The Property Investment Conundrum

ManuelG

So, inspired by thinking about Homes Under the Hammer.

I confess to liking the programme, although had to turn one off where some investor was converting houses to flats in my home town - it irrationally annoyed me!

However, it's always shown the successes... even more so recently. But I have had the nagging feeling for a while that those properties it's been showing that have been bought from c. 2021 to sold c. 2023 that sure, they show a profit after refurbishment. But the way the market was going at that point, surely they'd have shown just about the same profit by sitting on the property and doing nothing to them?!?

Surely refurb is only of benefit for a house you'd live in yourself unless you're a builder so can do the work yourself? Surely making a profit short term is next-to-impossible?

RHemmings

I considered buying a fixer-upper at one time, but my conclusion was that I couldn't compete on price with people who would do the work themselves or had 'mates'. Because people with those skills can buy something and do it up and sell for a profit, but if I was to buy for the same price, then after paying professionals to do the refurbishment, then I'd end up with something much more expensive than simply buying a house in good nick in the first place. (Which I did). 

Some friends of mine are doing the fixer-upper thing, but to live in not flip. There is a heck of a lot of work to do, but they are doing a good job of it. I wish them well. 

EDIT: I put Homes Under the Hammer on while working, and I just picked up on a developer preparing a flat to rent saying that the refurb including new kitchen appliances being costed as £8k. I've no understanding of how people get the price down that low unless it's just the buyer going around doing a bit of painting and installing carpets themselves. How do you then get the kitchen and bathroom refurb for that? If they can actually do that, then there's absolutely no way I can compete with that. 

OMG: Property investor TJ has just managed to convert a three bed flat into a four bed flat by turning the existing bathroom into a tiny bedroom, and a storage unit into a tiny bathroom. (Has a bath in it, however). The refurb looks nice, superficially at least, and the total refurb cost was £11,500. Again: no way I can get anywhere near that. 

It seems to me, just as a random person in the internet, that the key to 'property development' is to be able to refurb for very low prices. 

eddddy

ManuelG said:

However, it's always shown the successes... even more so recently. 

They only show successes because, realistically, only people who've done well will agree to appear on the program.

In simple terms, this type of invitation isn't too appealing...

"Would you like to come on national TV to explain that you bought a property at auction and lost £100k, because you're daft and...

• you didn't read the legal pack properly
• you didn't know enough about property to notice the obvious structural problems
• you didn't research prices properly in advance and/or you got carried away with the bidding - and hugely overpaid
• you botched the refurb, and caused lots of damage to the property
• you underestimated the refurb costs, and so you have a half refurbed property, and no money to finish it

... so that everyone watching at home can think "what an idiot - it serves you right"?


Conversely, people who think they've made lots of money on a project will want to go on national TV to gloat about it.

Herzlos

You can make money flipping the houses, by buying one that's in a bad state and making it appear presentable as cheap as possible. I say that because flippers don't have a reputation for doing a good job because a good job eats into profits.

So you buy an ex-lease or a reposession or something that's full of junk, overgrown garden, damaged kitchen/bathroom/whatever at auction pretty cheap. Get a skip and throw everything out, paint over everything and DIY install the cheapest fittings you can find. It might cost you £5k and a couple of weeks of work but could easily add £20-30k to the house value. Of course half the fittings will fail in short order and the new buyer will probably replace the cheap kitchen in a few years time but by that point you've already got the money so why would you care?

Buyers by large have no imagination and want to move into a modern clean house and not one that needs a lot of work.

Though homes under the hammer it tends to be "property moguls" who buy a wreck of a house, bodge it together and then rent it out for even more profit.

ManuelG

eddddy said:

ManuelG said:

However, it's always shown the successes... even more so recently. 

They only show successes because, realistically, only people who've done well will agree to appear on the program.

In simple terms, this type of invitation isn't too appealing...

"Would you like to come on national TV to explain that you bought a property at auction and lost £100k, because you're daft and...

• you didn't read the legal pack properly
• you didn't know enough about property to notice the obvious structural problems
• you didn't research prices properly in advance and/or you got carried away with the bidding - and hugely overpaid
• you botched the refurb, and caused lots of damage to the property
• you underestimated the refurb costs, and so you have a half refurbed property, and no money to finish it

... so that everyone watching at home can think "what an idiot - it serves you right"?


Conversely, people who think they've made lots of money on a project will want to go on national TV to gloat about it.

I assume they pay you *something* for being on it though? And if I'd lost a fortune, I'd take anything going!

daveyjp

Property close to me was a classic 'Homes under the Hammer'.  Not touched for 30 years, no central heating, original bathroom and kitchen etc.

A few weeks refurb by local builder.  He sold it six months later and made about £50k.  Person who bought it has found lots of faults with his work!

A relative looked at a recent refurb recently.  Three storey property converted to a flat on each floor.  Whoever had done it had removed a chimney and sealed up the fireplaces, lick of paint, new bathroom and kitchens, According to the agent the damp on the chimney breasts was the paint drying!

RHemmings

Herzlos said:

You can make money flipping the houses, by buying one that's in a bad state and making it appear presentable as cheap as possible. I say that because flippers don't have a reputation for doing a good job because a good job eats into profits.

