Lofty ambitions increase returns

With interest rates rising and property prices starting to stagnate, property investors are increasingly looking for new ways of squeezing additional returns out of their new acquisitions. One avenue to look at is small scale development. This has been a typical method employed by landlords in ‘time in memorial’ to squeeze additional value from a property.

For many landlords, the most obvious way of doing this involves simply upgrading what is already there. A new kitchen, bathroom; a fresh interior and job done for between £13- 25,000. There are however other opportunities available to more entrepreneurial landlords.

High value
One of these is involves buying the top floor of a house or a top floor flat and then extending into the roof space. When a suitable property is found it can be possible to double the size of the living space for a relatively small outlay. This type of development is particularly popular in high value areas where residential floor space is at a premium.

Suitability
Modern buildings are often unsuitable for loft conversions because of lack of roof height and the existence of trussed rafters which impinge on the potential living space. Other things to look out for in a potential project would be problems of gaining access to the roof space and having an adequate floor area.

London popularity
This type of development has been particularly popular in certain parts of London such as Chiswick where the availability of a stock of older larger properties has made conversions almost ‘de rigueur’. Christian Harper of Oliver Finn sales and letting agency in Chiswick observes that: “In terms of capital appreciation, it’s a fantastic way of making money,” he says. “There are whole streets of houses in Chiswick where everyone has built up into their lofts. You will greatly increase the size of a house and massively increase the volume of a flat. I would say you would put anything up to £100,000 on to its’ value, with a build cost of say £25,000.”

Costs
Costs of conversion do vary enormously depending on the building, the spec and even the part of the country in which the work takes place. Building work is generally more expensive in London and the South-East compared to the North.

The BCIS ‘Property Makeover’ guide gives some useful benchmarks on the likely costs. The main factors apart from size are: how many windows are needed and the type of windows. Dormers are far more expensive than a standard Velux roof light.

For example, the BCIS gives the cost of a 12 * 7 metre conversion with 2 Veluxs as £21,000; with 2 dormers the price would rise to £31,000, an additional £10,000 on the price. The advantage obviously with dormers is the additional useable space created. This could be essential to the feasibility of a project, particularly where the size is limited because of space or roof height.

Finance
Having found a suitable property, the next issue is financing the development. It is possible to purchase the investment with a standard buy-to-let mortgage and then finance the development separately. This is fine if you have access to private or loan capital. The other alternative is to obtain a specialist mortgage which allows you to borrow funds for the purchase and develop the investment. Mortgage brokers offer a range of products to finance the purchase buy-to-lets as well as specialist products for smaller scale developments.

Your loft conversion essential checklist

1. Look for older properties pre-1960’s as they have traditional rafter and purlin roofs –evidence of existing conversions to similar houses in the area is a good sign.
2. Check the internal ceiling height of the loft – you should have at least 50% of the area at 2.3m high or above to give you sufficient habitable space.
3. Before purchasing the property make sure you have an architect or building surveyor check out the practicalities eg getting access to the space.
4. Most loft conversions don’t require planning permission, unless they put dormers on the front. However, make sure that the property is not in a Conservation Area or is Listed as more stringent controls may apply.
5. Research your finances carefully in advance to ensure you have enough money to do the scheme properly.
6. Check with your solicitor that the deeds have no covenants or restrictions that prohibit the conversion and where a ‘party wall’ is involved be clear from the architect whether permission from the neighbour is likely to be forthcoming.