Article By Julian Owen.

Thanks to the many TV programmes popularising the idea, there is an increasing number of amateur developers hoping to profit from doing up houses in the UK. However, some apparently successful projects owe more to rapidly increasing house prices than to the skilful management of the development process. Knowing how to get the best return on a property investment is a crucial skill required, whether dealing with a family home or a speculative business venture.

The first step for anyone proposing to take on a project is to carry out some thorough research. This means predicting as accurately as possible how much work will cost and what the end result is likely to sell for. A big problem here is that it is very dangerous to generalise. Market knowledge should extend from a regional level right down to the differences between individual streets. Some features of a house will vary in value depending on which part of the country it is in. For example a recent survey by Focus DIY found that a new Kitchen in Manchester is likely to add twice its cost to the sale price, but in Watford it will not break even. Adding a 4th Bedroom in a big city like Glasgow hardly adds anything to the property price, because couples move out to the suburbs when they start a family.

Alterations and improvements have to match the surrounding properties in extent and quality. Every residential area has a ceiling price, known to local estate agents. Once this price is reached any further enhancements are subject to the law of diminishing returns – the more you spend, the less value is added. So if you find a house that is much smaller, or in poorer condition than houses on the rest on a road, it is a likely candidate, but, for example increasing the size of a house to double that of all  its neighbours will lose money.

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Another key concept is to spend money to its maximum effect. This is probably the hardest rule to follow, particularly if you are living in the house as it is done up. It is not time to indulge your design passions and create your dream home. If that is your motivation, forget property speculation unless you are prepared to risk some big losses. Only objectivity will lead you to success. It may seem cynical to suggest that money should be spent exclusively on those areas of the house that will help to sell the property, but most buyers make their decision in the first few minutes of arriving at the front gate so success is all about kerb appeal and first impressions. You have to select those improvements that are either essential, or will earn you more than their cost when the house is sold. Any other work is more about satisfying your ego than making a profit.

So once you have found a suitable house, how do you make the most of its potential? It is only possible to generalise in the following list, for reasons already explained.

Loft Conversions

Many people assume that converting a loft is a cheap way to acquire extra space, but this is often not the case. The work required to transform a dusty attic into a comfortable bedroom is more extensive than appears at first sight. The roof line may need altering, to allow headroom for a proper staircase. A dormer may be needed to provide adequate headroom. A thick layer of insulation has to be installed under the rafters, and flimsy joists designed to hold up a ceiling will have to be replaced with deeper ones strong enough to carry the extra floor loads. Space will have to be taken from the floor below to form the new staircase. The end result can be only a small net gain in space for many houses. A typical loft conversion on a £150,000 house will cost between £25,000 to £40,000, but may only add around £15,000 to £25,000 to its value. One exception to this rule is in city centres, or most of London, where space is at a premium and it is possible to get a 25% return.

Extensions

It is rare to make money by extending a house. Typically, about half to three quarters of the investment is recovered when it is sold. If the existing property is substantially smaller than the surrounding homes, it may be justified. Also an extension can be cost effective if it solves a specific problem and improves the way that the house can be used, for example, by linking up an outbuilding to the main house or providing a first floor bathroom. The addition of a garage can also pay for itself in area exposed to bad weather, or in a city where security is an issue.

Conservatories

In a similar way to an extension, the addition of a conservatory is probably not going to cover its cost, despite what the salesmen say. In most parts of the country, you will be lucky to get half its build cost back, unless you live in the South West, which bucks the trend. In this area, the better weather seems the most likely explanation for the potential 30% profit that can be made. The most cost-effective way to build a conservatory is to buy a kit from a builder’s merchant and either pay a builder or build it yourself, as opposed to using a conservatory supplier.

Replan

Sometimes it is possible to improve the space planning of a house, or even increase the number of bedrooms, without having to build onto it. Agents tend to value properties according to how many bedrooms they have rather than the floor area alone, so if a disproportionately large bedroom can be split into two moderately sized rooms, the value of the house can be enhanced significantly, for a small cost. A classic example of improving a first floor plan is where an old house has had a previous bathroom extension, which is only accessible through a bedroom. For the cost of a bit of partitioning to create separate access to the bathroom from the landing, the result is a far more saleable house.

Refit the Bathroom

If the existing bathroom fittings are in reasonable condition, it is not worth replacing them, unless they are particularly hideous. If a new bathroom is necessary, the fittings should be white, because they appeal to the widest number of potential purchasers and are available at low prices. For larger properties, adding a new en suite bathroom may be appropriate. According to a study by Cheltenham and Gloucester building society, new bathrooms are particularly prized in the North of England, where there is the potential to add 20% over the installation cost to the house value of the house.

New Kitchen

Estate agents will tell you that attractive Kitchens are a major selling point for any house and if chosen carefully, a new one will justify its cost. As ever, the design must be pitched to match the size and quality of its situation. First impressions are important, so it is worth employing a joiner who is capable of achieving the standard of workmanship required, which is high. Poorly joined work surfaces and doors that are wonky will be exposed by the high lighting level usually found in a Kitchen. However the same end result can sometimes be achieved by a bit of a clean up and some new doors fixed onto the old units.

Decoration

For a neglected property, the most cost effective work is a thorough clean up and decoration inside and outside. A few hundred pounds spent in this way can add up to 5% to the sale price. The impulse to let your creative instincts go wild must be firmly resisted here, because you have must effectively create a blank canvas onto which prospective owners can imagine their own ideas. This means neutral colours everywhere; although white is too clinical and should be confined to the ceiling. Light colours make a room seem bigger, as do strategically placed large mirrors.

Garden

There are few things that can be done with the average garden to add significant value to a house, other than keeping it tidy. The main exception is the addition of a new drive. In areas where on-street parking is restricted or available spaces are over-subscribed, adding a car space can give a return of two and a half times the cost.

Maintenance

Boring though it may seem, basic maintenance and repairs of the property are essential, particularly where the defects are visible. You may get a few of them past the purchasers by some cunning concealment, but they will be picked up the surveyor later on and used to negotiate a reduction in the sale price.

Double Glazing

This will not normally pay for itself, unless the existing windows are rotten, past their useful life, or of the old fashioned steel framed variety. Installing upvc replacement windows in a period house will look awful and may even reduce the value of the property. Creating a completely new window to light up a dark area, such as a stairwell, can be worthwhile.

Making significant profit from improving a house is not easy, because there are plenty of other people looking for the same opportunities. Apart from the professionals, it has become a hobby for many people with spare cash who no longer trust stocks and shares or pension funds. If you have the vision to come with creative ideas that no one else has considered, and follow the discipline of the market, you will have an easier time and make more profit than your less imaginative competitors.

What to Avoid When Improving for Profit

The following are typically likely to lose you money:

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- A new swimming pool

- Fake stone cladding

- Underfloor heating

- New decking in the garden

- Making the ground floor completely open plan

- Forming a completely new basement

- Planting trees in the garden, or adding water features, or garden gnomes.

Top Five Money Makers

  1. A thorough clean of the house, inside and out.
  2. Redecoration.
  3. Adding central heating (if it’s not there already)
  4. Adding a parking space in the garden (if there is no off-street parking)
  5. An appropriate new kitchen

Article written by Julian Owen 2013