Every renovation no matter how small, big or long is an opportunity to learn.
My property renovation while being simple and short (although the sale seemed to take forever!) has still thrown up a lot of learnings which I would like to share.
1. You make money when you BUY property, not when you sell
I know this saying off by heart. It was one of the key reasons why I tried to pay less for the property in the first place. I did not want to pay £147k, I actually wanted to pay £139k. However, that was not going to happen. After the auction, another party was also interested in buying the property and they offered £146k. I had a choice at that stage to either over-pay (on my ideal price) to get this deal or walk-away. Even though the sums were tight I decided I would rather pay a bit more as I wanted the chance to make a bit of extra money. Without the deal, I had no opportunity for a relatively easy route to make some extra cash.
2. Keep attuned to market sentiment and react appropriately
When I bought the property in the summer time, the market was *hot*. There was limited supply and a whole heap of demand, this kept prices strong. However, cue the onset of winter and a rash of cheap repossessions at the bottom end of the 3 bed market and suddenly the house didn’t look as good value for money when compared to the competition half a mile away. The areas of the repossessed properties may not have been quite as salubrious as our area, but it became increasingly difficult to justify a £50k price difference.
3. Listen to viewer feedback and overcome any barriers
At the same time as the market started to de-stabilise slightly, I also learned of the issue with regards the perception of parking at the property. The property had communal parking with no individual allocation and this was seen to be an issue with every buyer we got through the door – despite there being plenty of space. On any viewing I made sure I parked a little further away to ensure there was always extra space available in the parking area.
4. Do not be afraid to drop the price – but understand price search bands
There came a stage when points 2 & 3 (market sentiment and viewer feedback) collided and I felt the best thing to do would be to reduce the price to incentivise more buyers. £5k was cut from the asking price – but nothing happened. The fact was a £5k price reduction was not enough to put the house into a new price band search category. To open the house to a new and wider audience the price needed to be cut further to place it in a different price band: the price was cut by a further £5k to enable this. Within hours of the price cut, the demand for viewings went through the roof!
5. Be careful who you choose as an estate agent – and keep tabs on them
I chose a local high street estate agent who had seemed very proactive at the valuation, but this interest in selling my property soon fell away (they were later sacked and another agent instructed). I also had the property listed with Hatched an online estate agency and so I felt I had all bases covered. But, I should have stalked the estate agents more with regards inquiries for the property and possibly reacted quicker to the market circumstances – this would have sped up the sale.
6. Build in financial buffers
While I had expected the project to be quite straight forward – and it was – with any renovation there are always surprises which you have not budgeted for. This comes under contingencies – and it’s something which you must always be aware of – and always have money ready for. The first contingency got used when I found out a FULL re-wire was required. The second contingency got used when £10k was cut off the asking price.
Without those contingencies built into the budget from the outset, this little profit making property could easily have turned into a loss making project.
7. Wait until you feel you REALLY want to make a sale
I was not a desperate seller. I had no need to sell the property in a hurry, nor any real need for the money, however I did want to sell the property. In the beginning, I was happy to wait until I achieved the original asking price. However, over time and with the change in council tax bills and watching the changing market I decided I needed to act to create a sale. The price reduction was critical to ensuring this would happen. I knew the profit margin would be hit, but I decided I wanted to make a sale sooner rather than wait for the possibility of a larger profit margin. At the end of the day, a sale is a sale.
The one thing I would caution: once you reduce your asking price, it is pretty difficult to increase it again – so be sure when you do this, it is actually what you want to do.
8. Work out the best way to finance your project from the outset
One thing which really struck me from my financial calculations is the amount of money I ended up paying for the finance. Not only did I have the arrangement fee, security fee and surveyor fee, I then had the actual interest on the loan. Fortunately, I have commercial finance so there is no redemption fee – however with what some banks charge for this, this could have crucified what little profit there was. Finance costs on this project came to 25% of the total costs. If this project had been bought cash the net profit would have increased by £3,965 – an increase of 23%.
9. Weigh up future plans and opportunity costs: hedging is expensive
I wanted to keep my options open in terms of whether the property was sold or rented long-term. Taking this balanced approach – or hedging bets – is expensive. The money borrowed cost 25% of the total costs – and ate heavily into the net profit margins. However, it meant I could keep my options open if another project came along. Unencumbered properties need to be owned for at least 6 months before they can be refinanced and in that time period you may have seen and lost the opportunity of a lifetime.
If in doubt, taking finance is a cheaper “opportunity cost” in the long run.
10. Don’t be afraid to do a different deal
From the outset, I have admitted that while this property is not far from me, a family house is not my usual target market or type of property. However, I chose not to let that stop me. I did lots of research with estate agents to find out family trends (is it true that everybody wants an open plan kitchen/ diner/ lounge?; Should I take this dividing wall down?) and spoke to friends of mine who lived in family houses, had families of their own and asked them for their opinions. I listened and learned and tried to incorporate my findings into how I shaped the development – with a little bit of “me” added in for good measure.
I have learned a lot from such a small project – and I look forward to finding the next project where I can continue my journey!