So you have done the research, worked out the numbers and figured out that you could return a profit from converting a house into flats. But, how much will it cost you to do this conversion? What rental income will you get? Do you need to use an estate agent? Will you need to involve planning and building control? Will you need to speak to the local council? How many flats will you get? These are all questions that you need to ask and to ensure that you are aware of the situation.
Research the market
Before doing anything else make sure that the flats you are planning to build are actually wanted in the area. First-time developers often make the mistake of not checking this out. They build unwanted accommodation which sits and stagnates on the market and then they struggle to sell it. It is an essential step and you need to ensure that you aren’t investing in a project that you won’t be able to sell or make any profit from.
Some things you will need to factor in for consideration would be as follows:-
Social demographics – this can play a huge part whether there is demand for homes or flats in the area. Aging populations, young professional areas or places with high divorce rates will have a higher demand for flats. Whereas where there are families or couples they will be looking for houses.
Current property market – what is selling for more and what is staying on the market? You should speak to some local estate agents and find out what is not selling on the market. You will often need to speak to at least three or four to get a proper feel of what the local market is doing.
Does the property lend itself to a conversion? Some buildings have more room than others and it only takes minor changes to make a conversion. But, many people don’t use an architect to help them with a conversion. You may feel that you can gain two one bedroom flats, but an architect could manipulate the space to include two bedrooms. Thus improving your profit. Do you need to make extensions, entire central heating or structural changes? If so, you would need local planning and building consent from the council.
When doing your research you can work out the average cost of this type of property within the area. This needs a comparison with the cost of conversion to find out what profit margin there will be and whether it is a worthwhile project.
Cost of conversion
You will find that many existing structures can be sound and you can use kitchens and bathrooms in a house. There is no average on the conversion of a house as every project will be different.
The costs will differ depending on the size of the property, the number of flats you are converting. The cost of the builders and the materials you are planning on using. There are many things that you may need to consider when looking at the conversion as follows.
What the local council will need:-
- Planning consent
- Building regulation approval
- What heating systems are in
- The number of flats
- The actual conversion of the house
- Installing a new kitchen and bathroom
These are only a few of the small items that are included.
You also need to take into account the length of the project, are you going to sell it or rent it? One of the biggest decisions you will need to make in relation to the development is if you get a greater return from selling or renting the house you converted. If you are after immediate input of equity then selling might seem the obvious choice but you need to take into account any tax you may have to pay.
In certain cases, your choice may be based on what the current market is doing. If people aren’t buying flats then you will have to rent them out but this could provide you with a steady income over a period of time.
Whatever type you decide on you will need to have building insurance for the property.
Once the conversion is complete you will need to consider what type of building insurance you will need. Insurers see two or more flats in the same building as a “block of flats”. Leaseholders or tenants will have their own insurance in place. Yet it is advisable to take out specific blocks of flats insurance when converting a house into flats.
Blocks of flats insurance cover the entire block and offer more coverage than a regular building insurance policy. This includes fixtures and fittings, rent guarantee, public employers liability, and public liability. Please see our article on blocks of flats which explains the different types of cover.
HMO licensing – does your property need one?
You will need to contact your local Council to find out whether the block of flats you are looking to convert qualifies for a house of multiple occupation (HMO). If it does, then you will need to apply for an HMO license which will cover extra legal responsibilities for landlords. Read our article for more information on houses in multiple occupation.
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