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Buying a fixer-upper certainly presents an opportunity to make a short-term profit on a property. Still, depending on the scope of renovations required, it isn’t necessarily for the faint-hearted.
Taking on a renovation can be a considerable commitment, so it’s best to be well-informed upfront as to the potential pros and cons of embarking on such a project. In this guest post, we explore these pros and cons so you can make the right decision for your investment property.
The Pros of Buying a Property to Renovate
1. Buying Property to Renovate Means a More Personalised Home for The Same Price
It is rare to find the perfect property in the exact location you desire within budget. However, if you are open to buying a house that needs renovating, the options in your ideal location can vastly increase. Not only does this give you an increased opportunity to create more capital growth, but you can also then renovate it to your preferred specifications within the same budget as buying the perfect property as-is.
Landlords can also benefit from buying a fixer-upper for the same reasons. Whether you intend to live in the property yourself in years to come, or simply know what designs and finishes would make for a more profitable rental investment, with a renovator, the freedom is there to make it what you will.
While it is easy to get carried away with lofty redesign ideas, it’s important to remember that the majority of any profit gleaned is dependent upon the initial purchase price. Finding a property with potential that has not yet been realised and then making sure that you don’t overspend on your renovation work concerning the area’s market values is key to maintaining the chance of healthy profits.
2. Renovating Property Represents the Potential to Gain Significant Profits
Finding a property for a reasonable price that has yet to reach its full potential provides maximum scope for capital gain. Upgrading kitchens and bathrooms, knocking walls through to create open-plan living areas, adding extensions, or completing loft or basement extensions are just some of the ways that you can add significant value to a property.
Additionally, when you carry out such renovations as financially conservatively as possible, private landlords can create a highly desirable rental property for less than the equivalent purchase price would otherwise be.
3. Smaller Property Renovation Projects Can Still be a Profitable Option
Renovations needn’t always be massive undertakings for the sole purpose of raking in huge profits.
Sometimes, the right property in the right street just needs a little TLC to bring it up to scratch. More minor property defects don’t typically affect a property’s value. Still, collectively, if multiple improvements can be made, it may reflect in the asking price, as they will affect the sellability of the home.
Typical minor renovation repairs include repainting and decorating, resealing wet areas, retiling, replacing old flooring, fixing broken windows, repairing cracks in walls, etc.
Such renovation improvements may seem minor, but they can add up, so be sure to take full stock of all necessary work and estimate the overall cost before moving ahead with the purchase.
The Cons of Buying a Property to Renovate
1. It’s All Too Easy to Underestimate the Scope of Renovations Needed
Renovations are known to come with a few surprises along the way. It’s common for buyers to feel confident that they have fully assessed all necessary works, only to uncover more issues once work begins. Underestimating the scope of work is particularly common for older buildings, where fixing one thing can often somehow create two new problems.
Be sure to include a contingency fund in your planning for unforeseeable costs.
2. Running Over Budget When Renovating Properties is Common
Renovation work can be tricky, as you always have to work with what is already established instead of starting from a clean canvas. Consequently, you can never know for sure what you might uncover until you get started.
Ideally, you should aim to allow for an additional 20% of your renovation budget to prepare for any surprises or complications. Unforeseen structural work can be particularly costly, so do all you can to assess the risks as accurately as you can in advance.
So long as you carefully set a budget that is in keeping with the values for the area, and you include an additional amount for the unforeseeable, you are doing all you can to maximise your chances of turning a profit.
3. Renovating a Property Can Be Harder Work than you Anticipate
Renovations sometimes run smoothly. Typically, however, they become more complicated and frustrating than you would hope or imagine. So it’s best to expect some gruelling work and epic frustrations along the way, and carefully consider if your nerves are up to the challenge! You need the patience and wherewithal to see the project through to completion for maximum returns, especially if you plan on selling the property after the renovations are finished.
Important Considerations Before Committing to a Property Renovation Project
There are many factors to consider when buying into a renovation project. Here are some of the key things to consider.
Don’t Avoid Building Surveys when Renovating a Property
Full structural building surveys may seem like an avoidable cost, but they can prevent colossal costs down the track should you commit blindly to a property with significant structural issues.
If something does crop up in the survey, depending on the severity, you may not wish to continue with the purchase. However, you can and should consider using the information to negotiate a lower purchase price. Every little helps when it comes to renovation costs.
Plumbing for Renovated Properties
It’s common for renovation work to incorporate plumbing, but any unforeseen plumbing expenses can be considerable, so do your homework. Getting the plumbing and heating right is essential for a successful renovation, but do all you can in advance to identify any potential problems. For example, when organising your structural survey, ask how much of the property’s plumbing can be covered in the report. Also, consider requesting a drainage survey.
When Renovating a Property Treat Electrics with Caution
Older properties most certainly need attention regarding their electrics, if for no other reason than modern compliance. If you are in any way unsure as to the scope of electrical work that will be required, call an electrician in for advice or a quotation in advance of your purchase.
Watch Out for Asbestos when Renovating Properties
Older properties are likely to feature asbestos in the walls, floor tiles, old electric heaters, etc.
Make sure that you allow for professional asbestos removal in your renovation budget. There are sites online that can assist you in identifying asbestos-containing products; alternatively, call an expert out to be sure.
Final Thoughts on Renovating an Investment Property
The list of considerations when buying a house to renovate is endless, but these are some of the key considerations.
So long as you do your due diligence and carefully crunch the figures to allow for unforeseeable issues, buying a property to renovate can be a great way to make capital profits and end up with the design and finish you desire for the right price.
