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Should I buy a property which requires a refurb?


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Hello everyone, 

 
I'm getting closer to buying my first BTL property. I have done lots of research and read thepropertyhub blog, listened to podcasts. There is a lot of advice to buy a property with potential to add value (renovating, adding extensions), so that you can remortgage and get your deposit back.
 
My question is, if I'm buying away from where I live and I don't have a lot of experience with refurbishing properties, is this still a good strategy?
I would have to find a construction company, trust that they do the right job, won't charge me a fortune, the refurb will not take too long so I can let the property.
 
Or should I buy a property that perhaps requires only cosmetic changes (new paint, new carpet etc) But then I would not be able to get my deposit back with remortgaging.
 
Thank you for any advice!
 
Ewa
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Ewa,

 

For my first property 4 years ago I purchased a tired ex council house from auction. I had read all the books, I had done the research etc I wanted to have something that needed some work but no building work as such, just clean, paint, carpets etc. I wanted something local to me as i wanted to self manage the project and to manage the tenant afterwards. I joined the landlords org as well. You only really learn once you jump in and buy, i learnt so much in the first 3 months of reality rather than theory. Having and keeping good tradespeople is a major factor and thus I would advise to invest in a defined area where you can make contact with good people and use them time and time again. For this reason i only invest in properties within 15 miles of home, we now have 14 locally and i can use the same plumber, electrician,builder etc. I have experience of buying a house 200 miles away from where i live as well and as you say you have to find a builder and one that you can trust to do the job. I purchased a house in Durham 18 months ago for my son to live in with 3 mates, paid £145k but then had to spend £40k on a complete refurb and development in order to meet requirements. The house is now worth about £215k and provides a good return. We found a builder by going on one of those sites where you put your job online and contractors contact you. We were fortunate to find a fantastic chap who did a great job at a good price and on time! We were lucky. One tip here was we drew up a contract with a spec and both signed up to it, i then visited the property to make inspections and to hold update meetings. Would I do another property some way from home - no! Logistics make it difficult and costly. You have to do what is right for you and there is no black and white answer but whatever you do go for it and good luck.

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Hi Ewa

 

If your strategy relies on recycling your deposit (at least in part) then a decent amount of works will probably be required for a short-term refinancing 3-12 mths say but a decent discount from true local comparables may allow you to do the same in say 1-2 years with little work...as long as the market is on your side. I have done both but prefer to move more quickly and create greater 'deal velocity' as I like to call it.

 

If you are nervous about doing it on your own then you might consider either a sourcing partner that also provides the project management on the refurb, which I have done several times now. Another option could be to do a joint venture with someone with such knowledge, I have done a few of JVs now also. In either of these scenarios it is vital that you do your due diligence on the potential partner as well as the property to get comfortable...but done correctly this is a great way to learn with reduced personal risk in terms of the building works etc.

 

I know that some, including acereferee above, believe diving in at the deep end works well...I prefer to stand on the sidelines and throw in the life jacket if needed myself lol :)

 

The bottom line is that you should do what you are comfortable in doing and that fits in with your longer-term goals...just one property every 2-5 years say and keep it simple may be best but if you want to go faster and further with largely the same funds then some form of improvement works and / or discount will probably be needed to churn the funds more quickly.

 

Let us know what you decide...

Richard W J Brown a.k.a. The Property Voice

Property Investment Strategist

10%+ ROI property deals every week: check out PROPERTY DEAL TIPS
Amazon best-selling author Property Investor Toolkit & #PropTech, YPN Magazine columnist & PODCAST host

Web & Blog: The Property Voice | Curated property news & insights feed

Facebook Page | TwitterLinked In

Let's connect...mention The Property Hub :)

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Hello acereferee,


Thank you for sharing your experiences of buying properties. I agree that there is so much more that I will learn in practice. 
Finding one area for investment is definitely a good thing, I cannot understand (luck of experience!) how else it can be done, as it must take so much time and effort to source and renovate properties spread across the whole country. I think I will try to buy a property that requires a small refurb, and leave the bigger more complex projects for later.
 
