Some of the biggest returns that can be made from property investing can be made from actively increasing the value of a property. If, for instance, you are able to buy a flat or house for £200,000 and then sell it for £300,000 a few months later having smartened it up a bit you will have made a huge return on your investment, especially since most of the money used to buy the property will have been borrowed. Assuming your deposit on the property was £40,000 you will have turned that into £140,000 (less whatever expenses you incurred in fixing the property and in buying and selling).
So how does one go about more than trebling one’s money and is it as easy as all that?
Well, in truth it is not nearly as easy as it sounds. The patter that I just gave you might be a good sales pitch, and it is very easily one you could hear from an estate agent trying to sell you a run-down old flat, but it is seldom as simple or as cheap as it sounds. Here are some things to consider if you are thinking about buying an investment property to fix up and sell.
First for the bad news:
Property transactions are expensive
Buying a property can mean entailing some significant costs. You may have to pay stamp duty on the transaction. You will have to pay solicitors. You will end up paying a mortgage fee and often a valuation fee as well. Then you will probably want a full survey conducted. All of these costs add up pretty quickly and can soon reach well into the tens of thousands of pounds on a valuable property. Trying to skimp on many of them would just be a false economy as you don’t want to get the cheapest survey possible only to discover that important structural defects were overlooked.
Property renovations take more time and money than budgeted
There is a sad and unfortunate truth about builders, plumbers and other sorts of trades. In general (and I’m sure with exceptions) these are people who are juggling a lot of jobs and end up trying to do them all at once. This means that appointments are frequently forgotten, deadlines slip and costs can overrun budget. I don’t know why this is the case but I have worked with many and it has always been the case. You me be really lucky in finding people who are super-reliable. Or if you can offer them a lot of work because you have a portfolio of properties and they want you as a repeat customer, you may find them more reliable. But for most people, you will have to assume that building work will take a lot longer than expected.
Building work also generally costs more than expected. This is partly because of the time factor, but also because unexpected problems crop up. You may want someone to simply install a new combi-boiler but when they examine the gas fitting they may tell you it needs replacing. The same is true with electrical fitting and wiring and almost all other parts of a house or flat.
Property renovations are stressful
Unless you are in the trade yourself or can hire a project manager to oversee it all for you, sitting around in a half-finished empty house waiting for a roofer to arrive when he has already missed 3 appointments can be really stressful. It will also be stressful seeing the bills pile up. And if you planned to let the property, every week that it stands half-finished is a week that you aren’t collecting any rent. You need strong nerves for this kind of investing.
Have I discouraged you yet? Good. Because if you keep all of the above in mind and enter this with your eyes wide open, you will find that there are good opportunities for making money. Here are some of the issues you need to keep in mind though.
Know your target market
Each sort of target for letting will have slightly different needs and tastes when it comes to how you refurbish and decorate a house or flat. If you are planning to let to students you want something that is functional but also relatively hard wearing. Avoid carpets that will get damaged by dropped cigarettes or spilled drinks. Also avoid countertops that need special care. Students will not want to be oiling your counter for you or wiping it down if it gets wet.
If you are planning to let to city sorts or other young professionals you will need to spend more on the interior to give them a more stylish finish.
Families will want something that turns a house into a home but is also hard wearing, especially if there are children about. Don’t skimp on things such as the quality of paint. Spend a bit more and get a paint that can be washed down and cleaned properly.
In all cases you should also be sure that you are spending money to save money. Don’t get a cut-price bathroom if in doing so you end up with water leaking into the ceiling below and causing costly repairs. Also think of spending a bit more on insulation and the like as it will lead to huge savings in energy costs by your tenants. This may not benefit you directly but it could make for more loyal tenants.
Finally, remember that if you look after your tenants they are more likely to look after you and the property. If you have a house with a garden, spend a bit and make sure there is a lawnmower and the tools needed to look after the garden. That way when it comes time to find new tenants you won’t be spending a fortune on getting in a gardener to tidy everything up again.
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