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

Kelvin Lloyd
Kelvin Lloyd 09 Oct 2017

IT is up, to the Planners. If they will only give permission for bungalows on certain (suitable) sites, they will be built.

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maggie swift
maggie swift 09 Oct 2017

It's just the beginning of the shocking rise.

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maggie swift
maggie swift 09 Oct 2017

I have recently read that the bungalows can provide social housing for elderly residents in London.

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zoe glover
zoe glover 05 Oct 2017

Update! Worst company I have ever dealt with. Undervalued a Cambridge property by over 100k, wont take on any evidence of valuation including a RICS valuation done 3 years ago for the very same value...

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Paul Edwards
Paul Edwards 27 Sep 2017

Its nonsense articles such as this that make it harder to get clients to realise just how difficult the market is out there. When you see Rightmove and there are more 'price reduced' then 'new' most days...

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Tom Allen
Tom Allen 20 Sep 2017

Absolutely agree with you!

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RyanGeo
RyanGeo 18 Sep 2017

A sharp correction would be a less dramatic expression to use. That is already underway in certain sectors in Reading where I practice as Chartered Surveyor

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sean benton
sean benton 01 Sep 2017

Identity theft is a thread for any profession. So,people should stay alarmed. I once take help from a letting agent and came to know that letting agents are taking every precaution to prevent fraudulent...

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Mark N.
Mark N. 30 Aug 2017

We have seen a surge in instructions over August and that should continue into September too.

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Chris
Chris 30 Aug 2017

Unfortunately, all the legislation bears its force on Landlords and ignores, naively, the effect of Rogue Tenants on the ability of landlords to keep houses in repair and offer properties for rent at reasonable...

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Christian Donovan
Christian Donovan 18 Aug 2017

The write-down on house values, combined with the fall in the GBP saddled the fund?s property portfolio with a 1.4% loss in the second quarter. The shocking amount of $240 million.

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Samantha Goodman
Samantha Goodman 11 Aug 2017

Interesting point of view.

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