In recent years there has been significant media attention on property renovation and the way in which it can transform investors into property millionaires. However, property is a huge investment, and failure to plan the project carefully could result in bankruptcy.


Choosing Your Property

When investing in property, it is important to select the property and the area in which the property is located, carefully. This will require thorough research. If you buy the property through an estate agent, they will be able to tell you about the area, for example what the local schools, hospitals and GPs, roads and public transport are like, however, if you choose to buy property at auction, you may need to conduct more independent research. Mouseprice.com provide area guides (by postcode district) with information about the housing stock of the area as well as demographic information. These guides provide useful reference information, and indicate who your market might be if you later choose to sell or rent out the property.


The Renovation Project

Before embarking on a project you must be aware of the work involved. Will it essentially be a refurbishment project or will it require full structural renovation?

Prior to making an offer, most property investors or property developers would get a survey done by a reputable chartered surveyor. The result of this survey would then allow the property developer to make an informed offer. It may also be sensible, at this stage, to invite relevant tradesmen, such as builders, plumbers and electricians to provide quotes for the work they would provide. Also make sure you are aware of potential structural limitations of the building – has the property been refused planning permission in the past? Which are the supporting walls? etc.

 

Finance and Budgeting

1. The first rule of organising the project budget, is to be realistic. It may be a good idea to spend evenings and weekends painting and wallpapering to save money that would otherwise be spent on painters and decorators, but expecting to use your first property development project as an opportunity to teach yourself to plaster might end in disaster. It is generally advisable to leave skilled jobs to the professionals. Similarly, think realistically about how much time you have – don’t take on so much work that it will negatively affect your quality of life.

2. Depending on the scale of the renovation project you may not be able to live in the property whilst the work is being undertaken. This means that you will be responsible for paying the rent or mortgage on the property which you live in and the mortgage on the property that you are renovating.

3. Again, depending on the size of the project you may wish or need to employ an architect and a project manager. Although this would represent a significant cost in the short term, in the long run it may make the project run much more smoothly and save time and money later on.

4. Remember to include your own tool kit in the budget!

5. Most importantly, have an adequate contingency fund. If the project was to overrun by 2 months, would you be able to afford the additional rent? Having a realistic schedule for the timing is essential, as more time spent on the project, means more money spent on the project.

 

Time Planning

1. Time and budget planning are inextricably linked – the longer a project goes on for, the more it is likely to cost. To plan your budget accurately, be realistic about how long the property development is likely to take, (not how long you want it to take!), from viewing and buying the property and exchanging contracts, to being in a position where the property can be put on the market.

2. How much will it infringe on your current lifestyle? If you are planning to manage the project as your ‘day job’, can you afford to live without any income whilst the project is underway? If you are planning to continue with your current job whilst the project is underway, can you afford any necessary time off work to oversee events, wait for deliveries and let in builders? etc.


Conclusion

The growth of the property market and property renovation as a means to financial stability is featured on so many television programmes that it could be seen as a flawless way for up and coming entrepreneurs to increase their pension in the form of property. However, it is essential to conduct the proper research before embarking on any project and manage the project in a professional manner. It may be tempting to snap up a bargain property, only to realise later that the price reflected the amount of work that needed doing. Research and planning will not eliminate, but it will reduce the possibility of ending up with a half finished empty property, and a hefty credit card bill! Remember, an investment can return less than the initial payout just as easily as itcan turn a profit.

 

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