I'm impressed with the speed you're building your portfolio: 14 properties in 4 years! :-)
How did you find the tradespeople in your area, was it also online or did you know some people before you started investing? I will try the websites you wrote about.
 
I definitely have more and more confidence and cannot wait to buy my first BTL! 
I need to take a few field trips now to make sure the area is right and the demand is high. Theoretically it is, just have to see with my own eyes and talk to estate agents, hopefully they will be helpful.
 
Thanks!
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Hello Richard,

 

Thank you for your advice.

 

I will probably start slowly and invest faster with more experience. Don't want to go too slow, but also don't want to get discouraged if the process will be too stressful. 

 

I will definitely need to recycle my deposit, but maybe I will have to wait a bit longer. I decided that I feel too nervous about going into a big refurb project for my first investment. Maybe the second one :- )

 

I will have to find out more about JV as I was not considering it at this stage, therefore I skipped this topic altogether in my learning process!

 

At the moment I'm leaning towards a simple project and once I succeed and see that it is all possible for me in real life (not just on paper so far) then I will try the more complicated refurb projects, maybe partnership to make my money work harder :-)

 

If you want to share your experiences with partnerships, JVs in more detail, it would be great to hear and learn more.

 

Thanks!

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Hello Ewa

 

You  have two competing priorities

  1. the desire to recycle your cash to accelerate the speed at which you acquire properties
  2. the desire to avoid the risk of buying in an area you are unfamiliar with, if it needs a more substantial but still cosmetic refurb

Your choice will be determined by which one you decide to place the greater priority on.

 

The only way to get your cash back out is to forcibly increase the value; the only way to do that is to do a more substantial refurb.

 

Buying below its current value will also help but is not sufficient in isolation, in so far as you will have a property worth more than you paid for it but a lenders surveyor will only agree to value it higher than the purchase price if you can prove you have done work on it to justify the higher value.

 

A cosmetic refurb usually refers to one not requiring structural changes to be made i.e. moving load bearing walls. New kitchen, bathroom, flooring, decoration would still be cosmetic but sufficient to forcibly appreciate the value. Minor cosmetic, as you suggest will not increase the value sufficiently.

When doing a larger cosmetic refurb, to minimise the risk of the problems you articulate you need to

  1. be in control of the cost of materials
  2. be in control of the cost and quality of the trades people

Materials

This can easily be solved by joining LNPG, a buying group that allows its member to buy pretty much all the materials needed for a refurb  at below trade prices i.e. Magnet kitchens starting from £500.

 

Annual membership starts from £149 + VAT and allows you to complete up to 3 refurbs in a year. For more prolific refurbers, slight higher membership fees exist.

 

Check out their website   www.lnpg.co.uk

 

If you decide to join, enter the discount code KW10 to get a 10% discount on your 1st years membership

 

 

Tradesman

You can use a building company based in Grimsby who send refurb teams out to different parts of the UK but charge Grimsby prices

 

Newvic Property Services Ltd, run by Nigel Cragg

 

01472 311418 or 07540 825472

 

 

 

I hope that helps Ewa

Kevin Wright

Positive Property Finance

Telephone: 01206 586586

Email: inspireme@thinkpositively.co.uk

Brokerage website: www.positivepropertyfinance.co.uk

Workshop website: www.ninjainvestorprogramme.co.uk

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Hi Ewa

 

Deciding on your ideal property strategy is a game of ever decreasing circles, starting from a wide range of all the possible options - my own strategy selector tool has 20 of them for example, some of which I shared here: http://www.thepropertyvoice.net/a-slow-boring-incredibly-awesome-strategy-for-building-wealth-through-passive-real-estate-investing/ 

 

That's why it's important to know why you are doing this in the first place (your purpose) and what you want to achieve out of it (your goals). In addition, you should also establish what your skills and resources are...like money, time, knowledge, experience, lifestyle choice, etc. Piecing all of these aspects together will be different for different people, which is why for some running a lettings business will be right, or for others rent-to-rent and others still, long-term, steady-as-she goes buy to let. None of these options is right or wrong but is right for the right person, hence why we have so many different types of people deriving an income from property in so many ways.

