Is Buying A Derelict Property A Good Investment?

Image showing a derelict property for sale
Buying and renovating a lovely derelict property sounds like a good idea, but if you are not careful it can sun away with your cash. Image: Des Colhoun

Is buying a derelict property a good idea?

Investing money in derelict property

Buying property has usually been considered to be a good investment as house prices generally rise eventually. You may have seen articles or programmes about buyers doubling or tripling their money by purchasing properties in poor condition and selling them on. However, buying a derelict property is an altogether different prospect from buying a house in need of some small improvement or decoration. There has been a recent trend for buying up and redeveloping derelict properties so what is involved and is it a good investment?

In 2018 there were over 11,000 houses in the UK that had been empty for 10 years or more. Overall, there were 216,000 properties that had been empty for six months and many of these could be considered for redevelopment and resale. Some of the derelict properties available are commercial and may not be suitable for conversion to residential use. One important fact to consider is whether the building is actually suitable for conversion and restoration. There are also some properties that may be listed and which may not get planning permission for redevelopment.

Buying and renovating a derelict property

Buying and renovating a derelict property requires a lot of commitment and hard work and you must be realistic about the returns. In addition, you should have a set budget so that you do not run out of money part way through the project. If you are not doing the renovation work yourself you will also need to hire a firm of builders and an architect.

Getting a second mortgage to buy an empty derelict property can be difficult but there are some specialist finance companies that offer this service. Some councils may offer grants to rescue a derelict property but this route should not be relied upon. Another finance option to consider is a bridging loan from the bank which may be financially viable if the renovation is not going to take a long time.

After securing finance, finding a derelict property is the next hurdle to overcome. It is not always the case that a property that appears derelict has been abandoned. Many properties still belong to someone so finding out the title deed is one of the first jobs to be undertaken.

Finding your derelict or abandoned property

Local councils and estate agents will have a list of empty properties and auction houses are another good source of information for derelict properties. You may also discover land for sale that has a derelict property still standing. Finding out the ownership of a property can be done through the Land Registry. You can conduct a Land Registry search for a very small fee.

The local council will usually have a designated person who deals with abandoned or derelict properties and who has the remit of trying to get vacant properties back into use. This can be another good source of information for finding abandoned or derelict homes. Visiting a local property auction is always a good idea to find unusual or completely derelict properties for sale at lower prices.

Property resources:
List of UK councils
Guide to property investment
Unoccupied property insurance

Property location

Location is very important when buying any property and if you want to resell at a profit it is important to consider local schools, amenities and infrastructure. Also make sure that there is planning permission for the work that is needed. If you are considering buying a derelict property, a full structural survey is essential. There could be problems with subsidence or other major faults that are not immediately obvious.

A profitable investment is one that brings high returns and buying a derelict property can be a good opportunity for investment. As long as the property is sound and you have either the right skills to do the work yourself or can employ builders at the right rates, purchasing and selling on a derelict property can bring high rewards.

Renovating the property

The choices for redevelopment include renovating an old building up to modern standards or changing a large house into two flats. There is also the option of tearing down the derelict house and creating new properties on the empty plot of land.

As with any other property investment, there can be downsides to buying a derelict property. If you have a fixed budget and find that costs are running higher than expected it is possible to run out of money. This can be a major setback and it is not one you want to risk as it could threaten your future financial status.

Be careful with your property renovation budget

Unless you are prepared to compromise on some features you could spend far more money than expected and not get such a high return. It is tempting to choose the best quality fixtures and fittings that you would like in your own home. However, if you are selling the property afterwards this is not always necessary. The trick to redevelopment is adding what is needed and not what you might want yourself. Always remember that the location of the property will also have an effect on its value.

Derelict or abandoned building are often priced much lower than properties that are ready to move into, sometimes by as much as 75% below market value for a similar size property. It follows that the rewards can be considerable.

Therefore, before buying it is important to bear in mind several things. You need to secure available funds, via savings or a mortgage to buy a derelict property, the necessary skills or workmen, planning permission and the right location. Following a few simple rules can enable you to make a substantial profit from investing in a derelict property.

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