People's motives for buying a house that needs a great deal of work vary. It may be that you think that, with some TLC and a little investment, the property could become a wonderful home for you and your family. Or you may sense an opportunity to make a profit, either by quickly selling the residence at a premium after you have fixed it up or by renting it out. The rules for protecting yourself from acquiring a money pit or an expensive white elephant, however, are the same whatever your aspirations. In this piece, we round up some tips and hints from veterans in the renovation business.
1. Research the market
Firstly, before you commit to any major housing project, the experts are as one in suggesting that you spend a few weeks at least getting to understand the markets. This means reading the property pages in newspapers, attending at least one property auction to become attuned to what goes on at these sales, and talking to estate agents who can advise you on the quirks and idiosyncrasies of residential property in your area. There is a peripheral benefit in getting to know agents and other participants in the property market, namely, that further down the line, they can give you a useful 'heads-up' when suitable houses or flats are coming onto the market. This can be a priceless boon in a highly competitive business arena.
There are other important factors that your research will clarify for you. Where bankruptcy is the reason for a house being sold cheaply at auction, for example, there are insolvency provisions that can affect the property even after a sale has been completed. Similarly, your local authority will be able to advise you on any upcoming developments that could impact your investment and make buying a house inadvisable.
2. Do the maths
Secondly, make sure that you have or will have access to adequate funding. While foreclosed homes or those in need of a great deal of work are often sold at below the market value for similar properties, restoring homes is a costly enterprise and it's crucial to be satisfied that you have the resources to carry the project through to completion. If you are likely to be seeking bank financing, talk to prospective lenders as soon as possible to ensure that you are eligible for funding and the types of properties for which they are prepared to offer loans. There are many specialist lenders and the experts recommend that you shop around, compare deals and find the product with the terms that are most suitable for you. The veterans also suggest that you have a fairly detailed and realistic plan to show potential lenders. Much will depend on how much of the work you can undertake yourself, but you will need to factor in the costs of materials, insurance, labour and tradesmen's bills and professional - say, architects' or lawyers' - fees. Doing this research at the front end means that you will avoid delays, disappointments and unnecessary expenses further on in the process.
3. Be realistic
With regards to finances, it's tempting to think of property development as a sort of licence to print money. Certainly, we have all read inspiring rags-to-riches stories about prominent property moguls. However, these are the exception. While it is entirely possible to make a healthy return on this type of investment and it may be the springboard for building up a more substantial portfolio, the property market is as vulnerable as any other to fluctuations, and a quick profit isn't a foregone conclusion. You may, for instance, find that a house you have lovingly restored stays unoccupied for weeks or months, even in a relatively buoyant market. The critical thing is to make sure that you can afford to have so many resources tied up in one asset. Equally, as we have mentioned in these pages at length in recent months, there is a whole new tax regime affecting investments in residential property and you should talk to a professional who can help you decide whether, against the backdrop of the taxes, it will be worth your while to undertake this type of work.
An injection of realism is also required when you are estimating the length of time a project will take to complete and the amount of your time and effort that may be involved. Again, a great deal depends on how much of the physical work you plan to carry out yourself. Even if you are delegating the larger part of the work to tradesmen and so on, you will still be needed for decision-making, for meetings with professionals and to monitor the quality of the jobs being done by others. Experts say that you need to be sure that you can fit this around existing commitments and responsibilities.
4. Keep the end in sight
This is partly about knowing when to draw a line under a project so it doesn't cause an unreasonable drain your resources. It's also about keeping your eye on what you finally intend to do with the property. In other words, if you plan to rent it out, do your groundwork and choose how you will market the property to suitable tenants so you can start reaping an income as soon as possible. Similarly, if you are going to sell the remodelled house, have an estate agent in mind for the listing. This admittedly sounds like rather bizarre advice but several of the veterans point out that you can get very attached to these projects - especially the first. They say that the best way to avoid this common symptom is to execute the business end of the enterprise as quickly and as efficiently as possible.
The team here at Nethouseprices hopes your foray into property renovation will be rewarding and profitable. We will be here with more tips and hints as well as the latest news of the property industry. Visit us again soon for more information.
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