Back when the property market was booming, buying a wreck and doing it up was seen by many as a sure fire way to make some money. Even if the cost of renovating your wreck ended up being more than you predicted (as, of course, it usually does!), the steady increase in property prices would (hopefully) make up the shortfall.
That was always a risky investment strategy, but with prices stagnant, it’s simply not an option. If you’re going to buy a doer-upper, you need to be sure you’ll be able to get a return on the investment another way. Increasingly, it makes sense to let renovation projects out, rather than sell them, as rents are rising while house prices are not.
What to look for
If you are taking a risk on a renovation property, it is usually a good idea to make sure that the property you’re buying is a pretty sure bet in terms of getting tenants in at good rates. One and two bed properties near transport links nearly always let most easily, as they’re snapped up by young professionals.
Make sure that you also minimise risk by getting a builder to look at the property before you buy. A survey will only tell you so much about a property: an expert in construction should be able to tell you what needs to be done, and how much it might cost. Be aware, though, that costs can grow and builders generally give the lowest quote they can. Make sure your budget can stretch to a decent contingency – at least 10% is usually recommended.
Mortgage companies are often unwilling to lend on a property that needs significant work. That doesn’t mean that you won’t get a mortgage, just that you may find that you need to shop around and may end up paying higher rates than you would have otherwise. Remember insurance costs too: you will probably need renovation insurance during the project and landlords insurance once it is complete.
Buying a property to renovate can work out more expensive than you might think, but it can be both financially and personally rewarding if you get it right. The key to success is setting a well-researched budget, and then doing your best to stick to it.