Every property investor should aim to maximise the returns from their property investment. Adding an extension is one way you might be able to achieve that. Here we will look at how to maximise your returns by adding an extension to a property – either to an existing one or to a new property you wish to buy.
Why consider an extension?
Extending can improve the returns from flipping, renovation and buy to let.
An extension should increase the capital value of your property, both short term and long term.
An extension may generate an immediate capital gain, ie. the value it adds to your property could exceed the cost of the work. This could allow you to refinance and release equity to use elsewhere.
Today buyers and tenants are looking for more space. An extension may make your property more saleable or more lettable.
An extension will give your property a higher rental value and may also enhance yields.
There are some possible downsides of an extension project, however: Extending a property extends your financial commitment. It involves a time commitment. There is no guarantee that an extension will actually add to the rental or capital value.
Tips for successfully extending a property
First, is an extension viable?
Start by thinking about where you will extend, ie. within the existing building envelope or outside it. Check that there is sufficient space, and do a rough calculation to find how much extra floorspace you might be able to add.
Look at what regulations you will need to contend with: Will you be able to extend under permitted development rights, or will you need planning permission? Find out what other restrictions there might be, such as in a conservation area or with a listed building. Look at whether you will need permission from a freeholder, or a party wall agreement.
Consider what demand there might be for the extended property whether to sell or to let.
Assess costs of an extension versus return
Carry out a simple cost-benefit analysis to help you decide whether an extension could actually make you money.
Compare the asking and sold prices of similar extended and ‘unextended’ properties in the local area. Find out, for example, how much more a three bed property sells for than a two bed property or a four bed versus a three bed. Check their likely rental values if you plan to let them. Once you have estimates for the cost of an extension you can assess whether the likely return justifies the outlay.
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 ones.
You find a small two bed house which can be purchased for £230,000 including fees and taxes. You estimate the cost of an extension to provide two extra bedrooms at around £40,000. Local research suggests four bedroomed houses in the area sell for at least £300,000. There is potential to make an immediate capital gain of circa £30,000.
Key skill: Design to add value with an extension
When considering an extension there are a number of different options. Popular types of extension to consider include: A front, side or rear extension to the ground floor. A multi-story front, side or rear extension. A loft conversion. A basement conversion.
A single story extension to add a living/dining kitchen or a contemporary open plan living space.
A conservatory or garden room to add extra living space at low cost.
A loft conversion to add 1/2 extra bedrooms plus an en suite bathroom.
A two story extension to add 1/2 extra bedrooms and extra ground floor space.
From a property investor’s point of view, however, extensions need to be designed to not only add more space but add more value too. So think about what type of extension will add most value, whether selling on or letting.
Tip. Avoid the risk of ‘overextending’. For example, extending a small house in an area with mainly small houses may not produce as much uplift in value as extending a small house in an area of mainly large houses. A family house which has been extended to cover most of the garden may not be popular with family buyers or tenants.
Check whether an extension needs planning permission
Traditionally most home extensions required planning permission. Extensions to permitted development rights since 2013 have meant more extensions can be built without planning approval being needed under permitted development rights.
You can check whether or not your extension requires planning permission on the Gov.uk site here.
Also check the local situation with your local authority. PaTMa Property Prospector can provide contact details for your relevant local authority.
Make use of permitted development rights
Building an extension under permitted rights means you do not need planning permission as long as the extension complies with certain conditions, particularly relating to its size. Extending under permitted development rights can save both time and money.
Extensions that can often be carried out under permitted development rights include: Many single story extensions, some two story extensions to the rear, loft conversions and basement conversions.
Tip. Some local areas have Article 4 directions in place which remove permitted development rights.
Extensions and building regulations
Most extensions will require building regulations approval for many aspects of the work. This includes structural work, roofing, electrical and plumbing work. This may be needed even if the extension does not need planning permission.
You can find out more about building regulations on the Gov.uk site here.
Planning and managing an extension project
It is not essential to hire an architect for an extension. However, an architect will be able to advise on design and costs, draw up detailed plans for builders and assist with planning applications. Architects generally charge on a time basis or a commission on the value of your project. Expect to pay around 6-10% for an extension project.
Lastly, decide whether to project manage the extension yourself, and hire separate trades for each aspect of the work, or to hire a suitable builder to undertake the entire project. Some builders may also be able to offer a design and build service for extension projects.
Remember that project managing a project yourself involves a time and cost commitment, so allow for this when planning a project and your budget.