When you’re setting out as a property investor it can be easy to get carried away, especially if you decided to buy at auction. If you want to make a profit and see a good return on your investment you need to how to work out the maximum price you should offer - before you leave home!
This isn’t a global exercise, you’ll need to do it for every property you’re interested in. You know the cliché
Fail to prepare; prepare to fail
So this is the process you’ll need to work through.
Start with the ceiling price of this type of property in this road, then deduct:
The cost of refurbing it to the ceiling value. Don’t guess, check out all the actual costs - materials, tradesmen’s times (and, especially if you haven’t worked with people before, always allow extra time for the inevitable glitches where one trade isn’t able to complete their part - maybe because they have to wait for a delivery - and so the next people can’t start work. Be realistic, it happens more often than not.
The cost of buying the property. This includes all the conveyancing, legal fees and stamp duty. Again, check this out with your chosen conveyancer, don’t ‘estimate’.
The cost of selling the property on. This will cover estate agents fees, advertising costs, your time meeting potential buyers, etc. This depends on how you choose to sell, but if you haven’t sold a property recently, do your homework and find out what it’s going to cost really.
The cost of the finance you are borrowing. Your broker should be able to give you realistic costs - and you should be realistic about how long it will actually take to carry out any refurbs as you’ll be paying interest month by month.
The profit you need to walk away with to make all the effort worthwhile. You’re in this to make a profit so you need to have a clear idea of what percentage you want to bank when all the other costs have been deducted.
The sum total of these costs, deducted from the ceiling value, equals the maximum price you can offer for this property. Don’t eat your profit away by not doing your sums up front. If you pay too much you’ll make too little.