How to make money buying and restoring a wreck

Many people who I have been chatting with about making money from property have asked me about a strategy of buying a property to do up, then selling it on.

And it can be a great property investment strategy, but you do have to:-

1. Know how to value a home before and after improvements
2. Understand what does add value 
3. Make sure you have the right paperwork to sell the property
   
   

Unfortunately though there are real flaws in this strategy at the moment:-

1. There is so little stock at the moment, even doer uppers are selling at too high a price to make money 
2. Securing good quality trades people can take months due to a shortage in many areas
3. Shows like Property Ladder have made buying a wreck popular, so many homeowners are overpaying to secure the few that are around

To really make money from doing up a property you need to be able to:-

1. Find a property which is too much work for homeowners
2. Ideally buy with cash
3. Have a good team in place to carry out the work
   
   

Is this achievable?
Yes it is possible, but you have to scour the market on a daily basis and go to auctions – resources like the EI Group are really useful to use. Another way might be to contact the Empty Homes agency to see if they have any wrecks they are looking for funds to buy, do up and get back in use.

And you need to aim to buy a property and make at least 20% margin, in other words:-

Buy for £125,000 (this is a good place to start as you don’t pay stamp duty under this amount)

Carry out £30,000 of work, the costs can quickly add up:- 

The property needs to sell for £161,000 to recover your costs, but needs to sell for £193,200 to make some real money.

That means you have to be able to increase the property’s value by around 50% to walk away with just over £30,000 and that’s a pretty hard set of numbers to add up. Not impossible, but tough.

Bear in mind you will then have to pay out tax if you are doing this for profit – HMRC won’t let you buy, live in and do up properties on a regular basis or it will consider you are developing or investing, so seek tax advice prior to taking any action.

Recent research from Nationwide suggest DIY is alive and well in the UK.

This year, according to their research 65% will paint, wallpaper or plaster; 33% will do work in the garden such as laying a new lawn; 24% will lay flooring; 18% will re-do their bathroom and 16% the kitchen while a similar number will enjoy putting together self-assembly furniture!

Nine percent of people will spend over £5,000, but 22% only spend from £300 to £1,000 and it’s women that like to spend the cash – normally £100 more than the men!

Most of the money comes from savings (61%) while 42% use readies from their wages and less than 1% use a credit card or personal loan.

Need to secure experts to help you renovate a property for profit? Then make sure you take care finding the right people in your area and avoid the rogues, check out our renovating and home improvent checklists below:- 

• Renovating a property checklist 
• How to avoid a rogue trader checklist
• Choosing a painter and decorator checklist
• Carrying out a property project checklist
• Building a home checklist