Your complete guide to renovating a home: Part 1

The first steps to renovating a home do not start with design briefs or plans for how to tackle the project, but actually begin with buying the right property.

Choose the wrong property and you could end up with a 'money pit' — with endless problems needing to be fixed and little budget leftover for the things we really want to spend on, such as a new kitchen, bathrooms or an extension. You could also end up with a house which costs more to renovate than its end value.

Here, our experts provide their top tips for finding the right opportunity, the different routes to buying a renovation opportunity you may encounter (such as buying at auction), and how to finance your project.

Finding a renovation project with potential

You’ve decided you want to renovate a property. Perhaps you are a serial renovator and have become hooked on restoring run-down houses to their former glory, or maybe you are keen to buy something in order to add value to it and propel yourself up the property ladder.

Sometimes, it is a love of a particular style of house that draws people to a renovation project, while other times buying a wreck is the only way to afford a house of a certain size or in a particular area.

Whatever the reason for you embarking on this project, all renovations begin with a house in need of improvement — be that a light sprucing or a full-on strip-out and remodel. Your chosen house is key to the success of the project — above all else, it must have potential.

Here, experienced renovator and homes journalist Natasha Brinsmead offers her advice on finding the right opportunity — and how to avoid buying the wrong property.

1. Establish whether a property has 'renovation potential'

Buy the wrong project and all your plans of adding value or creating the dream home you never thought you could afford could go spectacularly wrong.

Ensuring you are buying the right project for you, offering the opportunity not only to make some money but also to successfully achieve the house you want, means carrying out a degree of research, being realistic, having a firm idea of what you can afford to spend and being able to spot hidden costs.

Before setting out on your property search in earnest, it helps to have a checklist of points to consider, including:

• Location
• The scope for extension potential
• The style of property
• The attitude of local planners
• Structural potential
• Issues which may be costly to put right
• Design potential
• The competition you are likely to be up against from other buyers.

The above list will help you define whether the properties you're viewing have that all-important 'potential'.

“When looking for a property ripe for renovation, the old adage ‘worst house on the best street’ always rings true,” adds experienced renovator and architect Lydia Robinson of Design Storey. “It’s what every property hunter is looking for in order to pick up a bargain.

"Although this is a great mantra, these types of property are not as easy to find as you may think. In fact, the more the wallpaper is peeling and walls are crumbling the more popular a house may be — as the building may be seen as more original, desirable and with a greater opportunity for it to be renovated to a bespoke specification.”

If you have been trying (and failing) to find a renovation project for some time, it might be worth considering other styles of houses that you hadn’t thought of before. While ‘chocolate box’ thatched cottages or Georgian properties have undeniable charm, they carry a premium and are usually much in demand.

Opening your eyes to the benefits of homes built from 1940 onwards can throw up some interesting options. They may not be picture perfect as they stand but they were often well built, have large window openings and, with a little bit of vision, can become some of the most exciting new homes. Plus, planners are often more than happy to see them improved.

2. Be in a strong buying position

Competition to find good renovation projects can be pretty fierce, so ensuring you are in the best possible position to proceed once you do find the right renovation project is absolutely crucial.

Very often, renovation projects are sold at auction or go to sealed bids or best and final offers (more on which later). With all three of these, those buyers who have already sold their existing home or have cash in hand to go ahead immediately are far more likely to be the successful bidder than those with a house still to sell and a mortgage yet to arrange.

3. Know your area

Location is everything when it comes to the financial rewards that can be expected from a renovation opportunity. However promising a project might look, if it’s located on a busy road or next to a railway, for example, its end value is going to be limited or have a 'ceiling price'.

If you want to find a project with the potential to make you some money (perhaps in order to take the next step on the property ladder), or even if you are just looking to create a home for life, location will be at the forefront of your mind. Factors such as highly rated schools, good links to popular towns and finding a location away from land that could potentially be developed, should all play a part in your search.

In addition to picking a sought-after area, you also need to consider how this might affect your plans for the house. In certain areas it can be almost impossible to get planning for certain designs, for example.

4. Spotting – and avoiding – potential money pits

While there is no fail-safe way to ensure that the house you buy won’t throw up a few unexpected costs as the project progresses, there are initial checks you can make before you buy, which should flag up potentially costly issues. Whether or not you choose to progress once you have made these discoveries will depend on what you want to spend.

