If you are buying a property purely to sell it at a profit then you must emotionally detach yourself from the property, and the work that you do with it.

It is important to keep the image of your target market at the forefront of your mind at all times. The property should be thought of as a commodity that should eventually appeal to a wide market and any work undertaken should reflect this. Personal taste may need to be completely ignored if there is a chance that it may reduce the amount of potential buyers interested in your product.

In terms of financial figures, the simplest way to manage the maths is to establish a realistic selling on price then subtracting the costs of the development and the administrative costs of buying and selling to see what you have left over.

Establishing the realistic resale value

It is important that you understand your property’s potential; you must ask yourself whether you will be able to get your property up to its peak condition, what your property would be worth in peak condition and what are the limitations of the area, or the appropriate ceiling price. Calculating a realistic resale value should be your prime concern when looking to develop a property, if your estimation is wrong from the start, the project may turn out disastrous.

The steps to obtaining a resale value are relatively simple, but of paramount importance; you must build a profile of your property based on location, building type, number of rooms, layouts, land and any extra features. You can then contact a few estate agents working in the area and get some information on the recent sales of similar properties that have been newly renovated and modernised. If the nearest sale to what you are hoping to achieve went through more than a couple of months ago then it is wise to ask for an estimation as to how much that same property would go for in the current climate, or in your target selling time, baring in mind that the property market is seasonal and there are best times to sell. It is always worth substantiating any information or estimates that you are given by way of asking a number of different estate agents.

Administrative costs

Buying a property is more complicated than just handing over a sum of money to the previous owner. There are many other costs other than the purchase price that need to be taken into consideration:

• Legal fees
• Stamp duty
• Borrowing costs/interest
• Lenders valuation for loan security
• Survey
• Land Registry
• Site services (gas, water, electricity)
• Council Tax
• Selling costs
• Opportunity cost (wages missed out on)

The development

Development expenditure should be tightly budgeted and should not completely exhaust your funds, it should allow for the inevitable unforeseen costs that will arise and include all obscure costs that will add up, such as skip hire.

While you are undertaking the development of your property you may choose to live on site, this can sound like an attractive, money saving idea at first, though it should be carefully considered as it is not always practical. You may find yourself without essential everyday facilities such as kitchen appliances, toilets, baths/showers or even hot water in general, for extended periods of time. The noise levels, dust and general intrusion may also be difficult to cope with. You must take care in your planning and liaise with your respective tradesmen to ensure that it will be possible to live on site with minimal disruption.

Getting your money back

One of the most important things to remember when doing up a property is that you are in it to make a profit, it is no good increasing a property’s value by less than the amount you have invested for development.

You must be sure that what you have done to the property does not take it over and above the local price ceiling, your house may be the nicest in the area, it may be a kin to a modern palace, but you may struggle to generate interest if it is in a relatively undesirable area or if does not suit, or exceeds, the needs of your target market.

Summary

• Establish an accurate, realistic resale value.

• Consider and subtract ALL of the costs that are involved in buying, developing and selling.

• Know your area, know your limitations and know your target market.