Buy to Flip: Top Considerations
We’re all guilty of doing it. Browsing through Rightmove or Zoopla and finding a home in a good area for what seems like a bargain price…where’s the catch? The old ‘property could do with a degree of modernisation’ from the estate agent’s description gives us a clue. Then you take a look at the pictures and realise the property needs a lot of work. But if you still find yourself interested, then let’s think about whether this could be a suitable property for you to buy and renovate (and possibly sell for profit).
Here are some of our top considerations before considering renovating a property.
Number crunching:
We are all familiar with what we can borrow from the bank to purchase a home, but when considering a property that needs a degree of renovation, this cost will need to come from your savings (after your house deposit is paid). However, you may save a little on stamp duty due to the reduced purchase price.
And while we can estimate costs such as kitchens, bathrooms, flooring etc we need to remember that unexpected expenses arise too. Expensive repairs can include damp work, roof repairs and windows need replacing. You might also need to rewire the electrics or replace the heating system, but this shouldn’t be an unexpected cost. Some renovation experts in the industry advise calculating all your expected costs and adding as much as 20% extra for unforeseen expenses.
Costs that can be anticipated are for fees involved with individual professionals needed during the renovation works, such as additional surveys or advice from an architect.
It’s important to mention that borrowing money from a lender isn’t guaranteed for all properties. Occasionally properties are classed as unsuitable for lending, which would mean any purchaser would need to pay for the property outright in cash, and may struggle to get borrowing in the future. Often if a property is not suitable for lending, it will specify this in the estate agents description, or may state only suitable for cash buyers.
Time to view the property:
You may want to view the property yourself initially before thinking about taking an expert round with you. If you are considering a big renovation project, it would be wise to take along a local builder and/or building surveyor to a viewing to help you get a sense of the renovation costs, and whether there are any costs you may not have identified. Surveyors will likely charge you for this ‘walk round’, but the advice can be invaluable if they identify something you’ve missed.
Another key professional to discuss your next project with is your estate agent. You can discuss exactly what you plan to do to the property, for example, renovate and extend to get a feel for the end market value. From this end market value, you can work backwards to ensure your renovation costs and purchase price seem sensible, ensuring you are making a profit on top of all expenses. A wise estate agent once said to us ‘you don’t want to be the most expensive house on the street’ and we have stuck by this rule. If your renovation work will add massive value to your property but also make it hugely expensive in comparison to other homes on the street, you may want to reconsider your project.
Getting your purchase price spot on:
Once you’ve factored in all costs and decided you’re in the financial position to go ahead with your project, surely it’s time to take the plunge? Think about the following points before proceeding:
- Are you going into this project with your eyes wide open? Projects don’t often run on time, so are you willing to potentially live in a building site for months or years. Have you thought about weeks or months with no bathroom or kitchen?
- The costs for your project will undoubtedly run over, have you factored in extra funds to cover this? And will you still be financially safe if your calculations are a little bit off?
- Is it your dream home, or are you financially driven? Sometimes we can get caught up with the figures and see only the profits. If the house could be your dream home, you might be happier with the decision than if it’s purely financial.
Don’t forget planning and regulations:
If you’re planning on extending and significantly remodelling, it’s vital to get an Architect on board early to guide you through planning and any regulations. Your local Council website can give initial guidance on whether you will need planning permission for your building works, but moving forward, you will need an Architect to draw up plans and submit these for planning. Something incredibly important when it comes to planning is whether your new home is a Listed Building and whether it’s in a conservation area. Both of these designations can dictate what, if any, alterations or buildings work you can do to your new home.
We hope you’ve found this article helpful when considering taking on a renovation project. We’ve completed a few renovation projects ourselves over the years, and each one has been a totally different learning experience.
If you’d like to get into property investing but don’t have the time or knowledge, book a call with me using the button below to discuss how I could help you on your journey.