 

With regard to JVs, I have basically worked with JV partners who have funds but are time, knowledge or confidence poor and so prefer to work with a 'safe pair of hands' from a distance. Some just want a return, whilst others want to better understand how I would manage an investment from concept to completion as we go. This gives us a clue to how good JVs tend to work - complimentary inputs. The main inputs are time, money, skills, knowledge, experience, contacts and 'bankability'. So, when considering any sort of JV, think what you can bring but also what you are looking for the other partner(s) to bring as well.

 

Great tips from Kevin by the way!

Richard W J Brown a.k.a. The Property Voice

Property Investment Strategist

10%+ ROI property deals every week: check out PROPERTY DEAL TIPS
Amazon best-selling author Property Investor Toolkit & #PropTech, YPN Magazine columnist & PODCAST host

Web & Blog: The Property Voice | Curated property news & insights feed

Facebook Page | TwitterLinked In

Let's connect...mention The Property Hub :)

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Hello Kevin,

 
Thank you for your help. Lots of great, valuable information!
 
I will definitely join LNPG and contact the building company you recommended. The construction companies I know don't want to work outside of London which was making everything complicated. 
 
My worry with properties for refurb is that when I will go for a viewing I will not realize that perhaps the property has some serious faults. For example I may discover later that it needs massive structural repairs, new heating system, new plumbing, electric wiring etc. This is why I'm nervous about it, even though I know that done properly, this kind of project will allow me to recycle my deposit and build my portfolio faster.
 
Is it advisable to hire a surveyor before committing to buying a property, to be sure about its true condition? Would that be enough to guarantee no surprises? 
 
Thank you again!
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Hi Richard,

 

Thank you for the link to your blog! So many strategies, I think I have the most knowledge (theory only so far) in the forced appreciation strategy. Playing with numbers is what I do at the moment to make sure I find a good deal :-) Thanks to all the help in this forum I can find out more about refurbishing houses and gain some confidence how to approach this.

 


In terms of why I want to get involved in property investment, well I have a goal to achieve financial freedom in 5-7 years time. I would like to retire early and have income in the years before retirement. That would probably be a passive income, I would say I'm more interested in investing but not so much in becoming a hands-on landlord. I have some flexibility/time, but it is limited. The money is also limited, I have saved for the first deposit. Unless I buy a cheaper property and can split the money in 2, which I hope to do, moving away from London prices now. 

I'm not completely risk averse as all the best decisions in my life were risky (and stressful) but I believed that the outcome would be positive and somehow it always was. Hard work and determination was also involved, not just hoping for the best ;-)


 

I want to find out more about buy to sell in the near future as well. I know people who made lots of money on this strategy, but they have done it in the time when properties were going up in value between 2012-2014.

 

Interesting one is the holiday/short term rental which I am very curios about, but have not found any information yet. I don't understand how can you make money on holiday rentals, I assume people would rent it only in the summer months, what about the rest of the year?

 

Thank you!
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Hi Ewa

 

Yes, so many possible strategies - I would suggest ignoring holiday / short-term lets initially at least, as both require very different skills - especially in marketing, managing and location decision. To give you an idea, I bought a holiday let in the Algarve a few years ago in an existing development, with a substantial discount - so a good long-term capital appreciation play. Comparable properties rented for 22 weeks a year or more in the year prior, this would mean it ran at a profit. Then...the holiday rental market for the entire region fell through the floor - 45% reduction in bookings in a year in fact...that made for a tough ride I can tell you. I have managed to get the occupancy rates back up again now but it has been a slow process and has taken far more time than any of my flips or BTLs as well.

