Buy Property Investment to Renovate

publication date: Jul 22, 2011
author/source: Kate Faulkner, Designs on Property and Author of Which? Property Books

Buy Property Investment to Renovate

Renovate Property

With the property market firmly in the doldrums unless you are lucky enough to afford £500,000 plus properties in wealthy areas of London and around the UK, many people are looking at investing in property, hoping to buy at a bargain price, renovate and sell on at a profit. The key question though is in a stable to falling market will renovating property for profit pay off?

Years of Sarah Beeny's Property Ladder has instilled a real desire in the UK to buy a wreck and turn it into a beautiful home which you can sell at a profit either now or later on. The problem though is making a profit out of renovation during a recession is quite tough - especially with the restrictions on mortgage lending. And that's why we aren't seeing many property programmes on our TV screens at the moment!

The chances are that unless you are an experienced property investor who knows how to value a home accurately and secure it at a discount, renovating a property and selling on for a profit in the current market is extremely difficult.

For example, say you buy a two bed terrace for £60,000. You add in a new kitchen and bathroom, tidy up the garden, re-decorate and you intend putting it back on the market for £75,000. The market may have slipped by the time you come to sell, say by 5%, so it's unlikely you'll get £75,000, more like £71,250. As it's tough to find buyers, the agent will probably recommend a price of £69,000, so already you are £6k down. Add to this the buying and selling costs plus the costs of refurbishment and paying the fees such as the mortgage, insurance, council tax, and utilities, then you would be very lucky after three to five months to actually break even at all.

So, unless you can secure a property that will give you a 20-25% uplift in value, be very cautious about buying. You'd need for example, to purchase the £60,000 property for around £45,000 - and why would anyone want to sell it to you at that price when a first time buyer could purchase it as a home for £50-£55,000?


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