Every landlord should know that it is the initial impact of their residential investment property that will sell it to a buyer or more importantly a potential tenant. Therefore, with spring just around the corner; should a landlord be looking at giving their residential investment property a bit more than a spring clean? If so what types of improvements are going to add value and potentially increase revenue and how should a landlord decide whether to go ahead with a refurbishment project?
Property Hawk has turned to professional landlord Chris Horne to give his views on ‘making over’ residential properties and more importantly sharing his experience on when a landlord should carry them out.
‘I’ve been a landlord for almost half my life’
Firstly whilst writing this piece I suddenly had a shocking realisation. I’ve been renting out investment property for nearly 20 years. This means worryingly that I have been a landlord for almost longer than I wasn’t one – if you catch my drift.
Do you need buy-to-let insurance – read this first
One of the things that I have learnt during that time is that it doesn’t need to cost a fortune to make a residential investment property look good. As a landlord I have focused my investments on providing affordable accommodation for the ‘20-30 something’ professionals; I have tried to introduce a sense of ‘suppressed’ style to my residential investment properties. The idea being that the buy-to-let property should attempt to be a blank canvas that allows the tenant to furnish it and make it their own home. This encourages tenants to stay longer and long-term tenants are what any landlord wants. Voids are the scourge of any landlord’s finances and will cost a landlord more than any other single expense.
3 reasons for a ‘makeover’
When contemplating a, ‘makeover’ or even a full scale refurbishment a landlord should firstly do their sums very carefully. There are three reasons why a landlord would contemplate a buy-to-let property ‘makeover’.
1. To improve the rental value of their residential investment property giving a landlord an improved rental yield.
2. To make the buy-to-let investment property more attractive to potential renters reducing the chance of a void and or keeping the length of the rental void to a minimum
3. Add to the potential capital value of the residential rental property – particularly useful if a landlord is looking to bolster the value of their investment property prior to a remortgage or sale
A well worked out ‘makeover’ should have positive benefits for all three, but a landlord will probably have one of these outcomes as their primary motivation.
The importance of the numbers
In working out a ‘makeover’ plan a landlord should always start with the numbers. It’s very easy to get carried away and spend a small fortune, have a beautifully refurbished residential investment property only to realise you are only getting £25 a month extra in rent! Not a smart business move when you as the landlord could have left the money in the bank and received twice the amount in interest as well as saving a considerable amount of work and hassle. This is why a landlord needs to have a firm grasp of the figures to work up a business evaluation of any ‘makeover’ before they begin.
Firstly, a landlord should be clear about their primarily motivation for the work, is it the rent or the capital value they are trying to enhance. If it is the latter then frequently this will be more expensive and the returns longer term than a relatively short and simple ‘makeover’ but a landlord should consider at the outset all options. Obvious capital enhancing improvements are loft conversions, adding an en-suite, taking down and moving a wall to give more space or improve its utilisation and extensions. These works generally fall outside the scope of a ‘makeover’ but nevertheless they should be looked at.
‘Makeover’ improvements will generally include: new kitchens, bathrooms, general redecoration, new flooring, new window treatments and where furnished new furniture.
3 levels of property makeover
When looking at what level of ‘makeover’ to undertake a landlord should broadly look at 3 different levels of work. The most extensive or level 3 will involve major structural work as already discussed. The first two can probably be separated into level one which is the very basic ‘spring clean’ and more comprehensive level 2 constituting a light refurbishment.
Level 1- A ‘spring clean’
This could involve very little work by the landlord but can often have a surprising impact on the appearance of a landlord’s residential investment property. Having for instance the carpet cleaned professionally and then a professional to clean the residential investment property thoroughly including a separate oven clean will often give a landlord’s property a completely new appearance. If necessary a landlord should consider having the property painted. A fresh coat of paint throughout the buy-to-let property’s interior will often have a transformational impact on the investment properties ‘feel’. The same is true of the carpets or flooring. If they are in a poor state, the chances are it will bring down the feel of the whole property. Look at having laminate installed, particularly in high foot traffic areas. Laminate is a saving grace for landlords who will find that even with the most careful tenant carpets will become soiled very quickly with a combination of red wine stains and mud, etc. Where laminate is used landlords should avoid the cheapest stuff as this will tend to scratch. Landlords should instead use laminates which are suitable for medium to high traffic areas. Floor tiles are also a good option for bathroom and kitchen areas as again both are hard wearing and easily cleaned.
A spring clean could be carried out for as little as a couple of hundred pounds for a small apartment, particularly where the landlord is prepared to do some of the work themselves. Where more extensive redecoration and replacement of flooring is required the costs will probably rise to several thousands. Remember if a landlord provides the window treatments i.e. curtains, they should make sure that these are cleaned or replaced depending on condition or else they are likely to detract from the landlords buy-to-let properties refurbished appearance.
Level 2 - light refurbishment
The next level up that a landlord should consider is a light refurbishment project. That is the replacement or upgrade of the kitchen and bathroom. This may sound expensive. My answer is – it shouldn’t be! Not if landlords buy their goods direct and don’t get carried away with the specification. Landlords should ensure that they keep things simple and in that way they will also generally keep the price down. I was going through the figures from my latest refurbishment project which might give landlords an idea of how cheaply they could potentially do a level 2 refurbishment. To buy a whole new Armitage Shanks white bathroom suite including taps and bath a landlord shouldn’t be paying much over £300 if they purchase it direct from a plumbers merchants. Equally, it is perfectly possible for a landlord to buy a full kitchen including appliances for around £1000 from Ikea.
I’m a great fan of IKEA and their Fatkum range of kitchens with plain white Arlig door fronts. I have always assumed these strange words are Swedish for ‘very cheap but quite nice’! Basic white suites and kitchens can be enhanced by attractive taps or handles for relatively little. The fitting costs for these items will vary depending on where you are in the country but for a bathroom it should be possible to get one fitted for £3-400 and for a kitchen installation could be in the order of £7-800. This means both could be done for no more than £2500.
Calculating the project viability is the key part of any landlord’s investment decision.
Where a landlord is looking at carrying out a ‘makeover’ they should be looking to achieve a ‘payback’ period of about 5 years.
That means that a landlord should be confident that they can raise their rents sufficiently to generate enough additional rent to cover the costs of the makeover with 5 years of the project being completed. For example if a landlord spends £6000 on a full level 1 & 2 ‘makeover’ they should be able to raise their rent by an average of £100 per month during that 5 year ‘pay back’ period. The monthly increase could be less if the landlord feels that the void period will be reduced as a result of the ‘makeover’.
Finally, remember in calculating the payback period a landlord should also account for the loss of potential rent whilst the property is cleaned and refurbished.
Therefore, as the daffodils start to peep through, it maybe time for landlords to take their cues from nature and start thinking about renewal and refurbishment. Landlords should remember though that they should always have a clear business case for their investment decisions. With house prices standing still landlords can no longer look to rising house prices to rescue them from poor investment decisions. Landlords should only proceed with investment in their buy-to-let property where there is a clear financial business case for them to do so.