What should you do differently in the current economic climate?

publication date: Nov 6, 2009
author/source: Kate Faulkner, Property Expert and Author of Which? Property Books

With the difficult economic environment we are in and new rules that are likely to apply to property investment from a financial perspective, means that ‘doing the same thing’ may well not work now, or even in the future when the market picks up.

For example, while the property market is in the doldrums and price growth (despite news reports) are not really rising; making money from renovation is incredibly difficult to do. Properties that continue to sell at the moment are typically ones that need renovation work and normal buyers feel they are ‘getting a bargain’ and can ‘work from a blank canvas’. So one of the property types that is still selling, albeit at below the 2007 peak, are properties to renovate, so trying to pick these up ‘at a bargain’ is still difficult due to competition.

Secondly, the other properties that are still selling while the market is in the doldrums are ones that have already been renovated to a good standard. Unlike in a rising market or when demand is high though, they aren’t really commanding a higher price, just selling before ones that are looking ‘tired’.

So if you are looking to make money from renovating, then just ‘doing up a property’ isn’t likely to pay back for a while - unless you are able to bag a property at well below market value.

What you will need to do to make any money from renovation is use several property investment techniques, for example:-

1.   Finding a property with a problem that solving it will add instant value, for example a layout issue or a short lease.

2.   Buying the property at 10-20% below its current market value.

3.   Securing tradesmen and materials at discounted/fixed prices.

4.   Extending the property so that you take it into another price bracket, for example adding a bedroom.

5.   Consider renting it out if you can cover the costs until the market picks up.

In contrast, for buy to let to work now, you will need to:-

1.   Be able to put down a 25% deposit.

2.   Check you still receive a positive return if mortgage rates reach 7 or 8%.

3.   Ensure you buy in an area that will ‘outperform’ the general market for price growth.

4.   Buy a property type that will gain capital growth as it will always be in short supply, eg three bedroom Victorian properties or a two bed terrace in a high demand area.

5.   Constantly track and check whether your property portfolio is delivering as good a return/better than other financial investments.

So just buying a property and ‘doing it up’ or buying any property and ‘renting it out’ will work more by luck than judgement, unless you employ every property investment technique you can.

It is possible to ensure you secure market beating returns and don’t walk away with nothing, or worst still, lose money, but to do so, don’t ‘go it alone’ take professional advice on every aspect of your potential deal from finance to different property investment techniques, through to finding areas and properties that are in short supply.

Get a helping hand with our new Making Money from Property Service for just £24.98!

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