Whether you’re flipping or growing a buy to let portfolio, buying a property project to renovate can bring in a healthy profit.
Our guide will help you avoid the property renovation pitfalls and help you profit every time.
As the house market has picked up over the last few years so has the opportunity to profit by buying a property to renovate.
Government schemes such as the Help to Buy initiative have improved the market and help to get more people moving up the housing ladder, confidence coming back to the market has improved the outlook for buyers and falling unemployment helps to give buyers the confidence to take on increased mortgages.
So – how can that confidence in the housing market turn into extra profit for your property business?
Read on for the acorn.finance guide to how to renovate property.
Research, research, research
Research is vital before embarking onto any property transaction. Get it wrong and the profit could be decimated or even lost completely.
Understand your chosen market, location and the nature of the task before committing to anything.
Location, location, location.
The first thing to consider with any property transaction is the location.
Location is everything in property, if you are buying to refurbish and let then the long term rental market in the area is vital, if your renovation project is to flip, to sell on to provide funding for the next project then a fast moving market and a high potential ceiling price would be more relevant.
It’s important to not be sucked into buying the property in the location that you would buy. After all you are not going to live in the property, it’s either going to be rented or sold, so consider your target buyer or tenant now and research the area through their eyes;
- Schools – Young couples and families want their children to get into the best schools available – Rightmove and Zoopla have research tools which will help here.
- Amenities / transport – Pubs, shops, supermarkets, green areas, libraries etc can all be important and might add value to your completed renovation, consider your target market and how accessible the amenities would be.
Leveraging your cash should also gain maximum profit so consider your project well.
Before embarking on your project, particularly if it’s your first property to renovate it’s vital to understand what you are taking on and how the work is going to be done.
We’ve all watched Grand Designs and seen self build projects which have gone way over time and budget, when it’s your business going to 150% of your budget, all the profit has gone and your business will soon fail.
Be realistic with your own skill sets and be ready to bring in the professionals to complement them, that might include architects and planning consultants as well as builders and electricians so find yourself a team that you can trust and get their views on the project.
Ensure every possible contingency has been thought of in advance so there are no nasty surprises when the builder finds the dry rot or woodworm under the kitchen floor.
You don’t want to end up buying a money pit.
Firstly negotiate hard on the purchase price. Every pound you save now will be more profit in a few months time.
Draw up a full schedule of works to include timescales and pricing, include materials and labour in the schedule so that you can understand how much funding you will need and when you will need it, this is especially relevant to a larger project where a funder might provide staged payments.
Where possible consider getting contractors to sign up to fixed price contracts, although these may be a little more expensive it will remove some of the risk from you.
Once you have a full pricing schedule add at least 15% for potential contingencies. You may not need it but it’s almost a guarantee that if it’s not available it will be required.
With a full view of the costs & timescales start to consider the finance – Talk to one of the acorn.finance experts so that the best scheme for you can be selected and work that into your overall figures.
Remember your profit is only going to come after everyone has been paid out and the lender cleared, if there’s not a good enough margin then move onto a better project with a good margin.
If your intention is to retain the property after renovation and to let it out then your calculations need to consider the market rent on the unit and how long you are likely to retain in line with your property investment strategy.
Never rely on increasing property prices to provide a profit.
Once you have all of this information together making a finance application will be far easier
Contact one of the acorn.finance team and we’ll be able to talk you through what’s required.