While the main driver for buying a property that needs renovation is the idea of the short-term investment making a fast profit, there are many situations where the renovated home ends up losing money instead of turning a profit.
The Long Pathway to Profits
Many people love the idea of “flipping houses” and transforming a dump into a diamond. But the reality is usually far costlier and more stressful than TV shows would have you believe. Renovation work is notorious for taking far longer than originally quoted which inevitably ramps up the cost and delays the time until you can start gaining back your return on investment.
Any expenses that you have not budgeted for can eat into potential profits and impact on your sale. You may even be at risk of seller concessions.
There is also the very real possibility that prices will drop significantly after your purchase the house and before you are ready to sell. With many “flippers” choosing to target the same areas or housing developments, the risk of being unable to sell becomes even more tangible as supply outweighs demand.
From Short-Term Renovation to Long-Term Investment
If you cannot find a buyer then your short-term renovation becomes a long-term investment. You lose money every single day that you cannot find a buyer and, in this case, you would need to be able to cover the costs of stamp duty too. If your property remains on the market for too long, then you may also need to reduce the price and again face a cut to your profits.
Everything else aside, the amount of hassle and pressured involved in a real estate flip is usually not worth the effort. You need to be extremely vigilant in selecting your property in the first place and have a full, clear cost structure.
Even then, there will inevitably be some additional costs involved on top of the time and effort taken to deal with contractors and other professionals. This is all before you even come to the point of finding a buyer, which is certainly not a given.
In Celebration of New Builds
Here at Alesco, all of our property investment avenues lead to new builds. We are aware of the many potential barriers, costs and risks involved when it comes to purchasing a property in need of renovation and we are not willing to take our valued customers down this route.
We would also never recommend investment into such an uncertain sector of the market in which even many mortgage lenders are reluctant to partake. For more information on any aspect of investing into new build property, contact our team today on 0203 281 7434 or email [email protected]