Investors need to know the "price of the bedroom"

The "price of the bedroom" represents the capital gain to he achieved when creating an additional bedroom. This may be created by splitting an existing large room; converting a garage into a bedroom; using the loft area to accommodate a bedroom; or by building an extension to include another  bedroom.

So why is this figure so important and what does it represent?

In simple terms an investor acquires a property, then adds the bedroom as suggested above, allowing them to resell the property for a higher price. The aim is to therefore make a profit once all legal and building costs required to complete this task, have been deducted.

Realising that there is a substantial demand for family houses in our  investment area, especially in certain high performing school catchment areas, research was carried out to review the average price for both 3 and 4 bedroom houses in the area, to determine how much an additional bedroom could add to the price of a typical 3 bedroom house.

The average asking price for a typical 3 bedroom property is currently £334,950 and £440,950 for a 4 bedroom house, therefore providing a difference of up to £106,000. This is the potential price of a bedroom. 

The trick is to purchase a property that is in pristine condition and can therefore be moved into right away. Why spend on a house "in need of modernisation" if there is limited capital gain to be achieved even though a considerable sum of money has been spent on it? It is far better to invest in a project to increase value.

If a large room with two windows is not available to split into two separate rooms then a loft extension is an economical way to add an ensuite bedroom to provide the price uplift required. This is our preferred option especially as properties in our investment area do lend themselves towards loft extensions as the roofs tend to have steep pitches with excellent headroom.

Once the property has been revalued we are able to mortgage it, having first used a bridge to fund the initial purchase. This then leaves two options - to sell to make a quick, capital gain; or to hold and therefore generate an income from the property. The decision on which approach we take will very much depend upon our financial priority at the time.

If we do decide to hold, this offers another opportunity. It enables us to offer the property to a family unable to afford a deposit or to obtain a mortgage but who will be able to do so sometime during the next 5-7 years.

How do we do this? Well read our next blog article to discover how.