If you’re currently thinking about investing your money into buying a property, chances are that you’ve considered the option of snapping up an older property and renovating it. While this can certainly be a great way to secure a more profitable return on your investment (ROI), investing in a ‘fixer-upper’ isn’t for the faint-hearted.
Let’s take a look at some of the pros and cons of buying a house to renovate, as well as some important things to consider both before and after your purchase.
Pros of buying a house to renovate
Creating your dream home for the same overall price
Finding the most perfect property in the ideal location is extremely uncommon, but buying a rundown property in a desirable location and turning it into your dream home may be a viable option to consider. If you are renovating for profit, buying the worst house on the best street undergoing gentrification or regeneration could help you to maximise the scope for added value.
Most of the profit gained is made by securing the right purchase price when the property market is booming, so it's crucial that you don’t pay a premium for a property that needs a lot of work.
Serious added value potential
Investing in key areas of a property such as the kitchen and bathrooms, and converting unused spaces like basements and lofts, can add substantial value to a home. It is estimated that a new kitchen can add 5 - 15% to a property’s value. Similarly, a loft extension might cost you as much as £35,000, but could add as much as £100,000 to the value of your property, particularly if it adds an additional bedroom and bathroom.
The government currently has a Green Homes Grant scheme running, which is a £2billion fund to help homeowners pay for energy-efficient improvements that will reduce demand for energy, such as wall, loft and floor insulation, double glazing and low-carbon heating equipment. Read more about how you can access this grant and how energy-efficient home improvements can improve your property value.
Read More: The Best Renovations To Increase Property Value
Even smaller renovations can make a big impact
Some renovations may not cultivate huge returns, but they can make a sizable difference to the desirability of a home with little upfront cost or effort. When addressing a combination of smaller defects, you can easily optimise the potential value of a home. Defects like peeling paint, mouldy sealants, dripping taps, creaky floors and dated decor are just some of the examples of relatively easy fixes that prevent buyers from feeling put-off.
Cons of buying a house to renovate
Running over budget is common
Just because you spend thousands of pounds doing up a property, you are not guaranteed to receive thousands back when you sell. Renovations can be tricky and there is a real risk of overspending unless you keep a tight reign over the budget.
It’s best to allow for an additional 20% on top of your projected budget for any unforeseeable issues that may arise, especially if any structural work is required.
It is also important to stick to the golden rule: only spend money on major changes if they will directly add value to the property.
Related: Turning a House into Flats
Renovations are easy to underestimate
While you may be open to purchasing a property that needs a lot of work, it’s essential to be fully realistic as to just how much work will be involved and whether you can commit to seeing it through. When it comes to older properties, for example, some may be harder to insure and might require different techniques of renovation to avoid worsening any damage.
The risk of not adding any real value
Again, be fully realistic when assessing the extent of valuation that you can add to the property. Demand for properties is not only reflected in the building itself, but in the area it's located in, so be sure not to over-develop a property in an area that can’t justify the amount of value you are attempting to add.
Other important considerations when buying a house to renovate
Building regulations and planning permissions
Any extensions or external changes will require planning permissions. Some properties are sold with planning permissions already in place, so research this before you buy. Alternatively, you can also look to what other homeowners in the same area have been granted for guidance as to what to expect.
You also need to ensure that you have the correct permissions to conduct any significant internal modifications before you start knocking any walls down.
Building regulations set the necessary standards for safe design and construction of buildings to ensure the safety of occupants. If you have any intricate design plans, you must ensure that they are approved before commencing works.
Related: Dos And Don'ts Of Grade II Listed Buildings
Organise a full building survey
Once you’ve found your chosen renovation project, it's advisable to commission a full building survey to find out about any damage that may not initially be visible to you.
You can then use these reports to calculate the realistic cost of repairs and whether the project is a financially viable one. When it comes to what to look for when buying a house to renovate, it’s essential that you weigh up its potential against what it will achieve to bring it up to scratch.
Related: Leasehold Property Reform In England And Wales - What Does It Mean For You?
Ensure you are up to the challenge
Some people enjoy getting their hands dirty and knocking walls down etc. for others, the idea of it might be fun, but the realities of ongoing renovations can be a shock to the system if you don’t handle stress and uncertainty very well. Renovations are renowned for being full of setbacks and unforeseeable snags, so be sure that you carefully consider the scope of work you plan to undertake and your readiness for it.
Find the right mortgage lender
Unfortunately, some lenders will refuse to grant mortgages on uninhabitable properties. Others may lend based on the property’s current value but then not lend anything further until the renovations are complete and the property can undergo a re-valuation. So, it’s essential that you do your homework upfront and find the right mortgage for your project. Contact our mortgage experts at Portico Finance for guidance.
Related: Is Now The Time To Remortgage?
Related: What Does The End Of The Stamp Duty Holiday Mean?
Create an organised and realistic budget
As discussed, it can be all too easy to overspend on a renovation, so it’s essential that you create an organised and detailed budget to work from. It’s equally vital that you use it to track your spendings daily and assess the progress of the project in relation to the spending, as well as factor in a contingency fund of 20% for unforeseeable issues that may arise.
Start at the top
This is particularly important if you plan on living in the property during its renovations, but even if you are only buying a house to renovate and sell, it pays to start at the top. Starting works at the top of the building and working your way down can help to avoid unnecessarily repeating clean-up works below, as well as perfecting the ground floor only to ruin it as you move higher.
Also, always conduct any necessary structural work first to ensure that the house is stable, as well as getting the most expensive and disruptive aspect of the project out of the way first.
Consult the experts
It may be tempting to do it all yourself, but sometimes it can become a far more expensive exercise to rectify mistakes than it would have been to hire an expert to begin with.
Assess which of the DIY tasks you can comfortably tackle yourself, and leave the larger jobs to the professionals.
Renovation properties for sale
A property with tons of future development potential (STPP) as well as a large garage with the potential to convert into a room or office space.
4 Bedrooms, 2 Bathrooms
Love Lane, Woodford Green, IG8
View property details.
A fantastic opportunity, offering off street parking, side access to the garden a WC and potential to develop (subject to planning and building regulations).
3 Bedrooms, 1 Bathroom
Sunnymede Drive, Ilford, IG6
View property details.
A handsome flat with the potential to extend and add a roof terrace subject to planning.
2 Bedrooms, 2 Bathrooms
Upland Road, East Dulwich, SE22
£525,000 (Share of Freehold)
View property details.
Side access to rear garden, spacious front garden and development potential (subject to planning).
3 Bedrooms, 1 Bathroom
Ellingham Road, Stratford, E15
View property details.
Investing in a property that needs renovation can be a huge undertaking, and while there is a lot to consider, with the right planning and execution, it can really pay off.
We have many properties for sale in London that are in need of renovation and could present the perfect investment opportunity for you.
We also have an in-house handyman team who can work wonders renovating your house!
Our experts can also advise you on potential returns on investments, the right mortgages, and more. Get in touch today on 020 7099 4000 and see how we can help you!