A growing trend within the popular buy-to-let sector is the trend of buying and ‘refurbishing-to let’.
This usually involves a lower purchase price coupled with a longer list of jobs – large and small – that need to be completed and paid for prior to your tenants moving in.
The lucrative refurbishment-to-let market is popular because:
But – the time and investment required to complete refurbishments are often underestimated. Karl Griggs of CPC Finance told Property Reporter how to avoid the most common pitfalls:
- The value of your investment is increased by the refurbishment
- A recent refurbishment means lower long-term maintenance costs
- Good refurbishments attract higher quality tenants
“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,” explains Karl. “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.”
- Be Prepared
The key to making profit from a refurbish-to-let is the initial purchase price. The lower the price, the great your chance of achieving good margins.
- Buying Price Outweighs Selling Price
Most lenders will offer a mortgage if the property is habitable. This means that a specialist lender is likely to be more appropriate if your project is a renovation.
- Finance Options
What are your plans after your have refurbished your property?
- Exit Strategy – Buy or Let?
“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,” says Karl.
He adds: “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.”
Letting or selling, you need to be aware of the tax implications.
Selling or letting, decide who your target market will be and refurbish your property as cost effectively as possible with this in mind. Layout, design and flow are all important, along with appliances, fixtures and fittings. Getting this right adds value and helps to sell or let your property more quickly.
- Who is your Target Market?
Refurbishment can add value – the area it’s located will influence its yield. Areas just outside of the most popular locations work well for investors. Sought after areas inevitably become expensive and crowded, will a positive knock-on effect upon the rental yield and value of your refurbished property.
“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,” says Karl.
- Calculate Costs Realistically
“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.”
“We’ve certainly seen a rise in demand for refurbishment-to-let’ properties in north London,’ says Jason Dyer of JTM Homes. “We specialise in our local property market and will often know of prime opportunities for investors who are interested in refurbishment properties – for eventual sale or rent.”
Are you interested in buying a property to refurbish and add value? Talk to the friendly team at JTM Homes. We’re here to help.