Doing Up Houses for Profit

Amateur buy-to-let landlords are increasingly trying their hand at major rebuilding projects or even building homes from scratch in an attempt to extract maximum profit margins from their houses. A host of TV programmes detailing how to do up houses has fuelled the trend.

Part-time developers also benefit from the recent raising of the lowest stamp duty threshold, which means that undeveloped properties are cheaper to buy.

First, a word of caution. Anyone can make money in a boom, as across-the-board house price rises disguise mistakes. But in an era of flat prices, you’ll have to work harder to make a profit.

The golden rule is: Don’t get carried away and stick to a realistic budget. This really is as simple as taking the cost of the plot, adding the cost of the build or refurbishment, checking your local market thoroughly and setting a realistic sale price. Then decide whether your profit margin is acceptable.

Remember that many builders and larger property developers look out for wrecks, and you could be competing against them for buildings.

Many wrecks are sold at auction, and it is vital that you keep a cool head if buying in this way. It pays to get a survey done before the auction to uncover any hidden horrors and to be able to set a realistic price for renovation. Once you have bought a property at auction, you cannot back out without losing your deposit.

Remember that prices advertised at auctions are set low to attract as many potential buyers as possible. The guide price often bears little relation to the reserve price, the lowest amount the seller will accept. The actual price the property sells for can be 20 per cent more than the guide price. Remember, if you pay over your set limit, it eats directly into any future profit.

You also need to pay attention to whether your property has the correct planning consents. For example, if you are buying a single dwelling, you will need planning permission to convert it into flats.

You also need to have a clear idea of the market you are aiming for. For inner city homes you should be aiming at a young, urban and sophisticated clientele who will want en-suite bathrooms and modern interiors. If you are aiming at the retirement market, pay attention to gardens.

The pitfalls of property development are such that many developers run out of money and sell up halfway through. Also, today’s property market is much more competitive, and developers can be squeezed. This can be an opportunity for you to buy a half-finished project, as much of the dull groundwork such as drainage and subsidence will have been tackled already. But don’t expect to pay way below the market rate, as the cost of these improvements will have been factored in.

Stacks Property Search and Acquisition http://www.stacks.co.uk find suitable properties for landlords.