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Is a Renovation Worth It Financially?

By: Chris Hogan MSc - Updated: 18 Jul 2010 | comments*Discuss
 
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Can you make money out of a renovation project? The answer is a qualified yes; but it’s going to be different in every case and depends on the nature and extent of the project. If you are thinking of enhancing a home that you are going to continue to live in for a while, then its more important that you think the job is worthwhile, not whether or not it’s adding value. If you have bought a ‘fixer-upper’ in order to make a profit, then payback will be crucial.

Improving Your Home

Many smaller renovation jobs, such as replacement windows, may not add as much value to the property as they cost to have done, but they might make a property easier to sell than nearby competing houses. At the very bottom of the scale is stone cladding, which many people dislike and makes it look as though there’s something to hide behind it. Most buyers also know that removing it is difficult and expensive.

Payback Ladder

Top of the payback list for one-off jobs is adding central heating to a house that hasn’t already got it. This is followed by anything that adds space, such as a loft conversion, extension, conservatory or garage. Because of the odd way that houses are valued in the UK, by the number of bedrooms rather than floor space, a loft conversion can shoot your house into a new price league.

Next come the interior jobs, such as a new kitchen, bathroom, insulation or general decorating. Again, you aren’t likely to make money on one of these alone, but it could make the difference between a quick sale and a slow one, and the mortgage payments while you wait for a buyer can be significant.

Big Jobs

For a large-scale renovation, where you’re effectively rebuilding a house, the key to making it pay is as much about the cost of the property in the first place. Hopefully you’ll be getting it cheap because it’s in such a state, but if you pay over the odds it will be harder to extract a profit. It’s important to do the sums for the cost for the renovation before buying the property so that you can be sure there’s a profit to be had.

TV channels are full of programmes showing people how to make money from property and they all make the same point: plan and budget, and monitor both as you go along. But calculating the payback is not just a case of looking at the cost of the property and the work.

Complex Calculations

Unless you’ve bought cash, there’ll be mortgage payments going out too, so you need to compare different scenarios. Is it better to have lots of workers on the job so that you finish the job faster, or do as much as you can yourself to save labour costs and pay more a few more monthly mortgage payments? And even if you have bought cash, is it better to do the job faster to sell it on faster, or will you need to wait for permissions before carrying out each stage, if it’s a listed building for example?

The selling price that you can achieve will affect your calculations. Can you achieve the highest possible value for a house in your area (the so-called ‘ceiling-value’) without spending too much on over-elaborate fixtures and fittings? There’s not much point buying a house for £50,000 and spending six months and £50,000 doing it out with top-notch fittings, if the highest price a house has ever fetched in that road is only £95,000.

Shop Around

There are ways of cutting your costs that all renovators should look at. Compare the prices you can get for materials from different suppliers, and also consider getting your tradesmen to get the materials if they can get better discounts than you. For every job that you will need to put out to qualified tradesmen, get at least three quotes and make sure you are comparing like against like.

Go in With Your Eyes Open

All of this isn’t meant to put you off, but to make you careful. If you want to upgrade your house because it will improve your quality of life, then go ahead and do it. If you think you can make money out of doing up houses, again, away you go. But make sure you are aware of every cost and make sure that it’s worth it, either to you or your pocket.

And one more thing, if you are in it for the money, don’t forget to factor in the tax that the government will take from your profit!

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