Will it make us money when it’s finished? – Renovation / Conversion.

It would be fair for anyone to expect that, if they complete either a Self Build, or a fairly major Renovation or Conversion project, that they should see a reasonable profit for their efforts.

This means that a lot of the “decision making” process is taken away from you.

With new build projects, you get to make your own decisions from the “ground up”, and you can “consider” each one as you make it.

With a renovation, or conversion projects, at least some of those decisions are made for you. – If there are fewer areas where you can make choices, then you have less opportunity to find ways which will be “cost effective” and which could improve your final profit margin.

With any “improvement” project you generally have to remove items which presently form part of the existing building before you can start to put the new “stuff” in. This could involve anything from stripping wallpaper, through removing floor boards, to taking off the whole roof!

Once you have finished “taking out”, you then need to prepare the building, ready for the “new stuff” to be installed. Again, depending on the condition of the building, this can present you with quite a major “project within a project”. (– Especially if the building is listed and there are any special measures which have to be taken to preserve “existing parts of it).

For example, you may need to level concrete ground floors, make good plastering , repair window and door frames, level up and maybe strengthen floor joists, underpin areas which may have settled, point up brickwork, repair dpc’s (damp proof courses), treat woodworm etc.

When all that work is done, you can then think about “installing the new stuff”.

The effect of having to do those first two operations means that compared with a new build where you generally just do one of those operations -, i.e. “install the new”, you now have three “cost areas” to consider as opposed to just one for many of the parts of the project.

Ok, you will say that at least you don’t have to pay to build the structure in the first place, so there will be a saving there. And that’s true.

However, you will normally pay considerably more for a property to renovate than you would to by a plot of land. Therefore you are paying for at least part of the structure in the purchase price (this is of course not the case if you are refurbishing your own house).

If you are hoping to be able to create a profit at the end of the project, then depending on whether or not you presently own the property, you need to give thought to these points:

1) The price you pay for the property.

2) The condition of the property.

3) The extent of the work you intend to do.

4) Your own input into the works.

5) The projected value on completion of the works.

Because properties which are specifically sold as “Renovation or Conversion” properties are not as commonly available as houses which are in good condition, there are no “definitive” guidelines when it comes to putting a value them.

To accurately value on a particular property which needs major work doing to it, really requires an expert with experience in that specific type of property and the specific type of work that it will need.

Most people working in Estate Agents will have SOME knowledge about various types of property, but not many of them will be able to look at any property in need of repair and give you a reasonably accurate idea of how much it would cost to carry out any one of a wide number of choices for upgrading it. – I wouldn’t expect them to. – That’s not their job!

If you ask the opinions of three Estate Agents regarding the value of any property which needs substantial renovating or full conversion, you will almost always be presented with three different figures. – You will just have to accept this as a fact, and not rely too heavily on any “one figure” from any one person being totally accurate

New housing developers can work out a price for selling their houses, based on a “cost build up”, which is often compiled by professional Quantity Surveyors or Estimators. These costs are usually based on easily quantifiable measurements and figures, “from the ground up”, and so will usually be fairly accurate.

However, if a private seller decides to sell a property for Renovation or Conversion: 1) they will not normally have access to the professional “Estimating” services that developers can call upon. 2) If they did have access to those services, there would be no real point in using them. - Why? - Because any buyer who considers purchasing the property would have their own ideas on what they would like to do with it, so any figures compiled by anyone other than the buyer would be useless.

So, taking all of that into consideration, the value of the Renovation or Conversion property that you see advertised in the local paper is normally simply going to be a “Best Guess”, and will usually have been suggested by a Local Estate Agent, who may or may not have a good knowledge base on which to actually make that decision.

When those “three Agents” gave given their three different values of the property, in most cases, the sellers will have decided to “go with the highest one” for at least a while to see if they can get the best possible selling price.

The problem you have as a buyer is to decide whether or not the selling price is right. And, - more importantly, if it is right FOR YOU, with the plans that you would have for the property.

