- Buyers may be tempted to buy a cheaper property that requires updating
- But you need to do your research carefully to see if the figures add up
I have saved hard for a deposit to buy my first property but with property prices so high, my budget is still fairly limited.
I am tempted to buy a property that requires lots of work in the hope that I can get it cheaper and add some value to it. The aim is that when I come to sell I will make a tidy profit.
I have never undertaken any renovation or refurbishment work before. What do I need to know?
Saving money? Buyers may be tempted to buy a cheaper property that requires updating
MailOnline Property expert Myra Butterworth replies: The deposit is the biggest barrier to home ownership for many first-time buyers. Unless you have significant financial assistance from the Bank of Mum and Dad, saving enough for the down payment on your first home is a challenge.
A rundown property should be significantly cheaper than a property that has been ‘done up’. You can design it to your tastes and then hopefully sell it on at the end of the process for a profit.
Television property programmes have long focused on the money that can be made from buying such property and doing it up. So it is easy to see why you may be tempted to buy a doer-upper.
But is it really as easy as all that and can the same profits be made as in the past?
To find out, you’ll need to do your research carefully and make sure the numbers add up before taking the plunge as costs can spiral and make the margins on such projects extremely tight.
How much work will it be?
Wayne Scott, a local estate agent from Yopa’s Essex team, says: With property prices so high, more first-time buyers are considering buying a property in need of work and doing it up.
With the right advice, a one-off project can be worth undertaking.
However, first-time buyers should proceed with some caution. A property may not look too bad superficially but require re-wiring, re-plumbing and a new boiler, which all add up.
Get quotes from a contractor or builder as to what costs are involved. If you haven’t got a personal recommendation, ask a local estate agent, who should know someone reputable.
This will give you peace of mind that the project will not cost more than you can afford, or that the numbers don’t stack up.
If a house needs a lot of updating, you might be better off buying a property already up to scratch that doesn’t need any work
Buyers are advised to think hard about the level of work they’re prepared to take on
How much should you pay?
It is important to buy such a property at the right price. You don’t want to pay market value for something in a dilapidated condition. If it requires a lot of modernisation, then you need to know the resale value – what it would be worth in a good condition – and take into account what you will need to spend, and how long it will take.
If you aren’t going to make a profit, you might as well buy a property already up to scratch that doesn’t need any work.
Remember, you may save money on the purchase price but will need funds to pay for the work that needs doing. Margins on these projects can be quite tight.
If you take something on that needs more work than you initially budgeted for, it will eat into your profit.
Oddly enough, you may also need a bigger deposit than if you are buying a property in good condition. The mortgage valuer will raise concerns with the lender if a lot of work is required, which will mean a bigger down payment as security.
Think hard about the level of work you are prepared to take on. If you go out and up and add more square footage, you will increase the value but it will be a lot of work and take time. It is more straightforward to simply replace the kitchen and bathroom but there might not be enough margin to make a profit, once all fees and costs are paid.
Consider reconfiguring the property. If you change it around a bit, turning a three-bed into a four-bed, for example or altering the layout slightly, you may add further value.
Buying a wreck at auction
Many people head to the auction room to buy a property that needs lots of work. But while this can be a good way to find a project, make sure you don’t get carried away and pay over the odds, as once the hammer comes down, you are committed to the purchase.
A few points to bear in mind at auction:
1) Do not forget that on top of the purchase price you have to pay for the work that needs doing – and the aim is to try and make a profit.
2) Check the legal pack. Make sure there are no absentee freeholders who would make it awkward to resell.
3) Get quotes beforehand so you know what the work will cost.
4) Consider the key selling features for a resale – if the property backs onto a railway line, for example, it will affect how quickly you can sell it on.
5) If you can, pick a property in a good area or near a good school.