As a general rule of thumb, be on the look-out for the following:

• Projects that have been on the market for a long time
  Properties that are for sale for months on end, or that are sold and come up again time after time, should set alarm bells ringing. It could be that property is overpriced, or on the other hand, if you're lucky, others have yet to spot its potential if the property has had few viewings and no offers. However, this could also be a sign of underlying structural issues, the discovery of a nearby new development in the pipeline or that the modernisation will not be worth what it will cost.
• A history of failed planning attempts
  Take a look at the local authority’s website and have a quick search to check out any previous planning applications that have been rejected. It is also worth looking at the planning history of neighbouring properties — it could be that the local planners are hard to deal with, thus diminishing your extension or development plans.
• Rewiring requirements
  It is fairly common for electrics in old buildings to need updating (telltale signs include dated fuse boxes, round-pin plugs and fabric-coated flex). While this isn’t a deal breaker, bear in mind that a whole house rewire for a typical three-bedroom house starts from several thousand pounds. You'll also need to factor in the cost of making good (for example, there may be some replastering required). Costs will increase if you plan to add more plugs, light switches, circuits, etc.
• Obvious damp patches
  Some damp problems are simple and cheap to fix while others are more costly — and can run into the thousands. There is no need to give up on a house because of damp but it will add to your budget to put the problem – as well as any damage caused – right. Look out for salt deposits on brickwork, damp patches on floors and walls, a smell of damp, crumbling plasterwork or peeling wallpaper.
• Structural movement
  Be on the lookout for cracks in walls, and in particular around windows and doors, beware of doors that stick in their frames, sloping floors and cracks in the ground. While signs of subsidence can be unsettling and expensive to put right, particularly if the problem is active, they are not always disastrous. Active problems are the most concerning and if you suspect subsidence, your first port of call should be a surveyor who can give a sound opinion. Not only could a subsidence issue add to your renovation costs, it could also affect your mortgage options and your home insurance.
• Doors and windows in bad condition
  Rotten, broken, out-of-date windows and doors will need repairing or replacing. Updating old windows with uPVC replacements could cost at least several hundred pounds (fitted) per window, with other materials typically costing more.
• An old plumbing system
  Most buildings in need of modernisation will need a new plumbing system. Check the boiler condition, too.
• Dry rot
  Take a look under floorboards and at the timbers in the roof space. If you see fungal strands spreading out over beams and along walls (a little like cotton wool), treatment may be required and some of the timber could be damaged beyond repair.
• Missing roof tiles or slates
  While replacing one or two roof tiles won’t break the bank, if water has been allowed into the structure of the roof and has caused some damage, you could be looking at replacing the entire roof.

Buying a renovation project

While renovation projects offer a fantastic opportunity to create a unique home and can also be hugely rewarding in terms of breathing new life back into an old building, they are not without their hurdles. When buying a home that has already been modernised or a new build you should more or less know what you are getting yourself into, and the buying process tends to be fairly familiar and straightforward.

Large-scale renovation projects, however, can often be deemed uninhabitable by lenders, may be part of a deceased person’s estate or be repossessed properties, among other things.

They are sometimes sold at auction or require interested parties to submit ‘best and final’ offers.

Sometimes standard mortgage lenders want nothing to do with them. And, to top it all off, there is often fierce competition from other buyers clamouring to put their stamp on the property. For this reason, would-be renovators are strongly advised to familiarise themselves with the common ways in which derelict or run-down properties are sold and the best finance options out there.

Buying a renovation property at auction

It is quite common for renovation projects to be sold at auction — so that the property speculator or owner can make their profit as quickly as possible instead of waiting weeks or months for a buyer.

In fact, subscribing to the mailing list of local auction houses and honing your search in on properties being sold at auction is a great way to find properties that others may have missed. However, it does pay to do your research, speak to those who have bought at auction before and visit a few auctions before you do it for real.

Property auction houses usually list their upcoming auctions on their websites, or will send out catalogues on request. If you see something that takes your interest, contact the auctioneers or agent to arrange a viewing. It is well worth taking a builder, architect or other professional along with you. Remember, once the gavel falls, you cannot go back.

It is also well worth getting a survey carried out on the property prior to bidding. While a survey will cost you at least several hundred pounds, you can be more certain of what you are bidding on and what it is worth.

