As an investor, your goal is to maximise your investments. If you've followed the Buy, Refurbish, Refinance (BRR) strategy especially, you'll be looking for a quick uplift from the renovation.
One crucial aspect we've heard investors pondering over is whether valuation packs are worth creating. But why exactly do you need one, and what should it include? Let's dive in.
Why would a valuer be instructed?
When you're securing a mortgage after using the BRR strategy, a mortgage company will typically send a valuer to assess the property. The valuer's job is to ensure that the property's purchase price is accurate and not inflated, which helps the mortgage company mitigate their lending risk. If the property were overpriced and the mortgage company needed to repossess it, recovering the loan amount would be significantly harder.
So, what even is a valuation pack?
To put it simply, it's a visual document comprised of a few pages explaining all about your property and what you've done to it.
Your broker should send this to your valuer before the visit and you should also bring a hard copy to give to the valuer on the day of the visit.
Is creating a valuation pack worth the effort?
Absolutely. Here’s why:
Enhanced Understanding: A valuation pack helps the valuer fully grasp the improvements and changes you've made to the property.
Makes Their Job Easier: By providing all necessary information in one document, you simplify the valuer's task, potentially leading to a more favourable outcome.
Efficiency: Compiling a valuation pack shouldn’t take too long since you should already have most of the information at hand.
Professionalism: A well-prepared valuation pack adds a layer of professionalism, showing that you are a serious and organised developer.
Reusable Information: The data in your valuation pack can also be used for investor presentations if you're looking for private finance, making it a versatile tool.
What to include in your valuation pack
To create a comprehensive and effective valuation pack, ensure you include the following elements:
Summary Information
Address: Clearly state the property's address.
Property Details: Include specifics such as square meters, type of property, age and number of rooms.
Location: Describe the property's location, highlighting any beneficial features such as proximity to transport links, schools or nearby regeneration projects.
Purchase Price: Mention the initial purchase price of the property.
Cost of Development: Detail the expenses incurred during refurbishment or development.
Actual Rent PA: State the annual rental income as valuers do take this into account with investment property values.
Tenant Demand: Provide evidence of tenant demand in the area. If you've already tenanted your property weave in some additional stats such as how long it took to rent (if it was quick!)
Works Completed
Previous State: Describe the property's condition before any work was done.
Main Works: List the significant improvements such as new electrics/plumbing, flooring, bathrooms etc as well as how many sqm might have been added due to the renovations completed.
EPC Rating Uplift: Highlight any improvements in the Energy Performance Certificate rating due to your refurb. Energy efficiency is big on everyones agenda and can increase the value of your property.
Before and After Photos: Include photos to visually demonstrate the transformation. Psssst if you forgot to take some before pictures, you can use Rightmove photos and progress pictures to show the 'before'
Anticipated Valuation
Valuation Paragraph: Explain how you arrived at the anticipated valuation and why you believe the property is worth that amount - show that you didn't just pluck it out of thin air!
Suggested Valuation Price: Clearly state the valuation price you’re proposing.
Comparable Evidence: Provide actual SOLD comparable properties to substantiate your suggested valuation. Listed properties just won't cut it unfortunately, it must be historical data.
Outcomes to consider on revaluations
Sometimes, the initial valuation might not meet your expectations. For example, we've known investors who've got signed tenancies for their HMO in place, yet have had a down valuation due to the lack of comparable rents in the area. In such cases, revaluations can be requested.
Ensure you stress test mortgage interest rate spikes. If you're using the highest valuation and pulling out a considerable amount of money, check that the rental income can cope with this additional cost. It might not always be worth going for the top of the valuation price, but it does of course all depend on your goals - high cash flow or maximum amount of cash out to buy more properties.
You see a lot of people flashing high valuations around, but realistically if you're trying to sell off that HMO in a few years it's not likely someone will pay it - most investors want a discount! Therefore the valuation price vs sale price may not correlate. Don't always ben blinded by what you see on Instagram as it's not always the full story.
To conclude, a well-prepared valuation pack is an invaluable tool for any Modern Landlord. It not only aids in securing favourable valuations but also showcases your professionalism and dedication to maintaining high standards in your property.
So, our advice is take the time to create a comprehensive valuation pack – it's definitely worth the effort!
