Many people have watched property renovation programmes on television and dreamed of taking on their own project. For property developers, the most profitable investments are often run-down buildings that require major renovation before they can be re-sold or let out.
However, “flipping” a property is not for the faint-hearted. A shrewd investment can quickly turn into a money pit if you haven’t done adequate research, planning and budgeting before getting stuck in.
Before you get started, check out our top tips for buying a renovation property.
Review Your Finances and Set a Budget
The first step towards successful property renovation for profit is to ascertain how much money you have to fund the project. Take into consideration any loans or financing you could secure as well as the capital available to you. Many traditional lenders such as high street mortgage providers will not authorise funds for property renovation, especially if major works are required to return a building to a habitable state.
Bridging finance is increasingly popular with property developers. There are far fewer restrictions on the type of property project the loan can be used for and funds are often released in as little as seven days. Furthermore, most providers offer the option to “roll-up” interest, meaning there are no monthly payments to make, allowing you to invest all the funds in completing the renovation project on time.
Setting a budget is essential for success. It’s easy to let renovation costs spiral out of control. Estimate a realistic figure to cover all costs and stick to it. Allow a contingency fund for unexpected expenses (there are bound to be some). But before you can accurately calculate how much the project will cost, you need to find the right property.
Find the Right Property
Estate agents list renovation properties that are currently on the market. Flipping properties for profit has become increasingly popular in recent years, so the market for renovation projects is a competitive one. All the more reason to have finances in place to allow you to act fast (see point one).
Auctions are also an option, although you’ll need nerves of steel. Exchange typically takes place at the auction, before you’ve had the chance to view the property, and completion must occur within 28 days.
Alternative opportunities to find the perfect renovation property include contacting the owners of empty properties, advertising locally, leaflet dropping, online marketing and networking. Consider the area, the type of property, your budget, the timescale you have to flip the property and what skills are available to you.
When choosing a property for renovation, estimate the costs involved and the potential return on investment (ROI) before committing to the purchase. Most developers aim for at least a 20 per cent ROI as this will deliver a profit even if unexpected costs arise or the final sale price is lower than expected.
Investigate Planning Permission and Building Regulations
For any major renovation project, such as extending a property or making external changes, planning permission is required. Some internal works, such as knocking down walls, also require permission.
Check if the property you’re interested in already has the planning permission you need. If not, contact the council to see if your plans are likely to be approved. If other properties in the area have undergone similar works, this could indicate there’s a good chance of getting permission.
Renovations must also comply with building regulations. These set out the minimum standards for design, construction and alterations. Building regulations apply to the vast majority of properties.
Plan the Renovation Works
Having a clear plan of action from day one will help to keep your project on track and increase the chances of completing all works within the desired time frame.
First of all, decide if you are going to act as the project manager and employ individual trades to complete all the different jobs you need doing. This way can save money, but it is a considerable time commitment and can be highly stressful. Do not enter into this lightly! The alternative is to hire the main contractor to oversee the project and manage all the sub-contractors required.
Decide on a spec and a timeline. If you’re planning to rent the property to professionals for an above-average rental fee, a high-spec refurbishment is essential for success. If you are going to sell the property and the likely market is young families, you can probably cut costs by using lower-spec fixtures and fittings. A timeline with clear project milestones will help to keep things on track, whether you’re project managing yourself or outsourcing the task. If in doubt, overestimate the time required for key tasks. Having a time buffer will give a little scope if the unexpected arises, as it undoubtedly will at some point.
It’s a good idea to schedule payments. Many contractors and subcontractors will down tools if a payment is late and delays will cost you money in the long-run.
Sell the Property
You may breathe a sigh of relief that all the hard work is done once you have fully renovated the property. But it’s important to put just as much effort into selling the property as renovating it.
Unlike many properties on the market, a renovation property sells as vacant possession. While this is a plus for many buyers — no delays due to the owners delaying a move and no property chain — it also means the seller has to put in extra effort to make the property appealing to buyers. Most people like to see a house as a home before they feel ready to make an offer, so staging the property well is important. Borrow or hire furniture and decorative items to make the property feel lived in. This will help potential buyers to envision themselves living in the property. Adding just a few items or furnishing one room should be sufficient to attract some offers.
Finally, make sure the property is priced right. According to research by Which? setting an asking price that is too high is the number one reason people struggle to sell a house. Obtain at least three independent valuations when the renovation is complete and look at the selling price of similar properties in the area to make sure the asking price is right.
Renovating property for profit is not for those seeking an easy get-rich-quick project. It takes considerable time, effort and money to flip a house successfully. Effective research and planning are essential to ensure the renovation is completed to the required standard on time and within budget. Take the time to secure the right financing, find a great property and plan the renovation before you start and you’ll have laid the foundations for property development success.