How to Invest in Refurb Property

Looking to get into the property market and don’t mind getting your hands dirty – quite literally? Then a renovation property deal may be just the job. 

Buying an old run-down property and doing it up to habitable standards – and more – is a tried and tested property investment strategy. But it’s one that needs careful consideration.

There are lots of dilapidated and below market value (BMV) properties out there but not all will bring you a profit. That depends on whether you do your sums properly. 

For instance, calculate roughly not just how much the renovation will cost, but also how much you’ll pay on stamp duty, solicitors fees, finance costs, letting agent costs (if you don’t live local and plan on renting it out) or, if you plan on selling it, then any potential capital gains costs. 

Finding a run-down property

There are many ways to secure a BMV property which needs some work which allows you to add value. Adding value in locations where the GDV(Gross Development Value) is higher than the refurbishment costs is the way to immediately create value in your property. 

If you are finding these properties yourself then using the property portals like Rightmove, Zoopla and OnThe Market is where you would probably start to look.  Property auctions are also a good source to try.  Engaging with Estate Agents who may know of a run-down property and which they haven’t advertised is also a very good technique. Probate solicitors are also an option and often have information on good properties. 

There are also property sourcers like ourselves here at Saltbox Property Group.  We have a company called Property Portfolio Partners UK Ltd which focuses on finding property for investors.  We use all the above techniques but also from our years of experience and network we obtain properties through word of mouth and Direct to Vendor marketing techniques.  Finding property takes time and effort and our clients are time poor so utilise our services to find the very best deals. 

Property auctions. Dilapidated properties often end up in auction as vendors realise they can attract investors here. It’s possible to grab yourself a bargain, but make sure you do your research first. Ask yourself why this property has been put into auction. Most of the time there are perfectly good reasons but often there are problems with the property which has meant that it could not be sold the traditional way. Check the legal pack to make sure there’s no planning difficulties. Get a survey done if you’re serious about a property. 

If you win the auction then be prepared to pay 10% of the purchase cost there and then. You’ll have a month to pay the remainder. 

Estate agents. Befriend estate agents in the location you’re interested in buying property. Let them know what you’re looking for: a one-bed BMV property or a dilapidated family home etc. That way if something does come in they can contact you before it goes on the market.

Once you do have a contact, keep in touch by ringing regularly – don’t rely on the estate agent to keep up communication. Once you have bought a few of them then they will become a little more interested.  

Property portals. Start off by searching for the least expensive properties close to you and filter out land, park homes, retirement homes etc – otherwise you’ll be there forever. 

Go out and see the property for yourself, don’t just go by the images. Again, do your research by checking the title deeds, getting a survey done etc. 

Probate solicitors. Sometimes solicitors and asset management companies have details of property which belonged to a deceased person and whose relatives are keen to see it sold. Often these are properties requiring a certain amount of modernisation – and that’s where you can add value.

Type of refurbishment

Before buying any property it’s important to work out your strategy, firstly are you selling it to make a profit and flipping the property or are you keeping it to go into your portfolio and will be renting or leasing it out to make a profit. Knowing the markets for both these options is vitally important. 

If you are flipping then the finished standard should match your selling market and the budget should have been set accordingly. If you rent it out then again the market tenant will determine the type of property and the standard of refurbishment needed. 

Knowing this market will help you decide which part of the renovations you should spend most money and time on. If it’s a family home you’re refurbishing then focus on the kitchen as this is often the hub of the home. If it’s an HMO and you’re hoping to attract students then a lot of your investment will go on building en-suites to bedrooms.

Working with a builders

This is one of the most important parts to this whole process.  There are many scary stories out there of landlords and investors getting ripped off by unscrupulous builders. Many of those stories are real and you should be worried.

There are some things you can do however to reduce the risk of this happening. They may sound simple and common sense but it always amazes me on how many times these things are not done. I have spent a lot of time helping inexperienced investors get out of financial or structural trouble where a builder has not done what he is supposed to do.

Advice when working with building contractors.

• Go to a recognised builder, check out the company on Companies House and make sure everything looks official.  It will tell you how long they have been in business and you will also see any accounts posted. Check out the names of the Directors and Shareholders.

• Go to recommended contractors, this is obvious but is one of the best ways.

• Don’t pay any funds up front.  Any reputable builder will have a trade account and they will get 1 month’s credit on these so if any builder tells you they need money before starting a job to cover materials then politely decline his services and move on.

• Before starting a project, set up a contract. The easiest way of doing this is to use the JCT contracts which you can get online.

• We would strongly advise to always have a retention payment set into the payment structure.  This holds a % back each time you are invoiced and the retention builds up to be paid at the end of the project.  This allows you to have some money at the end and you should only pay this once you are absolutely sure everything that has been agreed to be done has been done.  Ideally after someone has lived in the property for a period so all the appliances have been used.