So you buy an ex-lease or a reposession or something that's full of junk, overgrown garden, damaged kitchen/bathroom/whatever at auction pretty cheap. Get a skip and throw everything out, paint over everything and DIY install the cheapest fittings you can find. It might cost you £5k and a couple of weeks of work but could easily add £20-30k to the house value. Of course half the fittings will fail in short order and the new buyer will probably replace the cheap kitchen in a few years time but by that point you've already got the money so why would you care?

Buyers by large have no imagination and want to move into a modern clean house and not one that needs a lot of work.

Though homes under the hammer it tends to be "property moguls" who buy a wreck of a house, bodge it together and then rent it out for even more profit.

1. A number of the cheaply refurbed houses are going to be rented, not sold. Surely then the landlord retains responsibility for the fittings etc. into the future. And, those properties are also cheaply refurbed. 

2. I wanted to move into a modern clean house which doesn't need a lot of work. Would you say that this is because I lack imagination or because I don't have the spare time to spend a lot of time working to make a refurb property liveable and have other priorities in my life? 

ManuelG

RHemmings said:

Herzlos said:

You can make money flipping the houses, by buying one that's in a bad state and making it appear presentable as cheap as possible. I say that because flippers don't have a reputation for doing a good job because a good job eats into profits.

So you buy an ex-lease or a reposession or something that's full of junk, overgrown garden, damaged kitchen/bathroom/whatever at auction pretty cheap. Get a skip and throw everything out, paint over everything and DIY install the cheapest fittings you can find. It might cost you £5k and a couple of weeks of work but could easily add £20-30k to the house value. Of course half the fittings will fail in short order and the new buyer will probably replace the cheap kitchen in a few years time but by that point you've already got the money so why would you care?

Buyers by large have no imagination and want to move into a modern clean house and not one that needs a lot of work.

Though homes under the hammer it tends to be "property moguls" who buy a wreck of a house, bodge it together and then rent it out for even more profit.

1. A number of the cheaply refurbed houses are going to be rented, not sold. Surely then the landlord retains responsibility for the fittings etc. into the future. And, those properties are also cheaply refurbed. 

2. I wanted to move into a modern clean house which doesn't need a lot of work. Would you say that this is because I lack imagination or because I don't have the spare time to spend a lot of time working to make a refurb property liveable and have other priorities in my life? 

I get the general point with 2 though - amazing how many people decide not to buy somewhere because they don't like the wallpaper etc. I mean, I don't like the wallpaper where we've moved to(!) but it's up and it's done reasonably well, so it can stay there until I stop being so lazy and get annoyed enough by it that I'll change it.

So ten years time then...

Albermarle

 I put Homes Under the Hammer on while working, and I just picked up on a developer preparing a flat to rent saying that the refurb including new kitchen appliances being costed as £8k. I've no understanding of how people get the price down that low unless it's just the buyer going around doing a bit of painting and installing carpets themselves. How do you then get the kitchen and bathroom refurb for that? If they can actually do that, then there's absolutely no way I can compete with that. 

They usually do not put a cost on their own labour ( or mates/family labour) .

Some say they have made a profit of £30K but have spent every spare hour they have for months. So it's not really profit but wages.

Conversely, people who think they've made lots of money on a project will want to go on national TV to gloat about it.

Although I guess maybe some prefer to stay quiet, to stop the taxman sniffing around !

Grumpy_chap

ManuelG said:

So, inspired by thinking about Homes Under the Hammer.

Surely refurb is only of benefit for a house you'd live in yourself unless you're a builder so can do the work yourself? Surely making a profit short term is next-to-impossible?

The "profits" made always seem unrealistic, not so much in the gain in value of the property being "flipped" but in the low costs of the work to upgrade. 
There will be houses where the purchaser puts in new windows, central heating, moves a bathroom, new kitchen, , complete re-wire, re-plaster, decorates throughout and landscapes the garden but then says "total cost £15k". 
OK - they did the work themselves, plus they always had "mates" willing to just do a load of stuff for nowt.  All done within only a few weeks.  The "cost" never gives any consideration to value of labour and, to get that done in the short timeframe, it clearly was not a couple of hours every evening after work instead of going to the pub (where the time could be genuinely classed as "free").  If the individual is working full time on the refurb and not also holding down a job, then the value of labour really has to be considered.

ManuelG

Grumpy_chap said:

ManuelG said:

So, inspired by thinking about Homes Under the Hammer.

Surely refurb is only of benefit for a house you'd live in yourself unless you're a builder so can do the work yourself? Surely making a profit short term is next-to-impossible?

The "profits" made always seem unrealistic, not so much in the gain in value of the property being "flipped" but in the low costs of the work to upgrade. 
There will be houses where the purchaser puts in new windows, central heating, moves a bathroom, new kitchen, , complete re-wire, re-plaster, decorates throughout and landscapes the garden but then says "total cost £15k". 
OK - they did the work themselves, plus they always had "mates" willing to just do a load of stuff for nowt.  All done within only a few weeks.  The "cost" never gives any consideration to value of labour and, to get that done in the short timeframe, it clearly was not a couple of hours every evening after work instead of going to the pub (where the time could be genuinely classed as "free").  If the individual is working full time on the refurb and not also holding down a job, then the value of labour really has to be considered.

Costs also never seem to include stamp duty on second home, CGT, solicitor and agent fees either.