Doing Up Houses for Profit
What You Need to Know
- Property development is not just for the super-rich. With some capital, flexibility and common sense, it may be possible to buy a bargain home and do it up for a profit.
- The stamp duty threshold can make undeveloped properties and those in disadvantaged areas cheaper to buy.
- Be aware that in an era of flat prices and recession, you’ll have to work much harder to make a profit on your investment.
- Planning is the key to a successful refurbishment project. Set your budget, research the property you’re after and the area it’s located in. Follow the market and do everything you can to stick to your plans.
- You should also do your homework on planning permission. Check with the local council to see if you need special permission to carry out your development plans.
- Auctions can be a great place to pick up a property bargain (though you can still search the leading property sites and find your dream home to buy or rent.) Remember, you will lose your deposit if you win an auction and then pull out.
- TV programmes, books and online resources can all be useful sources of information, though don’t just rely on one source of advice and always seek professional help if in doubt.
Refurbishing properties and selling them on for profit is not simply the preserve of the extremely wealthy. Rather, many amateur, part-time investors are able to find ways to finance such projects, increasingly trying their hand at major refurbishment projects or even building homes from scratch in an attempt to extract maximum profit margins from their properties, while a host of home improvement TV programmes have fuelled the trend.
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 and recession, you’ll have to work much harder to make a profit.
Do Your Homework
When refurbishing a newly purchased property you need to make sure that you don’t get carried away; plan the improvements you want to make and stick to you’re your 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. If you don’t have them already, consider learning some basic principles of business planning or project management before you invest any money and, if in any doubt, seek professional help.
Remember that many builders and larger property developers look out for wrecks, and you could be competing against them for buildings.
Buying at Auction
Many houses in need of a complete refurbishment are sold at auction, and it is vital that you keep a cool head if you're 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, anything you pay over your set limit will eat directly into any future profits.
You also need to make sure that your chosen property has the correct planning consents before committing to a sale. For example, if you are buying a single home with a plan to turn it into flats, you will need planning permission before you can start any work.
So, before you invest money in a property, and certainly before you start any refurbishment work, check and then double-check with the relevant local council planning office. Experts at the council will be able to confirm whether or not you need permission for any refurbishment work and will also advise you if you need any additional permissions, for instance if the property you plan on doing up is listed.
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’re aiming at the retirement market, pay attention to gardens. Getting factors such as these right are an important part of how to sell a house yourself.
Property Development Pitfalls
The pitfalls of property development are such that many developers run out of money and sell up halfway through.
However, you can use this to your advantage by purchasing 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.
Visit Stacks Property Search and Acquisition to find suitable properties for landlords.
- Find out more about getting clearance for your plans with our guide to planning permission.
- Before you put in a bid be sure to read our guide to buying a property at auction.
- The financial considerations of developing property are laid out on the Natwest website.