Buying Property to Renovate and Sell - A Guide for Wannabe Property Developers

If you want to be successful at buying property to renovate and then sell at a profit (otherwise known as flipping) you need to know a few things:

a) what final selling price you can achieve?
b) how much the works will cost?
c) how long will your money be tied up? (how long will it take to do up and sell the property)

If you get one or more of these things wrong you could end up with a very expensive mistake.

Some advice which will help you along the way:

Work with a good estate agent

A good estate agent will happily tell you the sort of buyers your property would appeal to, what works or improvements you should consider as well as the demand for your type of property and an idea on overall selling price.

We're always interested in working with property developers as we know that by helping them become wealthier we're helping grow our own business as they'll put more and more business through us as they grow. Any agent who doesn't show the same interest either doesn't understand the benefits of property development or is too short sighted to notice the opportunity.

Work out the costs

In working out the costs of the works, we always recommend when you come to buy the property you're intending on developing to get a full structural survey which includes a costed estimate of a schedule of works to bring the property back up to standard.

Your surveyor may not know to the penny but it's a good barometer to use as to whether you're being over quoted by anyone you go on to approach. We use a local surveyor who provides these for a few hundred pounds, an absolute bargain in the scheme of things. Contact me if you want details...

Remember to factor in ALL THE COSTS. It's amazing how many people don't factor in some of the following costs:

  • Mortgage interest once owned
  • Empty property Council tax rates (you used to get a 6 month exemption, but now it's just 1 month tax free for unoccupied properties and then only if the property was occupied when you bought it)
  • Gas, Electric & water while works are ongoing
  • Fuel and costs of travel back and forth
  • Opportunity cost if your time

If you are serious about making a real profit you should build these costs into both your projections and your cost monitoring so you know whether you've actually made a profit or not.

Don't forget the 6 month rule

For residential property flipping has become harder with the majority of lenders imposing the "6 month rule". The six month rule is not actually a rule at all it's just a condition which the majority of lenders have taken on as an industry standard now. Basically it means lenders won't lend on a property which hasn't been owned by the owner for at least 6 months. This was introduced as an attempt to stop the practice of people buying a property at a heavy discount and re-mortgaging, sometimes same day at its higher valuation, releasing the profit. This was prevalent in the run up to the 2008 crash and lenders are keen to stamp out these kinds of practices hence the condition.

What this means to you is you're likely to have to hold onto a property for 6 months after purchase. This means 6 months mortgage interest, 6 months council tax and 6 months of bills all need to be factored into your calculations. The rule doesn't exactly help wannabe property developers but for the good ones it shouldn't matter.

Published on 23 May 2014

Source Dominic Woodward

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