How much to offer on a doer-upper? Head about to explode with sums.....

[Liquidgold]

We would like to offer on a Victorian terrace that needs a lot of work and I have no idea how much to go in at.

Property has been on market for some time so I am guessing it is overpriced but is the done thing to total cost of essential works and knock off the asking price?

I am new to this (buying a house in need of modernisation) and am slightly scared at the prospect of it being a complete money pit but also very excited at the potential....

I think you will need to offer more information, what is the extent of the work? What do comparable properties go for? Will this be your forever house?

I would be cautious - we bought a house that needed work, it has been a money pit and we will lose money on it unless we stay there for years. Everything will cost more than you think and it's stressful.

I think you need someone (like a friendly builder) to give you a view. We thought our house would be around £100k max for renovation, however it's more like £150k and we have run out of money.

Do you know how to do a residual valuation? This is the calculation a developer would do when working out how much to pay for a property, or how a chartered surveyor would work out the value if you asked them.

Start with the value of the house once the works have been done (you can work this out by looking at rightmove, or land registry to get sold prices)

Then subtract:

The cost of the works (get a builders quote)

A contingency (% of the building works)

Cost of financing the project - ie the interest payable on a loan whilst the works are being completed

Profit margin (% of finished price which you wish to pocket

Any other costs you can think of ie rent payable on alternative accommodation

The figure you're left with is the max that a developer would pay for a project knowing that they could still make a profit at the end of the day.

Assuming you're doing this for a family home, then you can decide whether to include the profit margin in your calculations and the finance costs.

And then you may wish to add on some extra money to help you secure the property if you're desperate to get it - only you can work this bit out.

I really hope this hasn't been teaching you how to suck eggs. Good luck!

you can offer what you want-a house is only worth what someones willing to pay for it.
can you get some local comparisons (estate agents websites)of same sort of houses done up,that should give you an idea of the difference between renovated and unrenovated.
what work does it need doing?

is the done thing to total cost of essential works and knock off the asking price?

Not necessarily - as in theory they will already have knocked off an amount to represent the fact the place needs work. However they may not have knocked off enough.

What you want to do is work out how much it would be worth once "done up", then knock the cost of the works off that amount. Plus perhaps an extra amount to cover contingency/cost of renting while you renovate (if need be)/hassle factor.

Thank you very much everyone. All useful advice. Work that it definitely needs doing is new kitchen and new bathroom, new downstairs loo, flooring throughout. Probably rewiring and windows. Garden in a state. Has had lots of offers but none have been accepted. Guess it will come down to how much we are prepared to pay for it.

Be aware that these things are rarely bargains when the costs of works are considered in the round, especially when you also consider the cost of your time to organise the work and/or do bits and pieces yourself. Also the fact you are taking on a large risk that the costs are as quoted, these things have a tendancy to rise.

Hmmm yes, thanks cheeznbreed, am having second thoughts that taking this kind of thing on with young dc's may be foolish. Going for second viewing to finally decide.

They've had lots of offers but no sale. It's overpriced and they are not willing so far to take any offers. So... it depends how much do you want this house?
FWIF, we offered/paid asking price on a doer-upper on the 2nd day it was on the market. They had already received other asking price offers on the 1st day (it was obviously priced to sell!) so the opposite of your scenario. I have primary DC and midway through a major refurb/extension. It's stressful (although kudos to my builder, he's very good but we still have our moments over the costs of 'extras.') - I am NOT doing this again. We won't be making a profit on this house anytime soon so it's just as well that we are here to stay.