Property Investment is a Marathon, not a Sprint
29th January 2009
... Comments

Shocking as it may seem, building a new home or extending your existing one is more cost effective now than it has been in years, despite the housing market being in the middle of a well-documented slump. It's not the first time the market's been hit hard so it helps to learn the lessons of previous declines.

When it comes to home improvements, generally speaking, people are reacting by tightening their belts. Many of those who were considering a new garden room or extension built have since put their plans on hold. Most homeowners are waiting to see what happens to the market before they commit to building or conversion work.

However, it's hard to ignore the facts which suggest that because the housing market is undervalued, for every square foot of new build you're likely to enjoy a greater return on your investment when the market picks up.

How to build long term profit into your home

It's those people with savings who are bravely investing in bricks and mortar now who are going to be the ones benefitting from a exponential boost in their property's long term value. The key lies in holding out to sell until the markets picks up. However, if you're going to do it, do it properly. Here are some tips to help you decide whether it's a good investment for you.

First, you need to establish the exact size and value of your property as it stands right now. If you're not sure, enlist the help of an estate agent, and remember not to include your garage space when you're working out your square footage. Next, check your street and find out the square footage and number of rooms enjoyed by the largest house. How much is it worth? (It's worth double checking to ensure you're working with the right figures.)

Do your figures add up?*

Let's say that your home measures 1500sqft @ £140 per sqft (£210,000) and the largest house in your street measures 2000sqft @£150 per sq ft (£300,000). The difference is 500 sqft @ £150 per sq ft (£75,000). Now you know that if you're going to maximise your potential long term profit, you'll be looking to build a 500 sq ft extension for £75,000 or less.

Of course, build costs will vary dramatically between £75 -£120 per sq ft, but it's a buyer's market right now so it pays to look around. Check your prospective builder's credibility but bear in mind that the cheapest is not always the best. You're looking to add long term value, so a quality finish is crucial if your property is to hold its value.

Imagine that with your new extension, your home is now valued at £300,000. If the market decides to fall a bit more, don't panic, you're in this for the long term! Four years from now, the value of property in your street could well have increased by £20 per sq ft, in which case you'll have a property of 2000 sq ft (worth £170 per sq ft) which comes to £340,000. That's £40,000 profit, or £10,000 a year income.

When you look at the figures, not only is developing your home clearly a great investment but you also get to enjoy a whole lot of extra space into the bargain.

Quality craftsmanship pays dividends

So, you've decided to take the plunge and commit to that new build or home improvement. How do you find the right joiner or builder for the job? Interestingly, while people are cautious about spending their money, they're equally careful about who they spend their money with. It's not always the cheapest quote that wins the day. Quality and value for money still count.

The conclusion is that if you've got savings it makes sense to put them on the ground in the form of home improvements. The housing market may be seriously undervalued but when it picks up again - and it will why shouldn't you be one of those enjoying the best returns?

Steve Hill, Birch Stone, Managing Director

01536 510064

*Please remember that the above figures are just an example so make sure you do your own research before you get started.

Popular Categories