Renovate or to build new

In this article I want to compare renovating with a new build, looking at the margins that can be made and the risks involved.

There are occasions when a renovation can make you money, but many times when it really has very little possibility and other times when you would be better knocking whatever is there down and rebuilding.

We all see many programmes on TV about renovating old properties, and the profits and problems encountered.  It makes good TV, contains problems for people to overcome, mistakes they can make, but just about always comes out Ok in the end, often because prices in the area has gone up sufficiently to make sure they make a profit, if not really sufficient for the work they put in, many in fact would have made more, had they just bought the property, held it, doing nothing to it for the period and then sold it again.

In fact property renovation has become so popular that in most areas you can no longer find property that shows a large enough margin when done up to make it a sensible option, or where looking for the property can become a full time occupation in its own right.

In most cases a person new to property renovating will make money, because of rising property prices, but after a few projects they get enough experience to start to make more money, even if it is less fun working on simpler less design led solutions. In reality the most important part of the whole project is in buying at the right price.

The sensible buying price can be computed by

With this formula if the answer is positive, you have a situation justifying more careful study, but it appears to have good potential, while if negative not so. In practice as all figures are guesses, a small difference one way or the other is unlikely to be a deciding factor.

The range of profit you are projecting is from the total figure above plus your planned margin up to this figure plus the contingency amount and the under offer amount. While you can easily arrange any figures to make a project appear viable, this is unwise and of course removes the safety net of working it out. You should never allow for area prices going up, as when you sell this property and buy the next, the same will have occurred with that one also. 

This is a similar formula to what would be used to look at a new build, it takes the worst case you can foresee, but does not allow for property prices in the area generally increasing or that you might get more than you are asking if a number of people want to buy it at the same time. 

For the person new to renovation the safest way to make money is to look for property where there is nothing structurally or major wrong and where the owner moving themselves and their clutter out and a little decorating etc will make a major difference.  The down side to this is that you need to make quite a bit to break even taking buying and selling legal costs, estate agents fees and stamp duty on the purchase into account. The time this takes may also be considerable, so you also have to cover the cost of the funding involved.

The other factor often overlooked is risk, with a renovation you never really know what is around the next corner and what discovery is going to be made that will cost a lot to put right. Should prices drop back even slightly there is also a risk that you might find you have to sell at a loss.

I am not suggesting that a person cannot make money on renovations some do and do very well out of it, but its nowhere near as sure a bet as the TV programmes make it look.

On the plus side of renovating, you may feel that you can do more of it yourself, that you don't have as many problems about planning and the like, as long as you are not making major alterations or extending and that you may be able to live in the development while work is progressing.

The cost of renovating is often greater than the cost of knocking down what is there and building again, and the price fetched by patch and decorate, lower than a new build. However clearly in some cases this is not an option as in the case of a central house in a terrace or a historical building.   

In some cases a compromise is the answer to patch what exists, and add on, this perhaps offers the scope for a character older building but with the amenities of a new purpose built kitchen and master suite above. 

Some property has land, and it may be that buying a property that can be patched, will give you somewhere to live while to build a new home in the garden and then move to that, selling the house.

Knocking down and rebuilding should always be considered, even if using some of the same materials again, it is not always either possible, economic or ideal. Not to consider the options fully is unwise as it can mean that you loose opportunities that are available.

From this article you will see given the choice of ways to make money, a new build has the edge, but many will still think that the renovation is easier or they can see a  profit, which would appear to be quicker to achieve than the new build.

When it comes to which would give you the nicest home, it comes to what you feel a nice home is, do you want genuine character, and plan to keep all that exists, warts and all, are you looking to modernize or build the house of your dreams. Do you want a traditional draft fed chimney system or a draft free, highly insulated energy efficient home. To this there is no standard answer it comes down to your personal choice. As far as appearances go, you can new build an old look or modernize an old property to look like something out of a modern art catalogue.

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