That was the question which prompted me to buy this property before auction.
Admittedly, the experiment has gotten off to a shaky start; the property’s been down-valued and wiped out my renovation budget, I found out I needed new windows, realised a temperamental boiler would only lead to temperamental tenants, oh and did I mention the re-wire…
Yes, property renovation is an expensive business and most of the time you will feel like you are haemorrhaging money. I say feel like, but actually that’s a fact. When refurbishing a property you will need access to large amounts of money, and often. No matter what deals you strike, or how good your negotiations – everybody will want paying. Now.
If you’re renovating a property to sell, the front-loaded nature of property development can be a killer on your cash flow – major funds are required until project completion, then there is a delay until sale – then it’s Happy Days!
On a buy to let property, the process is also front-loaded – you put down your deposit and get the property ready for rental – but there is no imminent sale to boost your bank balance. If you have increased the value you could look to re-mortgage, but you should always remember Rule 63: Re-mortgaging is not free re-cycling
Buy to let is a long game. And for my purposes, it is an income driven business. My buy to let purchases are planned to make money on an everyday basis and my portfolio is run according to strict business principles. That means every property must produce a surplus every month; it’s the difference between what the property costs you to run and the rental you get in. These profits are what pays my ‘wages’ and has enabled me to ditch the day job.
How I invest is rather different to people looking for capital appreciation – yes, over time, I believe the under-lying value of my assets will increase, but first and foremost I look for properties which will make me an income now, rather than a capital payout sometime in the future.
This means I approach the refurbishment of rental properties differently. As I do not intend to re-value or re-mortgage this property, my end game is to ensure the property is of a good, durable rental standard which will provide me with an income every month.
That is why, unlike many of the programmes you will see on TV, I am not trying to deliver a show home. Every decision made on this renovation comes with the question: What will this add to my rental income? If the answer is nothing – it doesn’t get done.
That is why I have decided against adding a bathroom upstairs. The total cost would have been in the region of £3,000 and while it would have added to the value and saleability of the property – the difference to the rental income was negligible. And so the idea has been ditched. When the time comes for me to sell this property – which is many years in the future – then the bathroom will be added, the kitchen will be re-designed and the new buyer will get the sexy show-home they want to buy.
For now, the key goal is payback – and in as quick a time as possible. Given the property could be currently earning £300 per week, every day empty is lost income where the property is costing me money and not making me money. It’s a key principle that people often gloss over – but it’s critical if you want to make money in property.
Renovating a property for rental is not about how gorgeous you make a property look – that’s vanity; it’s first and foremost about getting the property fit for purpose and making you an income as quickly as possible. The business of buy to let, if you want to make money, means you run it as a business.
Time will tell if this property will be an “easy” buy to let asset – but two weeks in and I am happy with the renovation progress…I just wish the new windows would hurry up and arrive!!