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.

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Latest Comments

jason hadzikostas
jason hadzikostas 28 Jun 2017

The most important thing is a budget. Students have to manage their spendings in food, house maintenance, books and many other things. According to me, student Studios are the perfect option for them as...

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SecomTech
SecomTech 22 Jun 2017

AT Last...This was discussed years ago and there was a move towards landlords registering their bad tenants on a database..(can't remember where) It seems a logical step though our leaders will probably...

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Bertrand
Bertrand 02 Jun 2017

How about the Welsh Govt introducing a scheme to protect landlords against "rogue" tenants who are then taken to court for criminal damage to the properties they trash. Pretty unlikely I suspect and politically...

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AmberMorris
AmberMorris 25 May 2017

"Please don't pick a novelty tune-playing doorbell. They're not 'fun'. They're stupid." Laughed a lot to this. It's actually true, though.

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Oliver Conway
Oliver Conway 18 May 2017

Making a neat inventory is a good idea, but if the seller is not willing to provide it, can the buyer demand it?

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Bertrand
Bertrand 17 May 2017

First step to nationalisation of the private rented sector IMHO. Nanny state poking their noses into things yet again. I object, as a decent landlord, sometimes having to deal with some pretty awful tenants,...

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Izzy
Izzy 16 May 2017

This is such a great a post. I love the detail you've gone into. It's a very useful article for helping those who are looking at deciding which sector they would like to go into! When I first started investing...

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paul burnham
paul burnham 30 Apr 2017

Jeremy Corbyn's pledge that a Labour government would build 500,000 new council houses must electrify the general election campaign. Reliance on markets and the profit motive has brought huge housing-related...

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CommercialTrust
CommercialTrust 28 Apr 2017

Sadiq Khan?s announcement of an online database of landlords and letting agents who have been convicted of housing offences, appears on face value to be a variation of the already implemented Database

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warren
warren 26 Apr 2017

You're very welcome Mary! Glad you enjoyed them :)

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Mary Ward
Mary Ward 26 Apr 2017

Thank you for the wonderful ideas. First impressions can make or break a deal. It's sadly that many homeowners drop the kerb to create an off-street parking space.

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Tony Gimple
Tony Gimple 14 Apr 2017

I'm not at all surprised that so many landlords are still confused about what the tax changes really mean and how it will affect them. In particular, the blind rush to incorporation is leaving landlords...

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