit. Also work out the cost of your monthly mortgage payments, loans and any other money spent on the property, including extras such as landlords insurance. Then allow yourself a contingency of around 10% per year. If you still have a profit once all those costs are accounted for, you’re ready to go. Renovating a property can be hard work, but it can also be very satisfying to see it develop over time from wreck to home.