In other words, will it allow you to spend whatever amount of money you need to renovate and possibly extend the property to bring it up to a standard that you are happy with, and at the same time, still make “economic sense”.

If you are considering taking on a substantial renovation project, (as mentioned earlier) I suggest that you read the sections of this guide titled “How much will it cost us to renovate”, “How much will it cost us to Self Build” and “Will it make us money – Self Build”. All these sections show you ways to enable you to compile your own cost estimates which will help you to decide whether or not the asking price for the property you are considering is “in the right ball park” or not.

If it turns out that it isn’t, don’t worry about taking the figures you have come up with and presenting them to the seller, saying “I’m sorry, but it appears that you have over valued the property, - here’s why”. If the property has been on the market for a while they may have been wondering why it hasn’t sold, so by showing them some professional looking figures you may find that they are more likely to then accept a lower offer for the property. It’s worth a try. – An extra £10,000 of the price may be all you need for the project to become viable).

One thing which can affect the profit potential of the project is the amount of work you physically do yourself.

On a small renovation project which could basically be a “redecoration and spruce up”, many people will be able to take on all the work themselves. – In these cases the only cost will be the materials, and the chances are that, as long as the decoration work is of a good quality, the value of the property could be increased by a good margin above its cost. – You are always more likely to find a buyer if the property is well presented. Fresh paint, clean or new carpets, and a modern feel to the property could add a good few thousand pounds to the value of the house and help it to sell quicker , whilst only maybe costing a couple of thousand pounds.

Once you start to move “up the scale” a bit, and the projects start to get more complex and involved, then the amount of work you are going to be able to do yourself will often become proportionally smaller, and therefore your own input will have less of an effect on increasing the value of the finished job. – If you try to do jobs which you are not trained to do, you could end up making a mess of them and having to bring in professionals to “make good” your work, - which will actually cost you more than if you just brought the right people in, in the first place.

Before you start on a project just do a bit of planning about what you are best doing yourselves and what you are best leaving to professionals. Your time may actually be best spent in shopping round for the best deals (see previous section “Will it make us money – Self Build”). – You could save a couple of thousand pounds on a kitchen, and maybe a thousand or so on a bathroom, just by having the time to “shop around” and find the best deals.

All the other aspects I have mentioned above should be seen with one important consideration always being kept in mind: What is the likely end value of the property, after all the work has been finished? – ALL other considerations should revolve around that figure.

If you have no experience in this field, the best you can do is to talk to the Estate Agent and look around the area at similar properties which are in a good state of repair and are of a similar size and design to yours.

Whatever figures you glean from your research, you should always add a “margin of error” in case your project went over budget or in case you have simply “guessed” wrongly. – What you don’t want to happen is to commit yourselves to the project, go through the whole planning process, put all the effort in to get the work done, only to find that the end value is less than the “price you paid for the property plus the cost of the works”.

If you want to make money on a Renovation or Conversion project, make sure you take time to do your research before you buy, and before you commit yourself. Try to come up with some reasonably accurate “ball park” figures for costs to do what you would want to do to the property. – Use the relevant sections of this guide, plus any other sources of information you can easily find, to help you. – Also use the “Building & DIY community” section of this site to ask other if they can help you with your research. – Many of them might have done it before and be quite happy to offer advice on your particular project.

Once you have done all your research, if the figures don’t add up to suggest that the project will be financially viable, either re think your plans, or approach the seller with your reasons why you don’t think they add up, and see if you can get them to see that a “lower offer” from you will be the best they are likely to get!

If neither of those actions turns it into a “potentially financially viable project”, it’s probably worth moving on to something else and forgetting that particular property altogether.

People tend to think that if they lose a property, there won’t be another one suitable for them. That is not usually the case. We can set our hearts on one thing, and then “all of a sudden” we pick up the paper and there is something even better! – It happens all the time, - and you are far better to “ditch” a potential project before you start than for it to fail “further down the line”.

As with every part of every project, if you go into it with your eyes open, and don’t try to “pull the wool over your own eyes”, you will stand a far better chance of succeeding.