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Should I Sell or Rent my Renovation Project?

Friday, 25th May 2012

Categories: Lettings Sales

Author: Peter Barry

The days of snapping up a property bargain, putting down some wooden floorboards, painting the walls white and turning it around for an eye-watering profit have gone. Although developers are still quietly going about the business of turning around decrepit flats and houses and making a comfortable living, the margins are tighter than they used to be and the properties need to do more to sell themselves than simply have the smell of new carpet and fresh paint. These days, any house in a decent area is priced to reflect the cosmetic changes that might be required to bring it up the standard of its neighbours. Whilst there’s always room for negotiation and there are still deals to be done, developers need to take a closer look at their calculators before taking on the risk of an overhaul that doesn’t guarantee the big buck returns of ten years ago.

Renovation slowdown

With first-time buyers still having to jump through hoops to get their hands on a mortgage and the recession forcing more people to adjust to their current property rather than incur the huge costs involved in moving, only the best properties in the most sought-after areas are flying off the shelves before their details have been uploaded on a website. The London bubble has resisted the worst of the slowdown but cagey investors still need to be sure of their market before handing over their cash.

Sitting pretty

Many developers who would have previously ‘flipped’ a property, or down it up and turned it around in the minimum amount of time for the maximum profit, are now considering letting out renovated properties while they take stock of the market. With rental incomes riding the storm of the recession – and indeed showing continued signs of increasing – it can make financial sense to enjoy a healthy rental yield, with a guaranteed monthly income, rather than risk a renovated property sitting on the market for an indeterminate length of time. An empty renovation costs money and investors could see their cash tied up while they repay the mortgage and are unable to move onto the next project. A high-end renovation in a sought-after area could earn investors top rental yields and the buoyant rental market means that there are plenty of tenants on the books.

Currently registered on our rental books, we have a large number of tenants looking for properties of all types. Especially houses that previously would have not come to the rental market. The majority of our current landlords are currently seeing an increase of around 5-6% on the previous 12 months. Landlords that have renovated properties specifically for the purposes of rental are getting great rental yields  at the top end. The most common answer by tenants with great salary income to the question ‘Why are you looking to rent a top end property instead of buy?’ is often that they are unaware of what the market may do so do not want to buy in a possibly uncertain market. You also have the problem that the great mortgage rates are offered to those with a 25% deposit or above that can be quite a bold amount for someone to have readily available in their bank account.

In a constantly changing market, developers need to adapt. By keeping an eye on the trends in different areas, there’s still plenty of scope to earn money from property renovation but some of the certainties have been removed and developers are working harder for their profits than ever before.



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