Renovation, renovation, renovation: 2014 promises to be the year of the amateur developer
A booming property market has reopened the door for the return of a rare beast, writes Chiara Cavaglieri
Saturday 04 January 2014
Nearly all property market watchers reckon 2014 is set to be a year of growth for house prices – and not just in the buoyant south-east – which means there could be opportunities for that rare beast last seen before the credit crunch, the amateur developer. You probably remember the TV programmes, nervy first-timers taking on their "project" with sledgehammer in one hand and cheap credit agreement in the other. Back then it seemed a licence to print money, but now one property market crash later it is a trickier undertaking. So what are the rules if you want to become a property developer?
If you don't want to go down the buy-to-let route, you may like the idea of buying something on the shabby side, putting those renovation skills to good use and selling it on for profit. This is easier said than done, of course, as any number of things in the build and sales process can go wrong and no market is certain. But there are many ways to minimise the risks.
Pick the right location
Tread carefully if you're looking for an up-and-coming area. In an ideal world you'll find something on the outskirts of a good area that has the potential for growth but the professionals are probably way ahead of you here so concentrate on the things that will always be important to buyers such as decent transport, schools and green areas.
"Always go for location over size," says Ed Mead, director at estate agent Douglas & Gordon. "Location is key and always go for the worst property in the best street, a sure winner."
Auction houses are a good source for cheap properties, including commercial buildings that could do well converted into residential property, but you'll need to stick to your budget and do your research. It can be daunting for first-timers, but the upside is that owners are motivated to sell and if it fails to reach the reserve price, you should try to negotiate with them later.
If you come across a derelict building that sparks your interest, you can trace the owner through the Land Registry. Otherwise, ask estate agents if they have anyone on their books looking to sell quickly. Look out for smaller ads in newspapers and online too because these owners may be trying to sell the property themselves, which should mean you get a good price.
Make your mortgage a priority
Most high street lenders will offer a mortgage only if the property is habitable, and even then may withhold some of the money until essential repairs are completed. If you've bought a derelict building that needs to be converted, you'll have to approach a specialist lender such as BuildStore. You will typically be offered from 65 per cent of the value of a property in its current condition with the remainder of the loan released in stages.
Make sure you are completely comfortable with the level of borrowing, as well as all the other associated costs for buying and selling property.
"It looks easy to make a profit on buying and selling, it's not," says Mr Mead. "Stamp duty, estate agent fees and solicitors will eat up a minimum of 5 per cent in and out, given any deal worth doing is likely to cost well into stamp duty price territory."
Don't leave legals to chance
Check for any covenants that come with the deeds and get all the relevant permissions before you start work, both planning and, where necessary, listed building consent. Be realistic about the time it will take to get the work completed and make sure you're covered by comprehensive specialist renovation insurance.
Carol Peett of County Homesearch says: "Make sure you have a full survey so you know what your budget will be and you can stick to it. Otherwise you may find you encounter nasty surprises like dry rot, subsidence etc, which will eat into any profit and could even leave you with a loss."
Agree a fixed price so you don't end up paying through the nose if the build takes longer than expected. Registered builders can be found through the Federation of Master Builders and the National House-Building Council.
It is easier to use a single firm for the whole project rather than individual tradesmen, but this is usually more expensive so you may prefer to use a builder for the shell and individuals for the plumbing, electrics, roofing, scaffolding etc. Always get at least three quotes, check references and make sure they are a current member of relevant trade associations.
Take plenty of pictures all the way through the renovation process to show prospective buyers as evidence of all the work that has gone in. You'll also need to keep guarantees, warranties and certificates for everything to pass on to the new owners.
Dress to impress
Tailor the design to the market, not for your own taste. Keep things simple and neutral so buyers can imagine putting their own stamp on the property. The kitchen should always be a major focus but you should also think of clever storage solutions. One top tip is to use the same flooring throughout to create a sense of space.
Doing as much work as you can by yourself is one way in which to save money, but don't cut corners. Cheap fixtures and fittings are a huge turn-off but you don't want to put in anything too fancy as elaborate designs may deter buyers.
Properties for sale should be fresh and bright so stick to quality fittings with a neutral finish and use a few key accessories to introduce colour.
Make a quick sale
When it is time to sell your property, you can either sell it yourself or hire a local agent, but timing and pricing are hugely important. Spring and autumn are peak times to sell and you should get it valued by at least three estate agents to get a realistic idea of how much it will fetch. Too high, and it could be left on the market for too long.
"The last thing you want is a property that has been sitting on the market for several months," says Mr Mead. "Even the best property appears stale when it sits on the market too long and buyers assume there is something wrong with it."
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