How to assess a property's potential for improvement

A full calculation for improvement potential includes five groups: acquisition price (property plus transaction costs), renovation costs, project duration, costs of the subsequent sale, and a contingency reserve. Omitting any one of these groups usually leads to underestimating the real cost of the project.

• Acquisition price — property price plus notarial and other transaction costs
• Renovation costs — materials, labour, design, any permits
• Duration — time to completion plus time to sale
• Selling costs — commission, sale tax, preparation for viewings
• Reserve — typically on top of the initial renovation estimate

As a hypothetical example, suppose a flat is bought for €100,000, with transaction costs of €3,000. Planned renovation is estimated at €25,000, with a 15% contingency reserve set aside — a further €3,750. Expected renovation duration is six months, during which the capital earns no income.

With these hypothetical figures, €135,750 is the break-even threshold — the amount above which the hypothetical sale price covers the capital committed and the selling costs. This is not net profit: it excludes the cost of any financing (loan interest), the value of the time the capital was tied up for, and the tax due on the sale.

Six months of tied-up capital means a missed opportunity for it to earn income elsewhere — for instance through letting another property or another investment. Extending the timeline due to contractor delays or administrative procedures increases this hidden cost, even if the renovation budget itself is not exceeded. A realistic estimate of duration matters as much as the budget.

In older buildings, hidden problems — wiring, plumbing, structure, damp — can be found only after works begin. The hypothetical example above sets aside a 15% reserve; a reasonable range for such a reserve is roughly 10–20% above the initial estimate, but this is a starting point for judgement, not an established market standard. Talking to an architect or engineer before finalising the budget reduces, but does not eliminate, this uncertainty.

The full renovation calculation is worth comparing against the alternative of selling the property as-is, or letting it without renovation — an option covered in detail in the article on selling or renting. Sometimes a lower but more predictable price without renovation gives a better outcome than an uncertain, longer project, with no guarantee of a successful sale at a higher price.

It helps to prepare the full calculation first, with a realistic reserve and duration, and then compare it against at least one alternative — selling as-is or letting without works. If the project involves a partner, it is worth also reviewing the questions to settle before a shared project. This article does not replace a specific assessment from a specialist for your property.