So you’ve decided that you want to invest your money into an old or derelict property and go ahead with a grand renovation project. Whilst there’s nothing wrong with thinking big (the contractors responsible for the twin villas on top of an apartment block in China weren’t exactly hampered by pragmatism), there are things to consider before you let yourself get carried away with your ideas for a finished product.
Step one – Research
Before the planning can even start, you need to find the right property. A property might look like a steal, but do your research into it and the local area. For instance, how long has it been on the market? Whilst bringing disused property back into circulation is a noble goal, if a property has gone ignored for some time, fellow investors might not consider it to be a great prospect for profit.
Look, too, for similar local properties that have recently sold at a standard similar to that which you intend to produce, and find out how much they sold for. Could you afford to improve the property to that standard and still make a good return on your investment? You won’t have a solid answer to this question until you start getting estimates, but you should be able to make a reasonable guess.
Though there’s something to be said for jumping in at the deep end, but don’t take on too much work. The expertise and funding required to do up a complete ruin is beyond many first-timers; set your sights on a house that’s simply in need of fresh plumbing, perhaps a new bathroom and kitchen, and a refurbishment job.
Step two – Plan
The brief for a project should always be realistic and achievable. It should also be thorough, but be sure to approach it in stages; don’t expect to be picking out carpets for a house that doesn’t even have a second storey floor any time soon.
Work out exactly what work needs doing, and how to clearly relay this information when asking for quotes later on down the line. There is no detail too small to scrutinise and nothing you shouldn’t be prepared for. Don’t be afraid to enlist an army of tradesmen and experts early on, and make several visits to the property if needs be; many specialists will not ask a large amount to conduct estimations, and several traders may be more valuable at this point than a surveyor.
You should also have a contingency fund – renovation projects can, and frequently do, cost more than you think! Between 10 and 15% of the total cost (purchase plus the assumed cost of work) is a good amount to have set aside. It is also possible to fund the project in stages; once the property is habitable, for instance, you could use a mortgage to repay the bridging loan you used to finance the purchase initially.
Step three – Recruit
Before you begin the final stage, everything else must be concrete. You need to know exactly what work needs doing and have specifications ready to relay to the traders you instruct, which you will have drawn up during the planning stage. When you have a solid plan set out, you can start comparing quotes and recruiting your property renovation task-force.
If you feel comfortable and confident helming the project, you can manage it yourself; this will entail liaising with and organising a number of traders to ensure that the project is completed on time and to specification. If you don’t, you can employ a project manager.
Be sure that any agreement between you and a trader is clear and specific on things like payment, working hours, insurance, dispute resolution, extensions to the time frame and changes to the work being done. If in doubt, you can purchase contracts drawn up by legal professionals – for instance, the Joint Contracts Tribunal (JCT).