 

Forced appreciation and buy-to-sell actually share some similar characteristics and so these can dovetail into one another; adopting a one-for me-one-to-sell approach or a variation at least. Relying on a rising market is speculation and so it is better to rely on proven techniques to add value - adding square footage, living space and bedrooms are the obvious ones but turning a wreck into a beauty is another...but everyone is after these thanks to Homes Under the Hammer lol

 

As for financial freedom - see this post on that subject: http://www.thepropertyvoice.net/whats-the-number-how-much-is-enough-to-retire-on-normally-or-even-early/ It is possible to flex this in a number of ways but if what you are looking for is a simple way to calculate how much is enough to (early) retire on from a passive investment portfolio, this should give you an idea. Once you know how much you need (your 'Number') you can then set some goals of how to get there ;)

 

As for risk, I assume when you say risk that you mean a well-thought, calculated risk - buying off-plan in Bulgaria in 2006 was a risk...but not that well thought out or calculated as it turns out...perhaps even a holiday rental in the Algarve as well...

 

Good luck!

Richard W J Brown a.k.a. The Property Voice

Property Investment Strategist

10%+ ROI property deals every week: check out PROPERTY DEAL TIPS
Amazon best-selling author Property Investor Toolkit & #PropTech, YPN Magazine columnist & PODCAST host

Web & Blog: The Property Voice | Curated property news & insights feed

Facebook Page | TwitterLinked In

Let's connect...mention The Property Hub :)

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Hi Ewa, I'm glad you started this as it's dug up some very useful information from Kev, Rich and co which will be helpful for me as well. Thanks to all those guys.

 

I need to recycle my money asap in order to progress next year so I'm going to be looking at refurbs. Suits my personality too, I'm not a sit-and-wait-for-a-deposit-to-build kinda guy! I'm also concerned at buying a lemon through ignorance (my BTL's so far have been new build and less risk) so here's my initial thoughts for managing this next year:

 

- BTL investing can be outside London but keep refurbs local

 

- always get a proper survey done

 

- enrol in a mentorship program, the cost of a good one will be a fraction of the long term value (there are some very experienced members on here who offer such niceties. Damien Fogg is one who I have spoken to in the past)

 

- educate myself:

  1. enrol in a DIY program recommended by Kylie, one of the members on here http://thebtc.co.uk/ (apparently they're very women friendly!). Even if you don't do the work yourself the knowing how to can be very useful in discussions with contractors
  2. there's a reasonably priced course called BTEC Surveying & Estimating (£499) which can be done as home study and may or may not be useful in the long run, I need to get some advice on this from someone experienced

- I have decent local tradesmen sourced via recommendation, but nice to know about the Grimsby option

 

- sign up for LNPG, good tip

 

I'm also going to approach the forum shortly for some advice on an issue I'm grappling with regarding equity in my current home.

 

Thanks again to all the contributors, some good stuff here.

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Definitely advisable to get a survey done Ewa, usually after your offer has been accepted but before you commit to buy by exchanging contracts

Kevin Wright

Positive Property Finance

Telephone: 01206 586586

Email: inspireme@thinkpositively.co.uk

Brokerage website: www.positivepropertyfinance.co.uk

Workshop website: www.ninjainvestorprogramme.co.uk

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Hi Richard,

 
Wow, I didn't even think about investing outside of the UK, only holiday lets locally eg Bournemouth. Perhaps holiday lets don't exist here due to the weather :-)
 
Your project in Algarve does sound stressful! Glad you were able to sort it out. I'll take your advice and ignore holiday lets for now.
 
I will try to educate myself regarding buy-to-sell in the near future. I doubt I will be able to get my hands on a total wreck for complete refurb as I imagine you cannot buy those kind of houses through estate agents and this is what I will do for now, buying at auction seems too much at the moment. 
 
Thanks for the link, I will try to calculate my 'Number'  and think about how to get there :-)
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Hi Donald,

 

Good to hear from you. I'm happy that this topic was helpful for you too :-)

 

I'm really thankful to all the contributors, I've learned so much on this forum!

 

How are your new build BTLs doing, are you able to make any profit on them? I was ignoring new builds so far (especially in London) as I could never make my numbers work. That's a shame as one would hope they don't require maintenance for a long time.

