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

Spencer Fortag
Spencer Fortag 25 Aug 2016

The funny thing is, I mentioned the brick issue in my blog back in April: http://medwayproperty.blogspot.co.uk/2016/04/the-medway-property-market-and-lack-of.html

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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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madisonwelch80
madisonwelch80 02 Aug 2016

?66,963 is a serious price drop However buying a property it a serious investment only small percentage of the UK population could afford.

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madisonwelch80
madisonwelch80 02 Aug 2016

Wow, it kind of surprised me. I mean counting on mom and dad's bank even after retirement is too much. That's the moment in life when one should have ensured themselves. I am shocked.

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AbbieP.
AbbieP. 22 Jul 2016

"While house prices in the most expensive eleven boroughs have declined values in the cheapest eleven boroughs continue to rise" - not a nice way to even out the price range. London is overrated as it

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AbbieP.
AbbieP. 21 Jul 2016

And try to profit from your decisions, I may add

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CommercialTrust
CommercialTrust 19 Jul 2016

Retirement investment has always been one of the biggest draws of buy to let. And the buy-to-let demographic is, on balance, older. (Over a third of our applicants are over 50 at the time of application.) It...

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Forrest Wheatey
Forrest Wheatey 11 Jul 2016

I find the time perfect for ever home-owner wannabe. Prices should slowly, but steadily drop, at least for the inner buyer. Making it harder for outsiders to buy properties (the whole Brexit thing means...

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