When you’re buying a property to renovate for the buy-to-let market, you must have a contingency plan in place, says Professional Builder‘s buy-to-let expert.
It’s not enough to just have the deposit and renovating costs in place; there will always be something that crops up along the way. Being a tradesperson you will have the advantage over most in that you will be able to assess quite quickly what building costs are going to be involved prior to buying a property. However, even the best tradesman can get caught out down the line.
Back in 2014 I bought an 18th-Century cottage. I knew it needed a lot of work and had originally estimated a budget of £70,000 for renovation and labour costs. About 80 per cent of the house had to be demolished because the back of it was subsiding – something the surveyor omitted to put in his report prior to buying it.
It was only when I had a structural engineer in did I realise that we would have to completely start over by digging three metres down and underpinning the whole back area of the house. This was not only expensive (£10,000), but put the project back by three months.
Potential additional costs
An additional expense was the roof. Although I knew the cottage required a new roof and that was included in my budget, what I didn’t know was that although it wasn’t a listed building, the cottage was in a bat conservation area.
This meant that we couldn’t do any work on the roof until the conservation people had assessed whether or not there were bats living in the roof. There weren’t; but it took six weeks to make sure, which had a knock-on effect of delaying the rest of the project.
Remember, you are responsible for paying any utility bills and council tax on a property once you have purchased it. Councils differ as to how much council tax they expect from you. Some will give you a discount if your property is inhabitable, but this usually means there needs to be no toilet or kitchen in place for it to qualify.
Others will expect you to pay full council tax payments, regardless of the state of the property, so it’s important to contact your local council as soon as you take ownership of the property.
In addition to this, you will still have to keep up with your mortgage payments on the property, so the more delays, the more payments you will be making, with no rental income to cover the mortgage.
This is why it is so important to have a contingency plan in place, because things don’t always go to plan. There will always be extra costs involved. As to what to have in the form of a contingency plan, I suggest, once you have taken into account your renovation and labour costs, add an additional 20 per cent to the budget. This should cover you for any time delays, extra costs you may have not thought of or suddenly incur and a couple of mortgage payments.
Don’t think that you will be the exception and will be spot on budget. If you do manage to stick to the original budget and don’t suffer any delays, then I applaud you and you can put your contingency money to your next project.