Thanks to the many TV programmes popularising the idea, there is an increasing number of amateur developers hoping to profit from doing-up houses. However, some apparently successful projects owe more to increasing house prices than to the skilful management of the development process. Knowing how to get the best return on a property investment is a crucial skill, whether dealing with a family home or a speculative business venture.
The first step before taking on a project is to carry out some thorough research. This means predicting as accurately as possible how much the work will cost and what the end result is likely to sell for - but it is very dangerous to generalise. Market knowledge should extend from a regional level right down to the differences between individual streets. Some features of a house will vary in value depending on which part of the country it is in. For example, a recent survey by Focus DIY found that a new kitchen in Manchester is likely to add twice its cost to the sale price but in Walford, it will not break even. Adding a fourth bedroom in a big city like Glasgow hardly adds anything to a property price because couples move out to the suburbs when they start a family.
Alterations and improvements have to match the surrounding properties in extent and quality. Every residential area has a ceiling price, something a local estate agent will know. Once this price is reached, any further enhancements are subject to the law of diminishing returns - the more you spend, the less value is added. So if you find a house that is much smaller, or in a lesser condition than houses on the rest on a road, it is a likely candidate for development. However, increasing the size of a house to double that of all of its neighbours will lose money.
Another key concept is to spend money to its maximum effect. This is probably the hardest rule to follow, particularly if you are living in the house while it is done up. It is not time to indulge your design passions and create your dream home. if that is your motivation, forget property speculation unless you are prepared to risk some big losses. It may seem cynical to suggest that money should be spent exclusively on those areas of the house that will help to sell the property but most buyers make their decision in the first few minutes of arriving at the front gate, so success is all about kerb appeal and first impressions. You have to select those improvements that are either essential, or will earn you more than their cost when the house is sold. Any other work is more about satisfying your ego than making a profit.
Once you have found a house, how do you make the most of its potential? Here are some suggestions that have added value in the past.
Extensions
It is rare to make money by extending. Typically about half to three quarters of the investment is recovered when it is sold. If the existing property is substantially smaller than the surrounding homes, it may be justified. An extension can be cost effective if it solves a specific problem and improves the way the house can be used, for example by linking up an outbuilding to the main house. The addition of a garage can also pay for itself in a city where parking is a problem.
Conservatories
In a similar way to an extension, the addition of a conservatory is probably not going to cover its cost. In most parts of the country, you will be lucky to get half its building cost back, unless you live in the southwest, which bucks the trend. In this area, the better weather seems the most likely explanation for the potential 30 per cent profit that can be made. The most cost-effective way to build a conservatory is to buy a kit from a builder's merchant and either pay a builder or build it yourself, as opposed to using a conservatory supplier.
Replan
Sometimes it is possible to improve the interior of a house, or even increase the number of bedrooms, without having to build up or outwards. Agents tend to value properties according to how many bedrooms there are rather than the floor area alone. If a disproportionately large bedroom can be split into two moderately sized rooms, the value of the house can be enhanced significantly, for a small cost. A classic example of improving a first floor plan is where an old house has had a previous bathroom extension, which is only accessible through a bedroom. For the cost of partitioning to create separate access to the bathroom from the landing, the result is a far more saleable house.