 

The mentorship program sounds interesting. What to expect from such a program? I will try to find out more about that.

 

Would you be able to recommend any good tradesmen? I will contact Grimsby as well as it sounds like just a company I was looking for, though if there are any smaller jobs in my future BTLs would be good to know a smaller company/individual :-)

 

Thank you so much for sharing your ideas and plans for next year!
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Hi.

 

My input mirrors the comments above. My strategy relies heavily on recycling deposits, as I'm limited with funds (until the market outside london improves), so refurb work has been an essential pest. I work in construction anyway, and have appropriate skills, knowledge and contacts to enable me to refit properties in a decent timescale and budget. I can also spot a lemon!

 

I think you should take your own skill set into account when looking for investments which require work. It will cost you more than you think. Taking on a job which will eat all your cash flown, time and energy for a year to save a few thousand quid isn't probably worth it.

 

If you're not in the building trades, closely acquainted with someone who is, or have lots of contacts, i would limit myself to smaller projects. Redecoration, new carpets, replacement doors are all fine. If you're getting into replacement kitchens, bathrooms, new heating systems etc you may find yourself come unstuck. Ive been working on a flood damaged full refurbishment for a while now, and I'm getting tired of it. You may be better paying an extra few thousand for a property in fair condition. ( unless its really cheap!)

 

Incidently, I've noticed that many people with a specific trade will look for a property which requires the work they are able to do, rather than just look for a good deal. An electrician will look for a house requiring a rewire, rather than one which works out financially. If you're a qualified tradesperson and you find a deal worth buying, and you can do that work at cost price, thats a bonus. 

 

rob

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Hi Rob,

 
Thank you for your advice.
 
I don't have experience / skills with refurbishing houses. I would have to rely on someone else. Perhaps starting from a smaller refurb project would be best for me and with experience try bigger ones. 
 
Another option could be enrolling in a DIY program like Donald suggested. Of course that would not make me an expert but would give me a better understanding.
 
I supposed everything that requires more specialist knowledge like replacing heating systems, electric rewiring should be avoided. Hopefully this kind of issues would come out in the survey and I would not progress with exchanging contracts.
 
Thank you!
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Hi Ewa

The builds have not completed yet, work ongoing!

 

Mentorship can be tailored to what you need and your level of experience, but this is an excerpt from what Mr Fogg is offering (hope he doesn't mind me flogging his services like this):


  • Goal setting
  • Strategy review and compatibility
  • Steps to take to fill in gaps of knowledge
  • Actions to take to move forward
  • Review of properties that meet your goals
  • Information on assessing deals / viewing guides
  • Selection of properties to arrange viewings on
  • Common property defects, areas that will be expensive to fix, areas that look worse than they actually are, some rough costs for fixing all of these
  • Negotiation techniques and offers to be placed
  • Future steps to keep on track
  • The pros and cons of distant investing, how much of your time it will take up
  • The technicalities of being a landlord – this can be detailed or not at all depending on the level of involvement you want to have

Check out his website http://www.buytoletstrategy.com/ and also perhaps have a chat with Richard, who I believe may offer mentoring.

 

Rob raises some good points about refurbs and I wouldn't buy a wreck with my current level of ignorance. But without risks and hard work there are little rewards, and if you want to earn a decent appreciation and get a chunk of equity back then carpets and paint likely won't get you far. So the game for me is to build the contacts by starting reasonably small (kitchen, bathroom & perhaps loft extension in my own home) and use a project manager. Tradesmen I've used in SW London and very happy with, or came highly recommended:

 

Builder: Paul McKenna 07973213421

Painter: Rafal 07930746128

Roofing and gutters: Bill 07922162723

 

I have tiling and fencing ongoing, if they turn out to be any good I'll let you know!

 

cheers

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Hi Donald,

 

Thank you for sharing the link to Mr Foggs website and the contacts for the tradesmen!

 

I will have to think about all the feedback and make some decisions soon, as my own deadline for buying first property is approaching :-)

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