Bemused by valuations

Herzlos

Sapindus said:

I was thinking about this one earlier.  On the one hand the estate agents are saying you can buy a house, do some work and then sell it for more than the purchase price + the cost of work.

On the other hand people wanting to sell their house are regularly told they won't get back the cost of "improvements" they may be thinking of making to make the house more marketable...

It's very complex and nuanced.

It's definitely possible to flip houses, by buying cheap, doing some work and then selling them on for a profit. But for that to work you need to get the house cheap enough and spend a small enough amount of money on it for the proft. 

For your average buyer it's difficult because you're probably not skilled enough to do all of the work yourself and will need to pay the going rate for contractors. If you're already in the trade, say you own a small building company, you can do a lot of the work in down time and you can probabably get mates rates or deals that your non-trade buyer couldn't. For example my plumber friend fitted a landscaper friends bathroom in exchange for landscaping work.
Folk in the trade will also have much better access to leftovers from other jobs too, whereas non-trade will likely be paying full whack.

That's before you factor in stuff like already having a van and tools, etc. I've saved a fortune by having a van and being able to just collect half a bag of sand or some spare lengths of wood that wouldn't fit in a standard car.

All projects will take twice the time and cost estimate to do, too.

On the doing stuff up to sell, it's rare that the amount of money spend on the upgrade will be recouped in the house value, unless you're drastically changing the house somehow - adding rooms or increasing the floor plan. A house is assumed to have a kitchen in reasonable working order, so replacing an old kitchen with a new one may cost £10k but almost certainly won't add £10k to the sale price. If it's in a style the buyer doesn't like then it might not add anything.

So the advice is generally that if something works, it's best to just leave it alone. Do stuff like replacing cracked tiles, giving it a fresh coat of paint, etc. Stuff with minimal cost that make the place seem nicer, but that's about the extent of it.

newsgroupmonkey_

In fairness, look at it this way.

Let's pretend we have a house that is £100k, but needs a new kitchen.
Versus a house that is £110k, but has a brand new £15k kitchen.

Thing is, the £100k house is a better bet, even if spending £15k. Because you're getting the kitchen YOU wanted.

That's why people pay over the odds for a house that needs renovating. Because they can do it the way they want.

silvercar

newsgroupmonkey_ said:

In fairness, look at it this way.

Let's pretend we have a house that is £100k, but needs a new kitchen.
Versus a house that is £110k, but has a brand new £15k kitchen.

Thing is, the £100k house is a better bet, even if spending £15k. Because you're getting the kitchen YOU wanted.

That's why people pay over the odds for a house that needs renovating. Because they can do it the way they want.

Problem is that people only have a certain amount of savings and want to get a decent interest rate on their mortgage. So a 90% LTV on a £100k valuation is going to mean a 90k mortgage, £10k deposit and £15 k for the kitchen. 90% mortgage on the £110k property is 99k mortgage, £11k deposit and no further spending needed. So without £25k savings, only the £110k house is affordable, unless you are prepared to live with the old kitchen for a few years.

Bigphil1474

OP, I think someone else mentioned it, but it's basically down to how the work is done. You might have to pay someone £45k to get the house up to standard, but someone in the know might only pay £20k. They still sell it for the same price, but they make more profit. 

To be honest, I wouldn't trust an EA to quote the cost of repairing a house though. You can get decent second hand kitchens online for a few hundred quid if you can dismantle, move, and fit. What makes you think it needs a rewire? We had our electrics looked at in the old house, just needed a new consumer unit. The wiring was fine, and they were at least 1980's old at the time. Is it worth doing a few minor repairs yourself? If someone could live with what needs doing it will open a bigger market to you. Can't take much to fix the basin to the wall etc. Could the kitchen be fixed up without costing much etc. I spent nearly a year fixing up our old house. The kitchen was at least 30 years old, but I just tightened up where needed, give it a quality paint job, new handles, and was good to go for the new buyer to use until they could replace it.  

Albermarle

It's definitely possible to flip houses, by buying cheap, doing some work and then selling them on for a profit. But for that to work you need to get the house cheap enough and spend a small enough amount of money on it for the proft. 

Buying a house cheap, probably means buying it auction, or at least quickly without a survey etc and accepting you might come across unforeseen issues, which might even turn it into a loss making venture.
So as with all business, there is an element of risk, as well as potential profit.

BungalowBel

We have bought three houses to live in.  Each one has needed a stack of work doing to it  (but were livable) and was priced accordingly.

It means we pay for our own improvements and not someone else's.

martindow

Some people looking for does uppers can be more enthusiastic than realistic.  They often under-estimate the time it will take and how much it will cost.  I don't think you will find it diifficult to sell as is.

newsgroupmonkey_

silvercar said:

newsgroupmonkey_ said:

In fairness, look at it this way.

Let's pretend we have a house that is £100k, but needs a new kitchen.
Versus a house that is £110k, but has a brand new £15k kitchen.

Thing is, the £100k house is a better bet, even if spending £15k. Because you're getting the kitchen YOU wanted.

That's why people pay over the odds for a house that needs renovating. Because they can do it the way they want.

Problem is that people only have a certain amount of savings and want to get a decent interest rate on their mortgage. So a 90% LTV on a £100k valuation is going to mean a 90k mortgage, £10k deposit and £15 k for the kitchen. 90% mortgage on the £110k property is 99k mortgage, £11k deposit and no further spending needed. So without £25k savings, only the £110k house is affordable, unless you are prepared to live with the old kitchen for a few years.

Oh absolutely - if you're already at your max, absolutely valid.

Depends how much you can save. In our case, we avoided meals out and holidays and saved it in a year!

saajan_12

What are you bemused by, sounds perfectly reasonable even before you adjust for the (large) margin of error in any of those numbers.

You're suggesting costs anywhere between £140k and £170k, to end up with a house worth £160k, which is right in the range. Might suit a buyer perfectly if they don't have the upfront cash or meet affordability criteria to purchase a £160k house, but who can swing a £120k house and then do some of the work themselves over time. Or someone who wants to spend the same money but have the finish to their taste rather than whatever the seller liked, wishing they could rip it out in a few years anyway. 

ReadySteadyPop

martindow said:

Some people looking for does uppers can be more enthusiastic than realistic.  They often under-estimate the time it will take and how much it will cost.  I don't think you will find it diifficult to sell as is.

I think this is a lot less common since inflation/borrowing rates went up, much harder to ignore financial reality nowadays.