Not making money on extension

[Jujujuly]

Planning a side return and loft conversion on our London Victorian terrace. It’s worth c.800k now. Works will cost minimum £200k. Ceiling price for our area is £1m absolute max but more likely £900-950k, so we wouldn’t make any money on the renovations if we were to sell.

Not planning to sell any time soon but you never know. Is this a big mistake?

Can you tell me where in London I can get a Victorian terrace with side return extension and converted loft for £900k please?

Your home is more than just an investment. You need to also factor in the experience of living in the space - presumably the extension makes the space better for you. How much is that improved space worth to you?

The length of time you plan on staying should also be a consideration- less than 3 years and I would say don’t bother. More than 5 years and I would say it is more about what you want than the market value.

Also remember that the home value may look totally different when you go to sell. House prices increase and you have covered your investment, or the market tanks and you have a bigger gap in investment to return but maybe a nicer house that is easier to sell?

Not in London, but my brother did this recently and in a very best case scenario they will break even, if not make a loss. The process of doing it was horrible and very disruptive, but it has created a home that they now see as their forever home and will be in for a very long time. Now it's done it has greatly increased their happiness in the home, with more space all around, in bedrooms and family space. So I'd say do it if you plan to stay a while- frictional costs of moving at that house value are also great. But be prepared for an invasive and lengthy process!

Presumably you are doing it to give you the space you need and improve the quality of life?

If you were to move to get that space it would cost you over £10k + in EA fees, ££££ in SDLT, £5k ish conveyancing, £2k + surveys, £2k removal, the whole stress of selling and buying.

When you do your own extension your council tax band doesn’t rise. If you move to a house with more bedrooms you will be in a higher band.

You are building a home! (Unless you are a mini developer looking to extend and flip)

@EdgeOfTheSky

Presumably you are doing it to give you the space you need and improve the quality of life?

If you were to move to get that space it would cost you over £10k + in EA fees, ££££ in SDLT, £5k ish conveyancing, £2k + surveys, £2k removal, the whole stress of selling and buying.

When you do your own extension your council tax band doesn’t rise. If you move to a house with more bedrooms you will be in a higher band.

You are building a home! (Unless you are a mini developer looking to extend and flip)

This.

How much did you pay for it?
The whole "it's worth 800k now" when you have no intention to sell is a bit meaningless. If you has paid 800k in cold hard cash and were looking to spend another 200k, it would give me pause.
If you paid 400k and now are sticking in a bit more, I wouldn't think twice.
You are unlikely to lose money.

Or sell to a developer, move and use the £200k to buy a pre-done house. We are having similar thoughts, albeit at a slightly lower house value (probably worth £750k in current state, can extend up and out to get a spacious 4 bed but will cost £200k to do so, then probably worth £950k).

What are secondary schools like near you? Schooling might drive us to move despite otherwise liking our area.

We are extending ours and it won't add the value back at sale.
But we love our area, we are all a lovely little community and we have amazing memories in our home, so we are just given ourselves more space where we are.

If it’s going to make your lives easier/more pleasant, then unless you’re planning to sell it on soon, I’d go ahead anyway.

Also, you don’t know what’s going to happen to prices in future.
We once spent a lot more than we’d envisaged on turning a filthy, utterly neglected dump of a flat, into a really nice place to live. At the time I never thought we’d get the money back (not that we were planning on selling any time soon) but even before we’d finished the lengthy renovations, prices had started zooming up again.

@Palavah we're in zone 3 east London. Hardly any of the houses nearby have side returns done so hard to compare but one with side return plus loft sold for £900k 2 years ago.

Secondary schools are a total unknown. Kids are babies so a long way off yet and no idea what the future holds with jobs etc. But no plans to move within the next 5 years so I feel reassured by the comments.

@Palavah loads of areas outside zone 2.

I think it’s pretty normal for extensions to not generate a profit (or an on paper profit). Especially in the current climate of rising costs of building materials. I would only do it if you intend to stay in the house for 5+ years and the works will improve your quality of life.

A good question to ask yourself is if you could buy something that better suits your needs instead - ie for £1 million.

900k 2 years ago has gone up in value!

I agree with all the comments that a house is more than a financial investment - if the extension will make your lives better then do it.

However, we are 3 months into a side extension - a straightforward box on the side of the house. Costs are spiralling, weeks have gone by without seeing the builder (they can't get the supplies / materials so just don't show up). They haven't knocked through yet and we have all our services - but having lived through a previous extension with no kitchen / water / whole family sharing a couple of rooms, there is no way I would be starting any kind of works at the moment if it meant all of that internal disruption. Its a really tricky time for construction.

We spent more on building works than the work will add to value of house. But we’ve been so glad we did it - especially during lockdown and now wfh - it’s made our lives much much nicer. And as a pp says, it’s enabled us to stave off a house move which would cost £££ in stamp duty and moving costs.

There’s no such thing as a ceiling price in London. I used to think that the ceiling price on our road was £400k. Our front neighbours just put their house on the market for £1.775m.

Life costs money. If you want to do it I'd just do it. I really doubt it will be something you significantly regret in X years. You're more likely to regret not doing it and 'making do' with a house that isn't the way you want it.

If you're planning on staying at least 5 year's, I'd do the work. It sounds like it will be a much nicer house to live in, as all that extra space sounds glorious.

*5 years

Do it. I'm renovating my house and I'm putting crittal style doors in. There are perfectly adequate bifold doors there at the moment and original doors separating living from dining room. But it's not the look I want. It won't add the exact amount to the value of the property, but I bought this house to live in, not just as an investment.

We had a similar dilemma before we had an extension last year. Our budget is way smaller than yours but we spent around 45K doing an extension and then moving the kitchen into the old lounge. I doubt it will add more than 30K. But we figured out what we'd pay in tax , fees, moving costs if we'd moved instead, and that changed our perspective. We love our new space and may stay here for years and years. I guess I'd say that if you are planning to stay there for a very small amount of time then it may not be worth it if you're likely to be there for longer, than you also have to think about your quality of life.

I think if you plan to stay a while do it to improve your life.

I do think a lot of London property will stagnate. Where I am has since Brexit