Assessing a refurbishment opportunity

Start with the building

Before costs and values, understand what you are buying.

• Commission a survey. A RICS Level 3 (building) survey is generally more detailed than a lower level, and is often considered for older or neglected property. A surveyor can flag structural movement, damp, roof condition, timber defects and similar issues.
• Specialist inspections. Drains, electrics, gas, and asbestos in older buildings may need separate checks.
• Note what you cannot see. Condition behind finishes is uncertain, which is one reason for contingency.

Define the scope of works

Write down exactly what you intend to do, from essential repairs to optional improvements.

1. List works room by room and by trade.
2. Obtain several written quotes from reputable contractors, and check references, insurance and what is excluded.
3. Separate essential work (safety, structure, services) from cosmetic work.
4. Check whether any work needs approval before you start.

Budget and contingency

• Include professional fees, skips, utilities, insurance and finance costs, not just the builder's price.
• Add a contingency for unforeseen problems. Many investors choose a sizeable percentage; there is no single right figure, and it should reflect the property's age and condition.
• Re-test your numbers if costs rise or the programme slips.

Building regulations and planning

• Building regulations can apply to structural changes, electrics, drainage, insulation, windows and some loft or extension work. Check with the council's building control or an approved inspector.
• Planning permission may be needed for extensions, changes of use (for example to an HMO) or in conservation areas, listed buildings or areas with an Article 4 direction.
• Ask for completion certificates for earlier works. Unapproved past alterations can become your problem.

Finance timing

Refurbishment projects can involve short-term finance, such as bridging loans, and then a move to a longer-term mortgage. In general terms:

• Many mortgage lenders will not lend on a property they consider unsuitable for habitation until work is done.
• Short-term finance is usually more expensive and has a fixed end date, so delays have a cost.
• Valuation and refinancing outcomes are not guaranteed.

Speak to an independent, regulated mortgage broker. This article does not recommend products.

Evidence for the end value

Do not rely on an agent's optimistic figure or on what you hope the property will be worth.

• Use HM Land Registry price paid data to see recent sold prices in the street and area, and compare property type, size and condition.
• Use sold prices of similar completed homes, not asking prices.
• Consider the age of the evidence, since conditions can change.
• Ask a local valuer or agent for an independent view.

Regeneration or a nearby development does not automatically increase values.

Time and holding costs

Every month costs money while you own an unfinished property: finance interest, insurance, council tax or empty-property charges, utilities and security. Build a realistic timetable, allow for delays and add the holding period to your appraisal.

Tenant demand

Consider who will rent the finished property and whether there is current evidence of demand nearby: transport, employers, universities and local amenities. Check that the layout and specification suit that tenant group.

Red flags

• Reluctance to allow a survey or access
• Signs of subsidence, major damp or fire damage
• Unclear title, or alterations without approval
• Quotes far below others, or no written scope
• A deal that only works if everything goes right
• Pressure to exchange quickly without checks