Property Refurbishment - Hidden Costs to Consider
Investing in property, I believe, is a great opportunity for passive income and personal wealth. However, it does require reasonable research and consideration. Not all properties make good investments, indeed very few do.
There are some tricks and techniques, once known, that make the process much less risky. Getting good advice on tax and financing an investment is essential. I will post on some of the, now obvious, 'tricks' that many landlords don't realise or understand - I certainly didn't.
Part of the process is understanding key features that make a property investment work. This includes a deal analyser that looks at costs and income and assesses if a property 'stacks' up.
I have done this all religiously, and upon getting advice from a seasoned investor, ran the figures for myself to ensure I understood and indeed, agreed with them. There are many 'deal analysers' and all are very similar. I do think I found a mentor that considered more items than most and thus was more comfortable for my liking.
This all works great. The numbers do work and the advice makes great sense.
However, there was one aspect I completely overlooked. Again, it seems obvious now, but I didn't factor it in and it wasn't in the provided 'deal analyser' I used.
To be fair, my intention was to start with a simple 'buy to let' or 'family let' property, that ideally had a 'sitting tenant' and pretty much no work or refurbishment required. What I ended up with was no tenant to start up with and it seems, quite a large refurbishment to undertake, one that many said they would have walked away from.
Again though, I managed to engage an expert who estimated the costs of the refurb very accurately and also managed the project for me. Due to the accurate estimate of costs, I also managed to negotiate a discount on purchase price to cover the works.
So, all my figures were catered for. Indeed this has worked out as expected.
So what were the 'hidden' costs?
The hidden costs I failed to calculate and factor in, which again are obvious now, were running costs of the property after purchase, but during the refurb period before we could let it and start getting rent payments.
领英推荐
These include:
The reason these were a surprise is that normally, once tenanted, the tenants pay for all but two of the above costs, namely buildings insurance and mortgage payments.
Lesson: ensure you have factored running costs for your property for a period to cover any refurbishment needed.
These roughly doubled my expected outgoings. In fact, I hadn't built in any costs without rent coming at all, so all the expense till we managed to let the property had not been budgeted for.
The refurb in this case took approximately 6 months. So this was 6 months of outgoing costs that need to be factored in to the overall budget to ensure you have enough funds to get the project off the ground.
For a relatively cheap project (approx ￡90,000 property), it was roughly ￡2,500 needed to cover these expenses.
I will be building some extra items in my deal analyser now to cater for these sort of costs to ensure the budget for an investment scheme is adequate.
I hope this has been helpful to any other property investors and may help you avoid running out of budget for your schemes.