Know How Much Value The Works Will Add Before You Start
Before doing any works of repair, renovation, modernisation and improvement, we will want to be sure that they will add value. That is, unless there are other good reasons for doing the work, such as, we are obliged by law to undertake them, or the works will increase saleability or rentability even if they don’t add value per se. So how much value do individual items of repair, renovation, modernisation and improvement add?
Remember, cost does not equal value. It is important to remember when planning to refurbish a property that the cost of the refurbishment will not always be directly reflected by increased value. Just think about the £20,000 kitchen in the £60,000 terraced house.
One of the first things I was taught as a young Surveyor was that cost does not equal value. It is therefore very likely on occasion that you could spend money on a property but not increase the value by as much as you spend, and in some instances you may even detract from the value.
Similarly, looked at the other way, this works in our favour because it also means that we can spend money on a property but disproportionately add value to the property, increasing its equity and therefore our wealth or the profit within the property.
I often get asked if there’s a list anywhere, or a website, which shows how much value different works of repair, renovation, modernisation and improvement add to the value of a property.
Or if there’s a formula we can use, to work out how much value is added.
Unfortunately it’s not as simple as that.
The amount by which any work of repair, renovation, modernisation or improvement will add value to a property will almost always be market driven and will depend on the demand, requirements and expectations of the market in that area.
Let me illustrate this by using an extreme example. If you put central heating into a terraced house which is located in an area of extremely low demand, and where there’s a glut of terraced houses on the market, you may not add any value at all. The property may be just as hard to sell with the heating as without it. Terraced houses are hard to sell, full stop. As I say, this is only an example, I’m not stating a general rule. In some areas terraced houses are very popular.
In our hypothetical area new central heating might make the property easier to rent out, but it might not make it easier to sell.
Here’s another extreme example. Adding a garage to a property in the suburbs might add a few thousand in value to a property, but if you can squeeze a garage onto a plot in central London it may add many multiples of that in value, possibly even £100,000 or more!
So a £20,000 kitchen installed in a cheap 3 bedroom terraced house in a town in northern England, and which would normally sell for £60,000, might add no extra value over and above a cheap kitchen costing £1,500, and it could even reduce the value if it’s overbearing and the next owners are going to have to rip it out and start again.
I’m using this as an example because I once saw a terraced house, worth no more than £60,000, which was on at an asking price of £80,000. The reason it was on at this price? The owner had obviously spent about £20,000 on the kitchen but it was totally out of keeping. In their mind they’d added £20,000 to the value, being the cost of the kitchen (we’ll look at cost does not equal value in a moment) but in truth, it probably hadn’t added a penny to the value. It might even have reduced the value because it was so large and over-bearing.
The same £20,000 kitchen installed in a super-luxury detached house might also add no value, and might reduce the value because buyers of that type of house might expect a fully fitted kitchen costing £60,000 with all the trimmings.
So, in my experience, there are no hard and fast rules, the amount by which any work will add or reduce the value will depend upon market expectations in that area.
But having said all of that I was interested to see that the Nationwide recently published a special report in which they give advice on how much an improvement can add to the value. It’s true that they have a large survey sample of properties which they can research and extrapolate their figures from but, even so, I’d be wary about relying too much upon general guidelines.
In summary, they suggest that:
*Adding a bedroom and a bathroom through an extension or loft conversion can add over 20% to a property’s value.
*Extending to accommodate an extra bedroom can add over 10% to house value.
*An extra bathroom adds 5% to the value of the average home.
Specifically, Robert Gardner, their Chief Economist said:
“Having more useable space is generally thought to be consistent with better quality accommodation and people are prepared to pay for it. A 10% increase in floor space, other things equal, adds 5% to the price of a typical house, whilst adding space equivalent to the size of a typical double bedroom to a two-bedroom house can add around 11% to its value.
A second bathroom also remains a favourite amongst home owners and our research shows that creating an additional bathroom can add 5% to the value of the average house.
Home owners who add a loft conversion or extension incorporating a double bedroom and a bathroom can add about 20% to the value of a three bedroom, one bathroom house. Households appear happy to pay for more space and our analysis suggests that, providing the room is useable, adding an extra bedroom can be a good way to increase the value of a property”.
Based on their research The Nationwide estimate the value added for different types of property by increasing floor area to accommodate an extra bedroom is as follows:
*Terraced house 2 bed to 3 bed plus 10%
*Terraced house 3 bed to 4 bed plus 9%
*Semi-detached house 2 bed to 3 bed plus 12%
*Semi-detached house 3 bed to 4 bed plus 9%
*Detached house 3 bed to 4 bed plus 9%
If you are interested in renovating property, either to sell-on at a profit, or so you can refinance and borrow all of your money back out to spend on your next project, you might be interested to know that I have rewritten and updated my best selling ebook The Successful Property Renovator’s Workshop.
This is a ‘course in a book’, which will take you through the whole process in detail including how to do your sums to make sure you make a profit, how to raise finance for the purchase and the project, and how to refinance when you have completed.
The good news is that I’ve taken all my knowledge and experience, which I have gained over the years from doing countless renovation projects, and have put it all down on ‘paper’ in this ‘easy to read’ ebook. In it I’ll show you how you can find, plan, prepare and do each project to ensure your own profitable success every time.
And none of this is just dry theory. This is all based upon my own, personal experience of refurbishing and renovating property, which is why I use case studies of actual properties I’ve refurbished, along with photographs, to illustrate many of the points made.
I’ll show you all the things I did right, so you can copy them, and all the things I did wrong, so you can avoid them. They say that ‘trial and error’ is one of the most effective ways of learning but I can save you the time, the grief and the cost of having to go through it all. Hopefully I can save you months, even years, of trying to work it all out for yourself!
To find out more, please go to:
http://www.thepropertyteacher.co.uk/the-successful-property-renovators-workshop/
Here’s to successful property investing
Peter Jones B.Sc FRICS
Chartered Surveyor, author and property investor
