If you’re a property developer and you’re planning on buying a vacant property to renovate, there are a couple of things you’ll need to bear in mind before making the purchase.
Unlike buying a property that is already occupied or ready to be occupied, a vacant property will require lots of work, renovation and financial investment to be profitable. With empty home premiums and high renovation costs, it’s important to know the facts, think twice before taking the plunge and buying a vacant property.
In this article we explain steps that you should take before buying a vacant property, and what you need to be aware of going into the process.
1. Don’t expect a loan
If you’re thinking about buying a vacant property, the chances of getting a mortgage for it are relatively slim. Unlike a regular buy-to-let property or residential property, vacant properties are often seen as high-risk by mortgage providers: many property developers end up abandoning renovation work due to mounting costs, or find it difficult to sell the property once renovated.
Even if you’re a property owner, bear in mind that you might be making a direct cash investment in the vacant property, so you should have a plan set out for making it profitable with renovation and redecorating.
2. Be financially ready
Buying a vacant property can be incredibly costly for three main reasons:
- You’re unlikely to get a mortgage, meaning that you’re probably going to be paying out of your pocket and upfront in cash for the vacant property.
- If you want to turn the vacant property into something profitable, you’ll be obliged to undergo various, lengthy renovations and have lots of work done on the property to ensure all is in working order and suitable for habitation.
- You’ll likely be eligible for council tax premiums, which will increase the longer your property remains vacant. Empty home premiums can be up to 300% of your regular council tax bill for your empty property.
For these reasons, it’s absolutely essential that your finances are in order before you purchase or think about purchasing a vacant property. If you don’t have the financial means to begin work on the property right away, it wouldn’t be a wise financial decision to buy the property.
Not only will you be out the sum you pay upfront to buy it, but you’ll also be subject to empty home premiums while your property is empty. These premiums will increase year on year and the property will put you at a loss until it’s renovated and once again habitable.
Before purchasing the property, make sure that you have the means possible to pay for the property itself in cash, the lengthy renovations, and the council tax along with the potential council tax premiums.
3. Research into the value of homes or commercial property in the neighbourhood
Given that you’re making a hefty investment, you want to make sure that you’ll not only be able to make back your initial investment, but also turn a profit on the property. It’s a good idea to do some research in the local area and find out the average price of a home in the area, so you can estimate how much your finished property will be worth once completed.
4. Run Important Environmental Checks
If you want the vacant property you’re buying to be viable for the long term, it’s important that you run some basic environmental checks to see whether or not the property could be susceptible to damage from flooding.
For properties in England, you can use the government website to check the long-term flooding risk for certain areas. If an area is highly prone to environmental damage, you might want to think twice about making the investment.
5. Have a surveyor inspect the property
If you plan on renovating the vacant property (such as expanding the property or creating walls or using the property for commercial purposes) you’ll need to have a surveyor inspect the property (view our vacant property inspection services).The surveyor will be able to guide you on where you can and can’t build around your property, so you can carry out your renovations within the property’s grounds. You also need to find the best way to secure your vacant property.
6. See if you’re eligible for council tax relief
As we already mentioned, one cost that’s going to dig into your budget and finances will be the council tax that you’ll be obliged to pay on your empty property. Typically, properties in England and Wales will begin paying council tax between 30 days and 3 months after the owner acquires the property.
However, if you’re able to begin working on the property right away (either for residential or buy-to-let or commercial purposes) you might be eligible for council tax relief during the length of (or a period of the length of) the renovation.
Given that some council tax premiums can mount up to 300% (on top of your regular council tax bill), it’s a good idea to try and a). begin renovation work immediately on the property and b). apply for council tax relief by illustrating that the property is in renovation in order to become habitable. While there’s no guarantee that your relief will be accepted, if it is approved you’ll be able to save quite a sum whilst getting started on renovating your vacant property.
7. Plan to rent it / let it out as soon as possible
When it comes to buying a vacant property, the final point on your checklist is simple: you should have a plan for renting, letting, selling or living in your property as soon as the renovation work is finished. This is so that you can start to improve your cash flow and eventually turn a profit.
Councils will heavily penalise empty homes and properties, and any council tax relief you were entitled to will stop if your property is now habitable but remains empty. After 2 years, your empty home premium will skyrocket by up to 400%.
If you’re planning on living in the property yourself, the biggest motivator for finishing renovations will be getting rid of your empty home premium. However, if you’re buying a property to let, some landlords find it difficult to sell or let properties that were abandoned or left empty for a long time. In order to truly make your purchase of an empty property profitable, you really should plan to put it on the market or reside in it as soon as possible.
If you’re new to the nuances of vacant property, get in touch with Clearway today and enquire about our vacant property services. We’re trusted experts in empty property security and unoccupied property management, offering everything from temporary alarms, and drain down services to metal security doors and screens.
At Clearway we secure, monitor and protect.
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