Buy to Re-sell or Remortgage

Buy to Re-sell or Remortgage

Buying property with a view to reselling has led many investors to make substantial gains in the UK property market - although if you watch the countless programmes on TV, such as Property Ladder, you will see many people overspend, and it usually takes longer than planned to get work done. However in a growing market you will generally make money anyway. But as Sarah Beeny warns, if the market in general had not increased, many of these projects could lose money.

I remember 4 years ago, after watching one of these programmes me and my flatmate at the time, thought about buying a place, to spend some time on, and then put back on market for a profit – boy, am I glad we didn’t!! Neither of us had any DIY skills to speak of, and we both had stressful day jobs, and were working a lot of hours. Could have seen us appearing on one of these programmes such as, “Honey, I ruined the house”!!

If you are interested in property, it can be a financially rewarding, and satisfying way to spend your spare time. But it can also be immensely hard work and, at times, stressful. As there is more and more interest in property renovation, it is more difficult to find the bargain properties which you can be sure will increase substantially in value.

Business Plan

It goes without saying that you should have a clear business plan and budget, when taking on a project. The key is to identify the least expensive improvements that will add the most value. You should have a clear strategy before starting ie how much money do you have available, how much time do you have, are you going to do all the work, if not who is? Have you checked out availability of materials/labour which may be required?

Obviously, within your budget you may have to prioritise work, it is important that you prioritise work that adds most value to property – again take advice from the local estate agent, although generally, the kitchen, bathroom, and double glazing are good places to start!

Most people would recommend decorating throughout in fairly neutral colours eg painting walls creams/white, a standard budget carpet throughout the house.

Always decorate in a way which will appeal to, or not put off, as many as people as possible.

If at any point you think your budget is slipping, stop and re-evaluate every expenditure you're making. I like to review on a weekly basis, as would do with any project, where I am in terms of spending and work complete.

You must be realistic about how much time you can personally give to the project, because although it can seem the cheapest option to do a bit here and there, at weekends and evenings, I have found is often best to pay a project manager and team to get done as quickly as possible. The savings on the monthly mortgage payments can often be about the same as the extra cost in employing the project team, it saves a lot of hassle/time for you and you can move your money on elsewhere either by selling or remortgaging.

Estate Agents

There will always be opportunities and it can definitely pay for you to have a good relationship with your local estate agents and to visit the auctions regularly. If you do all your homework, these are the best places to pick up a good value project.

I have found the relationship with the estate agent to be one of the most important for a property investor. If he/she tips you off about a potential project, and you can move quickly, they will often also give you advice on what should be done to the property to get to a certain end value. It is very important you know what the end value is likely to be – remember there is always a ceiling on the price the property can achieve due to the location. For more on location remember to check out Location, location, l...

Tradesmen

Obviously it will depend on the skillset you have, but most people will need the professional services of a builder/ decorator/electrician or even project manager during a project. You should have one in mind before start your project – ideally via personal recommendation. When projects have the potential to go wrong and over budget, it is really vital that your guy has an established reputation, and you have a good working relationship with them.

If cannot get one through personal recommendation, often local estate agent/letting agents should be able to advise, or failing that check out your local yellow pages.

Risks

The obvious danger of buying to re-sell is that the value of the property when complete will not cover the cost of the renovations/buying/selling. The UK property market, has been, on the whole, largely buoyant for a number of years. However as discussed earlier with interest rate rises - which will increase the cost of mortgages – need to be disciplined.

Renovation costs can have a tendency to escalate beyond initial estimates, and timescales invariably increase. It is important to stick to your business plan as much as possible.

Even during a calendar year there are better times to buy and sell, so increased time on your project can have big effect on profit from project, for example if buy property in June, and want back on market in September as you know is popular time for buyers, but unfortunately project takes extra 2-3 months – what happens? You are getting near Christmas, market is quiet, you either have to sell at a lower than hoped for price or carry into January, and have extra 2-3 months mortgage payments etc. So always worth bearing in mind the time of year.

You should also do some research into the area in which you plan to buy. Try to make sure that no developments are planned which could affect the market value of the area and of your property. Or the opposite, you may find a new transport link is planned which could increase value.

I cannot underestimate the size of these projects, and the importance of good preparation. I do not mind admitting that I still use project managers for every renovation job I take on, as I simply do not have time/skills to manage. I also am happy to pay finders at times for the right project for me. It can still prove very profitable, and gives me less stress!!

Overall as far as a property investment strategy is concerned, I would definitely consider property renovation, to either resell or remortgage, as an excellent method of building up equity. However be aware of the market as a whole - right now - July 2005 - in the UK, it is getting very hard to find an attractive project.

And the price you pay when you buy will often make or break your project.

Check out my recommended property deals!

Check out my recommended investment courses!