A step on the property ladder

Purchasing an older property that is suitable for renovation could be a good step on the property ladder.

These properties, however, come with history and that history could impact on your finances in the future. How do you make sure that it is a positive impact, and that your fixer-upper doesn’t turn into a bottomless pit?

Choosing a property

When shopping for a property to renovate, a good starting point is to look for properties with large spaces and lots of natural light. Also try to find a property that is facing the right way – to make the most of the sun for warmth and natural light, your home’s main living areas should face north.

Before signing an offer to purchase, appoint a home inspector to investigate the property. They can identify dry rot, damp and termite infestations and a host of other potential problems and will provide you with a detailed report. This will highlight any possible structural repairs that need to be done and, if you decide to proceed with the offer-to-purchase, it could also be a good bargaining tool in the purchase process.

Bear in mind that the transfer of a property cannot conclude without an electrical compliance certificate, and you can specify an electrician of your choice to do this in the offer to purchase, even though the seller is obliged to foot the bill.

Consult a specialist

The next professional to consult is an architect – there are many smaller companies that specialise in renovations and the money that you spend on their time and insights will be the best investment you make. You may have ideas on what you want to change, but architects have the knowledge and experience to give advice on potential pitfalls and could provide ideas that you had not considered. Do not be afraid to ask questions – you should have a clear idea of what your money is going to be spent on.

An architect will also be able to estimate what your renovations may cost; they’ll be able to draw any required plans and will obtain the necessary permits to commence construction. If your house is in a historic area, renovations may be governed by legislation created to preserve the building for posterity, something an architect can allow for.

Footing the bill

Arranging finance is your next step. First prize is to pay for the alterations in cash, but not everyone can do that. Depending on the nature of your initial mortgage, you may need to extend your mortgage to pay for your renovations. When you apply for the extra finances, take a detailed plan and budget to your bank’s mortgage consultant, and make sure that you can afford the repayments – even if interest rates should increase.

When calculating your budget, remember to allow an extra 20-30% for the unpleasant surprises that often come with renovations. It’s worth making a priority list, separating the things that must be done from the things that are optional extras. That way, should your costs exceed your expectations, the essential parts of your project will be completed and you can complete the less important elements over time.

Choosing a contractor

Choosing contractors is an important part of the process – ask your architect for recommendations, and then ask to see projects that the contractors have finished to give you an idea of the quality of work that they offer. Be willing to pay for a good contractor and be wary of the one who is cheap and available right away. Contact the previous three clients of anyone you plan to hire as they will have experienced the person at his or her current level of achievement and staffing.

It is worth getting quotes from different companies and remember that these quotes may need to be revised should material costs rise during the course of the renovation work. Be wary of paying for the whole job upfront – rather negotiate a staggered programme of payments with your contractor, and retain a small percentage of the job to be paid once all the items on a snag-list have been resolved at the end of the project. Keep your receipts as the project progresses – that way you will keep in control of your budget.

You may want to do some of the work yourself, but leave construction, plumbing and electrical work to the experts; these elements are governed by legislated standards and mistakes could be costly. Appointing professionals also allows you to dictate a finishing date – something that might prove elusive if you’re going to juggle renovations with work and time with family and friends.

The information contained in this article is of a general nature and intended for information purposes only. It is neither to be construed as financial advice nor to be regarded as a definitive analysis of any financial, legal or other issue. Individuals must not rely on this information to make a financial or investment decision. Before making any decision, we recommend you consult your financial planner/adviser to take into account your particular investment objectives, financial situation and individual needs.