15 important factors to consider when choosing a property renovation projectDevelopment
Renovating a property can be a popular choice for property investors. Here are some points you should bear in mind when choosing a property for renovation:
- Buy wisely. Buy as cheaply as possible, preferably below market value where possible. Experienced investors are likely to make as much from buying at the lowest possible price as from renovating.
- Location is essential, as with any property purchase. You can renovate the property – you can’t renovate the area. As the old saying goes – look for the worst house in the best street.
- Have a clear objective in mind before you buy. Are you renovating to rent, renovating to sell – or even renovating for your own occupation?
- If renovating to rent – assess the property as a buy to let investment rather than a renovation.
- If renovating to sell – consider who your most likely end buyer is and renovate accordingly. Is your likely buyer a family, a downsizer or a buy to let landlord for example?
- Estimate renovation costs accurately, after obtaining accurate current estimates for building materials and labour costs. Then set a realistic budget and stick to it.
- Never set an arbitrary budget, then try to shoehorn renovation costs into that.
- Allow for the cost of finance. Renovation finance is likely to be short term finance and so can be more expensive than a standard mortgage.
- Time is likely to be one of your greatest expenses. Overrunning on a renovation can be expensive in terms of higher renovation costs, higher finance costs and fluctuations in capital/rental value in the meantime. Estimate a reasonable timescale for the project.
- Decide in advance whether you will do any of the renovation yourself, or hire others. Bear in mind that handling some or all of the renovation work often works out as or more expensive than hiring others rather than cheaper!
- Factor your own time and effort into the costs of the project. This includes your time in managing the project.
- Look for ways to add value. Adding value is a process by which you add more to the value of a property than it actually costs to provide.
- The number one way of adding value is normally to add …. space. The more expensive the area the more value you can add by adding space, since value added will rise at a faster rate than construction costs.
- Ensure that the standard of renovation is in keeping with the eventual standard and likely value of the finished property. For example, high end renovation will not necessarily add its cost to the value of a low end property. Low end renovation may even reduce the value of a high end property.
- Calculate ‘before’ and ‘after’ values accurately. Be aware – over the last decade or so many renovators have made most (or even all) of their profit on renovation projects due to a rise in prevailing property prices rather than due to their renovation work as such. This might not always be the case in future.
Look at actual selling prices of similar property in the same area and take professional advice from local agents on values.
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