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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Jimmy_McCoy
Jimmy_McCoy 16 Sep 2016

I think that the main reason to buy garden purchases in last minute is because people always search for the best deal. In summer months there are abundance of seasonal goods and it means more low cost

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Jimmy_McCoy
Jimmy_McCoy 16 Sep 2016

Buying a home often is more expensive than you expect. There are lots of hidden costs such as: stamp duty, surveys and valuations, mortgages etc. that can add more than 10% to the total bill

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Homebuyerconveyancing
Homebuyerconveyancing 15 Sep 2016

We are seeing a massive influx of Homebuyers using online Estate Agents. The winners are the online portals that still aim to manage the customer journey to homeownership. They provide a valuation service,...

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oliviaG
oliviaG 12 Sep 2016

Without a doubt renovating can truly be very beneficial to many homeowners but it depends to a great extent on the condition of your home and the parts of it you want to refresh. Before you start you should...

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oliviaG
oliviaG 29 Aug 2016

So true about cats!

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Jason Roberts
Jason Roberts 25 Aug 2016

Any predictions what average rent will be at the same time next year, anymore drops coming?

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dylanvan
dylanvan 19 Aug 2016

very good, thanks for sharing

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SecomTech
SecomTech 19 Aug 2016

Firstly, I either lodge with DPS or do not take a deposit...secondly, If a tenant has not received a confirmation their deposit is secured with either a scheme or in an insured account with an agent/landlord,...

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jasonevans
jasonevans 19 Aug 2016

Belvoir has over 15 years of experience in property lettings, buying and renting and is one of the best agencies I know about. I have heard that they revived an award for the hard work. Really amazing...

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jasonevans
jasonevans 19 Aug 2016

Usually these areas are least affected when it comes to unexpected economical collapse.

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TheWaspNestRemover
TheWaspNestRemover 11 Aug 2016

You agree to pay for the treatment needed to get rid of fleas, ants, mice, wasps nests and other pests unless you can prove that these are a result of us not meeting our repairing responsibilities or these...

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madisonwelch80
madisonwelch80 02 Aug 2016

16% is quite a raise. Let's hope this tendency won't continue for long.

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