Light refurbishment is in some ways a ‘less is more’ property investment strategy. It offers potential to make a good return in less time, with less work and less money, than by undertaking a more extensive renovation. Here we will offer some tips on how to complete a light refurb successfully.
What is light refurbishment?
There is no exact definition of light refurbishment. It could be described as giving a property a makeover with a view to enhancing its sales value and/or rental value.
Light refurbs typically only involve small works such as cleaning, repairs, redecoration, new kitchens and bathrooms. Light refurbs do not involve structural work, extensions or work that would require planning permission.
The pros and cons of light refurbishment
The advantages of light refurbishments are that they are relatively low cost, have short timeframes and are easy to tackle. You do not need extensive property or building skills.
Light refurbishment is a flexible option: It can work alongside buy to let or can also be a buy to sell or ‘flipping’ opportunity.
The disadvantages of light refurbishments are that profit potential is limited. Properties where a light refurbishment will work are not always easy to find.
Tips for successfully completing a light refurbishment
Choose the right property
Not every property will work as a light refurbishment. Light refurb is only viable where a small amount of work will lead to a reasonable uplift in the capital value, or the rental value and subsequent yield.
Properties which have been for sale for some time or which have been recently reduced – perhaps because they have proved to be unattractive to buyers – may be good opportunities for a light refurbishment. PaTMa Property Prospector can help you identify these kinds of properties.
Know the numbers in advance
Profit margins can be tight on lower value projects, so it is essential to work through the numbers before committing to a project. Take your likely purchase price and estimate a likely future selling price or rental value. Obtain accurate estimates for buying costs, finance costs and refurbishment costs.
PaTMa Property Prospector can help you find local price and rent comparables. It can help you crunch the numbers and compare projects back to back to help spot the most profitable light refurbishment projects.
You find a small 2 bed house for sale at £152,950. The house has dated décor but is otherwise sound. Research with local agents suggests its dated condition would make it difficult to let at any more than £425 pcm.
As it stands the house would produce a yield of 3.33%.
You buy the house for £145,000 plus costs (legal, finance, Stamp Duty etc.) of approximately £6,500. You spend £10,000 on a light refurbishment (new kitchen and bathroom, deep cleaning, decorating, gardening etc.). You then let the house at £695 pcm.
The house now returns an enhanced letting yield of 5.16%. It is now valued at £169,000 – an immediate capital gain of £7,500.
(Simplified example. Assumes property in England post-Stamp Duty holiday.)
Use finance effectively
Light refurbishment offers multiple finance options, such as a buy to let mortgage, bridging finance, light refurbishment loans and cash. Aim to combine them in the most effective option to keep costs down.
Light refurbishments can also be operated as buy, refurbish, refinance, rent or BRRR projects.
Key light refurb skill: Spend to add most value
With light refurbishment there isn’t the time or money to refurbish everything. So aim to spend your budget to get most ‘bang for your buck’, ie. where it is likely to generate the most uplift in capital value, or the rental value and subsequent yield.
It’s often said that kitchens and bathrooms sell (and rent) houses. So these are often good target areas for a light refurbishment. Other lower cost-higher return refurbishments might include: Deep cleaning. Minor repairs. Painting and decorating. Restoring period features. New carpets. New lighting. Garden tidying.
Find good people to work with
Light refurbishment property projects call for a particular skillset – somewhere between that of a builder and a DIYer. Aim to find tradespeople who can multi-skill and handle several tasks within the refurb where possible.
Using one tradesperson who can handle several tasks and quote a package price for all of them together, rather than several people for several jobs, can help to save costs and time.
Manage the project – and the budget – carefully
Modest margins on small projects mean it’s important to stay on top of the process with good project and financial management. One risk with light refurbishments is that they can easily grow into more complex and expensive renovation projects, and so lose the advantages of light refurb status.
Draw up a schedule of work. Monitor jobs ‘to do’ and ‘done’ on a daily basis.
Draw up a budget. Review and update financials frequently to help stay within budget. Look to see how overspends in one area can be saved with economies in another.
Allow a contingency for unforeseen expenses. 10% would be a sensible minimum.
Learn from what worked well
As with any property project you can maximise the profitability of the next project by learning from the last one. Take time afterwards to review what worked (or what didn’t work) and use it next time.
Get advice from estate and letting agents. Ask opinions on what buyers and tenants in your area look for. Ask what refurbishments sell and let homes the best .... and which don’t.
Gather feedback from viewings, and from buyers or tenants. Find out what most attracted them to view the property, to buy or rent .... or not.
Review every project cost and refine your strategy for next time. Look at what you spent money on, but which could perhaps be omitted next time. Look at where costs could be reduced without affecting the future sales/rental prospects, eg. by fitting a less expensive kitchen.
PaTMa Property Prospector can help you find properties suitable for light refurb, analyse the financials, compare several potential buys back to back and manage your costs more effectively.