You should also have a thorough read of the legal pack that goes with the property. The pack should give you all kinds of details, including those covering the deposit you will be required to pay on the property should you be the successful bidder on the day (usually 10%, although this can vary) and the admin fees (which can run into the £1,000s and are payable on exchange).

It is wise to ask a legal professional to read through the legal pack, too. It’s advisable to involve a solicitor who is familiar with auctions. Do this early on in the process as things move quickly after a bid is successful. You usually have 28 days to complete and pay the remainder.

Unless you are a cash buyer, you will need to have already arranged a mortgage in principle. Some mortgage brokers will visit a property with you before any agreement about how much you can borrow is made.

On the day of the auction, you will be required to register on arrival and will need two forms of ID, such as a passport. You might also be required to show proof that you can afford a 10% deposit as this needs to be paid on the day if you are successful.

Expect the lots to be sold in the order they appear in the catalogue and do bear in mind that guide prices are only an indication of the seller’s lowest expectations — not a clear idea of the final sale price.

Go with a firm idea of your maximum bid and don’t go over it — take someone with you if you think you are likely to get carried away.

Sealed bids and best and final offers

Where there has been high interest in a property, the estate agent might tell you that it is going to ‘sealed bids’. This is where all interested parties are asked to submit their offer, in a sealed envelope, by a set date, as stated by the estate agent.

You won’t know what the other bidders have offered. Though it’s hard when you have your heart set on a property, try not to offer more than the property is really worth in your desperation to secure it. On a positive note, your sealed bid does not represent a legally binding decision on your part.

Our top tips for being successful include:

• Your offer will need to be made in writing — try to deliver it by hand to the estate agent so you know it has definitely arrived on time.
• Within your letter, include details of your buying position. You want to come across as a reliable bidder, so demonstrating proof of funds if you are a cash buyer or being able to show you have a mortgage agreement in principle in place both help.
• If you are a first-time buyer or not in a chain at present, include this information, too — it puts you in a strong position.
• It can also be useful to include information on why you love the property — in some cases sellers may have a strong sentimental connection to a house and this might just sway things in your favour.
• Make your offer an odd number — it could push it just above another bidder’s offer.

Even if you are not the successful bidder it is always worth asking if there is still a chance to increase your original offer (although this is unlikely).

Don’t give up all hope if you are not the successful bidder — it’s not unusual for sales to fall through. You might get a call a few weeks later if you were the second or third highest bidder.

Best and final offers are very similar, the only real difference being that offers are not required to be submitted in a sealed envelope. Buyers are usually asked by the estate agent to submit their best offers by a certain date before they’re assessed by the seller. You can still explain why you are the best buyer, as with sealed bids.

Financing a renovation project

Major renovation projects may require specialist finance, as Emma Lunn, a personal finance journalist, advises.

Most mainstream mortgage lenders will only lend on properties deemed 'habitable' — this normally means a working kitchen and bathroom. If the property isn't deemed habitable, however, you're likely require a specialist type of funding.

Your lending options for a renovation project will depend on several factors. These include your financial situation, whether you already own the property or are purchasing it, the property’s value and the work that needs doing.

A small number of specialist mortgage lenders, such as Ecology Building Society, BuildStore, and BuildLoan, offer renovation mortgages. This type of mortgage works in a similar way to a self build mortgage: funds are released in stages as the work is done and the property increases in value. Funds from a stage payment mortgage can be paid out in two ways: at the end of each build stage (arrears), or at the beginning of each stage (advance).

Another way to fund a renovation project is to apply for a further advance on a mortgage on a different property (i.e. your residential home), assuming you have sufficient equity. Further advances tend to be charged at a higher rate than a first charge mortgage. Alternatively, you might choose to remortgage your home to release equity to fund a renovation, again assuming there is sufficient equity.

Bridging finance is another option. But you’ll need a defined exit strategy to repay the sum borrowed, for example selling the renovated property or refinancing it onto a standard mortgage.

Bridging loans are commonly used when buying at auction as they can be set up relatively quickly. At a traditional auction the winning bidder will be required to pay a 10% deposit on the day, and the remaining balance within 28 days — so a standard mortgage is unlikely to complete in time.

Finally, renovations can also be funded by cash savings, personal loans or credit cards.

In the next part of your complete guide to renovation, surveyor Ian Rock explains the importance of undertaking surveys before buying a renovation project and how to choose the right survey.