By following some of the simple rules below you should be able to avoid an overspend on your period property renovation project and a potential loss on the property.
Work out your budget
For any project you need to work out the potential maximum sales value of the renovated property. Look at similar properties in the immediate area (say a 2 mile radius) that have sold recently in terms of the following criteria: type of street (busy noisy road or side road), desirability of area (local amenities such as parks, schools, restaurants and shops, whether it’s close to a dodgy estate), period of house (period houses tend to be more desirable and therefore sell for more), size of house and garden (square footage and number and size of useful rooms), house decor (does everything look spanking new and good taste or is it dated), ease of parking and transport links. This comparison will give you an idea of the maximum value you might be able to sell your renovation project for.
Then work out the renovation budget – if you don’t have the skills or experience to do this you will need to get builders round to quote on the work that needs doing or hire the services of a project manager or adviser who will help you formulate a budget. Try to be specific about the quality of work you require and the specific tasks to be done. Make sure you add in your materials cost which might be anywhere from 20-100% of the labour cost, or more depending on your desired finish and whether you are aiming for a luxury finish or a period renovation.
At that point decide whether a house is worth making an offer on and what that offer should be. Never make an offer that does not build in a margin of profit for all of your time and trouble. A reasonable profit on any project requiring a lot of project management and labouring time from yourself, not to mention the stress of the project, is around 20%. Any project where this level of profit is not possible at the basic sums stage should not be touched with a barge pole if you are renovating for profit. You are more likely to overspend than underspend and 20% gives you a margin for error.
Bargains can be had by buying properties at auction but don’t be tempted to let your bidding run away. Choose a top figure and stick to it. And remember if buying at auction you have no option but to go through with the sale if successful in your bidding – you cannot back out once committed.
How to keep your project spending under control
Purchase Your Own Building Materials
Buy all of the building materials for your property renovation yourself. Set up accounts with all of your local builders merchants. Although they say they only set up accounts for people in the trade, they will allow you to set up an account if they know you are going to be spending a lot of money with them. Every time you need to place an order, get all of the different builders merchants to quote and haggle as best you can. By having a trade account and seeking competitive quotes, you could save 40% on the materials costs of your building project.
Return Unused Materials
Store materials carefully as if you have over purchased, you can often return unused materials that are still in their original condition.
Don’t Pay a Builder Up-Front
Don’t pay for any work you are having done unless you are 100% happy with it. Builders tend to disappear after they have been paid and unless you keep some of their money back, there is little chance they will return to fix any snags.
Once you are happy pay the builder in full. You may need to wait until the Building Inspector has visited to know whether the work carried out by a tradesman meets his standards so if you are using Building Inspectors, make sure they’ve inspected the work before you pay the tradesman.
Don’t pay any money up front for any jobs you are having done. If you purchase all of the materials yourself, a builder has no reason to ask you for any working capital in advance.
Shop Around for a Builder
Shop around for everything to maximise your profit – ask at least 3 tradesmen for competitive quotes on all but the smallest jobs - even if they are people you’ve used before and who were cheapest last time, if they are especially busy when you need the work done, their quotes might not be so keen. If you can wait for the work to be done, ask whether they can do it for you in a quiet period and charge you less. Always ask what their daily rate is and how long they think the job will take - this will encourage them to quote competitively. In our experience, most trades charge daily rates of between £120-200. Any more than this is no doubt paying above the odds.
Maximise your Profit
Don’t spend a lot of money on anything that won’t add to the value of the property. Paint is cheaper and quicker in terms of a decorators hours than wallpaper. Sanding and varnishing original floor boards (if they are in a good condition) is cheaper than carpeting throughout. A 50k kitchen rarely adds 50k onto the value of the house. And a swimming pool can put a lot of buyers off rather than attract them once they realize how much it costs to maintain.
There are many properties that can be renovated for profit but beware of buying a nightmare property full of expensive issues. Unless you are an experienced property renovator always get a full structural survey done before you buy a renovation project otherwise you may find that your desired profit may actually turn out to be a loss. Our customers tips about what they wish they'd known before buying their period house might also be useful. You might also want to check out our guide on how to save money renovating a house.
The Victorian Emporium offer a property renovation advice and project management service - contact us for more information.