7 top tips for refurbishment-to-let

7 top tips for refurbishment-to-let

‘Refurbishment-to-let’ is a lucrative market, and not surprisingly, an increasing amount of investors are looking to enter it.

Many are tempted by the idea of buying a house, doing it up, re-mortgaging and renting it out at a higher monthly rent or selling it for a profit.  Refurbishment not only increases the value of the investment, but also cuts down on long-term maintenance costs and attracts higher quality tenants who tend to stay put for a longer period. However, property refurbishment is not as easy as it appears; otherwise the market would be a lot more saturated. It is an investment which requires a lot of planning.

If you are new to property refurbishment, it can be very easy to underestimate the cost of the project and the time it will take to complete. With this in mind, here is some advice from Karl Griggs, Director at CPC Finance, to help you avoid common pitfalls:

1) Do your research

Property refurbishment can be very capital intensive and therefore a risky business. As with any big investment, you have to do your research before you invest. It is advisable to develop a property refurbishment business plan. Work out costs of the property, pick your target market beforehand and how much you will realistically get from selling/renting the property, and from there you can work out if your profit margin is worthwhile.

It may be useful to join a local property investors network, so you can get some advice and insight from local investors to get a good idea on local prices and rental.

2) You make your money when you buy, not when you sell

With refurbishment projects, the key to profits is paying the right price for a property. If you pay a high price for a property, it will be difficult to make a profit as the margins are so slim. Therefore, try and seek out the lowest price at purchase.

Auctions are a great place to grab a bargain as long as you don’t get carried away with the bidding and stick to your budget. You can read our guide to buying property at auction here: http://www.cpcfinance.co.uk/guide-to-buying-property-at-an-auction/.


Alternatively, look out for motivated sellers. These are people who are looking to sell their property quickly, for example, those moving abroad, getting a divorce, going bankrupt, inherited or probate situations, etc. As they are looking for a quick sell, they may be able to offer you a lower price.

If purchasing flats, it is a good idea to buy several units in a block as you will be able to negotiate a better price as you are buying in bulk.

3) Investigate your finance options

The majority of high street lenders will only offer a mortgage on a property that is already considered habitable — eliminating many renovation projects. In this case, you will have to approach a specialist lender for refurbishment finance or short-term loan finance.

The rates you can expect to pay will vary, based on your experience and the complexity of the refurbishment works planned. The more renovation projects you have undertaken, the better the rates offered to you. Consult a broker to find out more about your finance options.

4) Buy-to-let or buy and sell?

One of the major considerations you will need to identify in your business plan is your exit strategy – are you planning to buy-to-let or buy and sell?

Buy-to-let offers a more long-term strategy, and enables you to build up an extended property portfolio in order to supplement, or eventually replace, your current salary. Buy-to-let mortgages are readily available, but you need to bear in mind the tax implications. HMRC views income generated from rented properties as a salary and therefore it is treated like income tax - if you enter the higher rate tax bracket through your investment you will be taxed 40% of any earnings.

You will also have to look at the different lenders criteria, as some will not consider a remortgage within the first 6 months of ownership. In this case you will have to be able to maintain a short term loan for that period or have your cash tied up in the property until the remortgage completes if you pay cash.

Buying and selling offers a more short-term strategy for quick capital gains. However, although it offers a more instant return-on-investment, you are much more dependent on market conditions and therefore it is more risky. Again, you need to be aware of the tax implications. Properties sold are subject to capital gains tax which is currently between 18-28%, dependent on income.

5) Identify your target market

When developing your business plan, always have in mind who you are aiming to let to or sell to once you have refurbished your property. Remember, it is not about your taste, but what will appeal to your target audience.

If you are looking to target a high quality market, think about the design of your build. More bedrooms do not necessarily make for a more valuable property; generally buyers want more quality space rather than cramped living conditions.

You should focus on the layout of their project, ensuring that the rooms flow together and there is a balance of entertainment space, utility rooms and bedrooms. Additionally, do not be tempted to scrimp on the quality of interior or exterior. Choose appliances, fixtures and fittings carefully, and be especially careful when designing your exterior as the majority of buyers will decide if they want the property even before they have entered the building.

6) Location

When looking for the area in which to make your purchase, it is not necessarily the best area in town. The best property investors look out for areas which will have the best long-term yield. Fringe towns close to the most popular areas tend to be popular, as the popular areas become overcrowded and people gradually move out.

7) Be realistic when calculating costs

There is a limit to how much value you can add to a property with a refurbishment. Although you can limit risk by proper planning, you cannot predict what will happen in the property market in the period of time it takes you to get your property back on sale. Therefore, it is important that you increase your chance of making a profit by buying below the market price and sticking to your original business plan rather than get carried away spending more on the cosmetics of the property, which will not necessarily produce additional income

Another important tip is to make sure you get a good builder by checking their references, and before giving them the go ahead, make sure they have signed a fixed price contract in case the build takes longer than expected. It is also handy to build a relationship with a good builder so that you can use them in future projects.

The best property investors do not just sit back and wait for the market to rise. Property refurbishment can be a good method of adding value to your investment. With the right planning and execution of the project, refurbishment to let or sell is a useful experience and can generate high returns.

Join our mailing list:

Leave a comment



Latest Comments

milessgabriel
milessgabriel 05 Dec 2016

Useful article

view article
Spencer Fortag
Spencer Fortag 30 Nov 2016

I am glad that someone listened to me!

view article
Tony Gimple
Tony Gimple 27 Nov 2016

It's not just the lack of estate agency advice that's costing landlords money; most are getting seriously bad advice from their accountants resulting in tax bills far higher than they need to be. Likewise,...

view article
Sally Walmsley
Sally Walmsley 18 Nov 2016

The RLA stands by its sell-off statistics. While we welcome the feedback from Mr Jagota and are delighted to hear how well things are going for landlords in the north east, we would like to make it clear...

view article
Sheryl87
Sheryl87 18 Nov 2016

The high employment levels and the vibrant economy has led to ever-increasing demand for rental properties, especially from professionals relocations from other cities. This has led to more experts teaming...

view article
Sheryl87
Sheryl87 18 Nov 2016

Renting out your house can be risky business. It's good to think about residential landlords insurance. Standard cover includes buildings cover and cover for loss of rent following damage to a property...

view article
AmberMorris
AmberMorris 09 Nov 2016

Fear of ghosts, really?? Ok, I get the fear of bats in the attic and mice and rats running under your nose - those are easy to deal with pest issues which are really unpleasant and can turn you off. But...

view article
AmberMorris
AmberMorris 08 Nov 2016

In my experience, It has always been a matter of discussion between the landlord and the tenant. There are cases when it's clear who's responsible for the pest control costs. I see a lot of people in forums...

view article
warren
warren 08 Nov 2016

There you go buddy :)

view article
Agent_PeeBee
Agent_PeeBee 07 Nov 2016

Any reason why my comment to this 'article' has not been published?

view article
Sean Lees
Sean Lees 04 Nov 2016

I don't think anyone can say dogs or cats are better or worse; depends on the animal, its age, how long it's left inside, etc. How bad the mess is depends somewhat on whether you are renting furniture...

view article
daniel black
daniel black 25 Oct 2016

I've been keeping a close eye on what the effect of Brexit has been on the rental market and it's a very mixed bag. Whilst the majority of the news focuses on London's market. I think this time next year...

view article

Related stories

More articles from Landlords

Specialist Lending Roadshow 2017

24th-27th November

4 days
7 specialists
4 locations
Free to attend

Click here to register now