When flipping a property, knowing how to maximise the return on your investment is essential. Below, we cover our top five tips to boost your income.
With the start of the new year, like many landlords, you will be reviewing your property portfolio for innovative ways to maximise profits. Last year’s turbulent mortgage market put a pause on buyer activity; however, now landlords find themselves with a unique opportunity: with house prices low and mortgage interest rates softening, now is the time to purchase your next property investment.
Furthermore, rental yields are rising. According to Goodlord, average rents were nearly 9% higher across 2023 than average rents recorded in 2022. As such, if you’re looking to purchase a property and refurbish it to either let out or sell, it’s essential to know how to maximise your returns.
Whether you’re buying at auction or if you’ve already found your next property investment, here are our five top tips to boost your profits from your refurbishment project:
1. Research the area
Whether you intend to sell the property or let out to tenants once you’ve completed the refurbishment work, it’s essential to consider the local area.
If you want to sell the property, you should examine regional house price data. Zoopla and Halifax publish regular house price reports that break down regional performance to give you a better idea of the areas to focus on. Regions showing trends of house prices steadily growing, for example, will most likely offer you the highest returns when you come to sell.
Similarly, if you plan to let out the property, you (and most likely your mortgage lender) will want to see that there’s ample demand from prospective tenants in the area. For example, you may choose a property in a university town or city that will always generate significant demand from students or in a commuter zone where the rental market is already competitive.
By considering these factors in advance, you can maximise your profits by making a better-informed property investment decision.
2. Negotiate your purchase price
The purchase price and how much you spend on the refurbishment project will determine how much profit you will make. Online property platform Touchstone Education notes that, as a general rule, you should look to secure a property approximately 20% below the market value for similar properties in the area.
Allowing yourself enough of a margin when purchasing the property ensures you can add substantial value to the property and make it a worthwhile property investment project.
3. Consider buyer/renter preferences
It’s important to remember that the property will be your tenant’s or buyer’s home, not just your investment. By considering the preferences of potential buyers or renters, you may be able to increase the asking price or charge higher rents to help cover the costs of refurbishment projects and increase your profits.
For instance, you should consider the type of people most likely to rent or buy the property. Would it be professionals who require a home office or families who prefer open-plan layouts?
A tenant survey published in September 2023 provides essential insight for landlords into renter trends, behaviours, and preferences. The report revealed that tenants would pay higher rents for on-site leisure facilities, closer proximity to public transport, and co-working spaces. This insight is invaluable for landlords considering this type of refurbishment project, as you can factor these elements in when doing up the property to boost your returns.
4. Decide on your property finance exit
When applying for finance for your refurbishment project, lenders will look at your plans for ‘exiting’ the finance. Your exit could be selling the property to repay the loan or letting the property out on a buy to let mortgage. Whichever exit you’re planning, short-term finance is much more flexible than a full mortgage term, but it’s worth being aware that it’s typically more expensive than a fixed mortgage interest rate. This leads us nicely to our final tip for maximising your refurbishment project...
5. Discuss your project with an expert broker
When looking to flip a property, either to sell or let out, it’s essential that you understand the short-term property finance options available to you. Typically speaking, you will have three different finance options:
Refurbishment finance is a type of short-term loan and can be an excellent solution for anyone looking to improve a property. The primary difference between refurbishment finance and development finance is the scale of the projects; refurbishment finance is typically used for more minor works, such as redecorating or converting a single-unit property into an HMO.
Bridging finance can be an excellent tool for a variety of different uses, such as purchasing a property quickly, refurbishing an unmortgageable property, or purchasing a property to improve and sell for profit.
As bridging loans are a form of short-term finance, your lender will charge interest monthly, from three to 18 months, or the full loan term. It’s important to note that lenders know you’re unlikely to earn anything from the property (if it’s an investment property) during this time, so the interest is rolled up and repaid in full once the loan is redeemed.
Auction finance is typically offered by bridging lenders, who can process applications and release funds within four to six weeks. As the name suggests, this type of finance is perfect for securing a property purchase at auction, as the finance is released much more quickly, allowing you to meet auction house time requirements. The terms for auction finance can be between one and 18 months, although several lenders will offer up to 36 months for more heavy development projects, if necessary.
Whichever option is most applicable to you, it’s essential that you speak to an experienced broker. As these types of property finance are typically more complex to source, working with an expert will give you confidence in your property investment decisions and ensure you secure the best rate for your individual circumstances.
What next?
To explore your property finance options and see what types of rates you could access, speak to one of our expert brokers on 0345 345 6788 or submit an enquiry here.
