Many buyers are drawn to invest in property that needs extensive renovation, but there are many factors to consider to decide if it’s the right decision for you.
With UK house prices showing signs that they are back on the up, and housing market forecasts predicting a return to healthy growth in the coming years, many people are considering if now is a good time to invest in property in one of the UK’s more promising locations.
The type of property you intend to purchase can play a big role in the profitability of your investment over the long term, but it also depends on your circumstances. For some, buying a ‘doer-upper’ that they intend to renovate themselves can be appealing, while for others the future-proof nature of a new-build can be the best option.
However, new research has revealed that you may not get as much of a bargain as you expect by buying property in a state of disrepair. According to YOPA, the price difference between a ready-to-occupy property and one that needs extensive modernisation is only 6.2% on average.
The study noted that there were currently 41,951 homes listed for sale in the UK that were in need of modernisation, and they were listed for an average of £20,632 less than up-to-date ones.
Invest in property to renovate?
Everyone’s circumstances will be different, but it is important to consider a whole range of factors when deciding whether to invest in property that needs significant work. If you’re a tradesperson or have experience in renovating properties yourself, with the time and means to spend on it, it could be a good option.
However, as YOPA notes, the cost of construction materials – and labour where required – has soared in recent years. For example, the cost of doors and windows has gone up by 17.5% over the past year, and ready-mixed concrete is now 16.8% more expensive than a year ago.
A spokesperson for YOPA said: “Buying a fixer-upper is a great way of saving money on the initial property purchase, but is also in many ways a lifestyle commitment – are you prepared to spend all of that time renovating the home before you can properly enjoy it?
“If you are, fixer-uppers present a blank canvas from which you can create your ideal home while also adding great value to the property. But with the price of many building materials now significantly higher than they were just a year ago, this work will cost more than it used to.”
The new-build alternative
At the opposite end of the scale, many landlords, property investors and homebuyers looking to invest in property now are considering new-builds.
Surprisingly, there are actually some crossovers between doer-uppers and newly built properties. For example, if you invest off-plan, you normally get a discount compared to the current market value of the same property if it was already constructed; similar to the discount you might get on a renovation project, or sometimes more.
If you invest in property this way, you are also essentially starting with a blank canvas. If you get in early, you will have more choice over which particular unit or plot you choose, and may even be able to choose your own fixtures, fittings and even some design aspects.
While the cost of a new-build may be more than a doer-upper, considering the extremely high costs involved in renovating a property in the current climate, buyers should consider whether investing in a brand-new, energy efficient, ultra-modern property is actually more cost-effective in the long run.
If you want to invest in property to let out, while you can renovate an existing home to a high standard and improve its energy efficiency, it is also worth considering the today’s new-builds tend to be the most energy-efficient housing stock in the country, achieving the highest energy performance certificate (EPC) ratings.
With tenants increasingly taking EPC ratings into account before they agree to rent a property, as they are more keen than ever to keep their energy bills low, being able to offer an extremely energy efficient home is certainly a selling point in today’s buy-to-let market.
If you’re looking to invest in property in a top-performing part of the UK, get in touch with BuyAssociation today to discuss our wide range of property types and locations available.