Property renovation is an opportunity that can work equally well alongside either buy to let or buy to sell. In this post we will offer some tips for running a profitable renovation project.
Is renovation right for you?
Renovation projects can come in many forms. They are best thought of as anything over and above a light refurbishment.
The most important thing to know about renovations is that they involve more commitment and more risk than a light refurbishment. They require more money. They require more time. They require a wider range of skills. They require more project management.
Renovation projects typically include some or all of: Structural repairs, such as rectifying subsidence, damp issues and roof repairs. Structural changes, such as changing layout or building an extension. Replastering. New joinery. New electrics, plumbing and heating. New kitchens and bathrooms. New insulation and energy efficiency measures. Complete redecoration. Garden works.
Finding the right property
An important principle to bear in mind with renovation is: Final selling price ≥ initial purchase price + expenses + costs of renovation + minimum profit margin.
The old adage that you make money when you buy rather than when you sell very much applies to property renovation. Buying at the right price initially is as or more important than the renovation work itself.
In general terms the more renovation work that is needed the greater the scope to add profit with a well planned and costed programme of work.
Often properties which are sold as ‘suitable for renovation’ attract more buyer interest and so sell at higher values than otherwise. Take care when considering these properties.
Properties which are available below market value are particularly suitable for renovation projects. Here are some Tactics For Finding Below Market Value Property.
Properties which are unmortgageable can be an attractive proposition for renovators who can finance creatively. They may offer scope to buy, refurbish and refinance or even buy, refurbish, refinance, rent or BRRR.
Consider the ceiling price for the local area beyond which no amount of renovation will add to the property’s value.
PaTMa Property Prospector can not only help you find properties for sale it can help you gauge local property prices and values in any area. It can also help you find below market value and reduced properties.
Costing your renovation
A renovation involves multiple different costs and types of cost. It is therefore particularly important to cost everything out carefully and set a budget before starting.
Costs involved in a renovation scheme include: The purchase price. Purchase costs, legal fees and taxes. Finance costs, including loans and mortgages. The cost of the work itself, eg. labour and materials. Relevant fees and costs, eg. planning permission and building control.
Start with a schedule of works, ie. a list of the renovations that you intend to do.
Obtain reasonable estimates for all necessary works and other expenses.
Tweak your costs and expenses and arrive at a budget.
As renovations can involve unforeseen expenses and so carry a high risk of cost overruns it is advisable to allow an adequate contingency. 20% would be a sensible contingency for a renovation.
PaTMa Property Prospector can help you cost different potential property renovation projects. It can also help you compare them back to back to find the best ones. It can help you decide whether a property renovation will stack up financially as a buy to sell and also what yield it might offer as a buy to let.
Key renovation skill: Project management
Some renovation projects are more complex then others. However, they will all generally require much closer project management than light refurbishments.
You can opt to either self-manage your own renovation or appoint a project manager or main contractor to project manage for you.
An important part of the project manager’s work is to liaise with everyone involved to keep a project on time and on budget. It will involve a daily commitment and possibly a daily site visit once work gets underway.
Using a project manager will generally be more expensive but will involve less personal time commitment.
The time and work involved in self-managing your project shouldn’t be underestimated. It should be allowed for in your costs.
Other important issues to consider with renovation
Traditionally many types of work in a renovation required planning permission. Extensions to permitted development rights since 2013 have meant more renovation works can be undertaken without a planning application being necessary.
Key point: There can be cost and time saving advantages to planning a renovation in such a way that it does not require a planning application.
Some examples of work that can be often be carried out under permitted development rights include: Some single story extensions. Two story extensions to the rear elevation. Loft conversions. Basement conversions. New doors and windows. Reconfiguration of the internal layout.
You can check whether or not your project requires planning permission on the Gov.uk site here. It is also advisable to check the local situation with your local authority.
PaTMa Property Prospector can provide contact details for your relevant local authority. It can also tell you whether the local authority has any Article 4 directions in place which might remove your permitted development rights.
(Property Prospector can also provide you with a ‘sneak peak’ of the local planning situation to help you plan your renovation. It can show you what other renovators and residents are planning, what projects they have carried out, and even what projects have been refused.)
Building regulations approval
Most renovation projects will require building regulations approval for many aspects of the work. This may be needed even if they do not need planning permission.
Works which require building regulations approval include but are not limited to: New buildings. Extensions. Loft, basement and garage conversions. Structural work. Removal of some non-structural walls. New roofing. New floors. Installing new kitchens and bathrooms in some cases. New heating. New electrical installations. New doors and windows. (There are exemptions for some types of work within these areas.)
You can find out more about building regulations on the Gov.uk site here.
PaTMa Property Prospector is an invaluable tool to help you find properties suitable for renovation projects, analyse the financials, compare several potential projects back to back and manage your costs more effectively.