My Top 4 Most Efficient Ways to Add Value to a Property
Whether your strategy is to flip or hold property, the main aim of property investing is usually to add as much value as possible.
Adding value to a flip will, of course, help you achieve a higher sale price.
Adding value to a property you intend to hold will allow you to market the property for a higher rental, allow you to release more equity when you refinance and, ultimately, achieve a higher sale price when you come to sell on.
Because I have a background in architecture, my first instinct when I view a property is to look for ways to unlock latent value through changing the layout.
In all of my property deals to date, I have carried out some form of alteration to the layout to add value to the property. In all of these cases, it has cost significantly less to carry out the alterations than the subsequent uplift in value achieved.
I generally invest following the BRR (Buy, Refurbish, Refinance) Model:
- Buy: at as low a price as possible
- Refurbish: as efficiently as possible. This doesn't always mean spending as little as possible. It's about being efficient with your money and always looking for the best ROI. It's better to spend £5000 to add £15000 of value than it is to spend £500 to add £1000. Spending £500 keeps the cost down but spending £5000 sees a better return on your investment.
- Refinance: to pull as much money back out as possible
Top 4 Most Efficient Ways to Add Value to a Property
Counting Windows
Counting windows is a tactic I use regularly - predominantly bedroom windows. If a property has a bedroom which has 2 windows in it, there is a good chance that I can come up with some sort of alternative layout which lets me turn 1 bedroom into 2. By altering the layout and arranging the rooms so that each bedroom has 1 window in it, I can unlock a bedroom which didn't exist previously. I have been able to do this with a number of properties I've purchased where the front bedroom was the full width of the house with two front-facing windows. By altering the upstairs layout, I was able to turn 2 oversized bedrooms into 3 comfortable bedrooms.
Example: Wedderburn Crescent, Dunfermline
Approximate additional cost of layout change over the baseline cost of full refurbishment: £3,500
Uplift in value: potentially the best part of £20,000
Create an Open-Plan Lounge/Kitchen
This approach works particularly well with flats. If the property has a separate Lounge and Kitchen, is the Lounge of a sufficient size that you could turn it into an open-plan Lounge/Kitchen? This lets you create a further Bedroom from the former Kitchen.
Example: East Port, Dunfermline
Approximate additional cost of layout change over the baseline cost of full refurbishment: £1,000
Uplift in value: potentially the best part of £10,000
Simple Layout Alterations
Sometimes it can be as simple as removing a wall between a small Kitchen and a small Utility Room. The sum of these two negative points becomes a positive open-plan Kitchen/Diner. Or giving the space from an overly large or unnecessary storage cupboard over to a bedroom, turning it from a single room into a double room.
Example: Wedderburn Street, Dunfermline
Approximate additional cost of layout change over the baseline cost of full refurbishment: £150
Uplift in value: potentially £5,000
Kerb Appeal
Prospective purchasers or surveyors will inevitably look at the previous listings to see what the house looked like before the refurbishment. The first picture that they see from the previous listing is generally of the front of the house and garden.
If you can give the impression to viewers from the outset that you have significantly improved the property, they will carry this impression through the rest of the house.
By making a good first impression it can make it look like you've carried out significantly more work than you actually have. Simple things like replacing the front door, laying new turf in the front garden or creating off-street parking can add significantly more value than they cost.
Example: Woodbank, Cowdenbeath
Approximate additional cost of external landscaping over the baseline cost of full refurbishment: £1500
Uplift in value: potentially £5,000
Absorbing some of the costs
More often than not, you will be looking to buy a property which requires some work and it is likely that the work you will be carrying out will probably be considered to be more than just cosmetic. This is where some of the cost of these alterations to the layout can be negligible.
You may be replacing the Kitchen anyway. In which case, why not just replace it in a different room. It's potentially not a massive additional expense to relocate it while its being replaced.
You may be replacing the full heating system. In which case, to create a new bedroom, you just needed to take pipes to one additional radiator. Or rerun the pipes (that you are rerunning anyway) to a different location.
You may be replacing the full electrical installation. In which case, to create a new bedroom, you just need one additional light and a couple of sockets.
You may be fully plastering and decorating all of the walls. In which case, this may even be a saving if you've removed walls.
If you plan to carry out some of these works anyway, alterations to the layout may not be as costly as you might think.
Get your Paperwork in order
One important thing to bear in mind when carrying out alterations to the layout is that it is likely that Building Warrant approval will be required. Make sure and ascertain, at as early a stage as possible, if your proposals will require a Building Warrant. Architect's fees, Structural Engineer's fees and Building Warrant Application fees may need to be factored into the budget for the project.
More importantly, surveyors, mortgage companies and solicitors will look for evidence that the alterations have been granted a Completion Certificate.
Once a Building Warrant has been obtained and the works completed, the Building Control Officer will come out to inspect the works and, assuming all is well, issue a Completion Certificate. Without a completion certificate, mortgage applications and sales can stall and, worst case, fall through completely. The Building Warrant approval process can take months. Don't wait until it's raised by a solicitor 3 weeks before completing the sale. Make sure this is taken into account as early as possible.
Try considering some of these tactics when viewing properties and see if they can inject the additional value required to make the deal stack up.
Get in touch if you are considering altering a property and you'd like to know more.