Home improvements that put you in control of your profits
Buy-to-let investors all want to boost their rental income. One way to do this is to make improvements to the property. Some improvements will also pump up a property’s value. But what improvements could boost buy-to-let profits the most? What are the pitfalls you need to avoid if you are considering improving your property?
Why should investors consider property improvements?
For most people who invest in a property, the biggest driver of value is the market. And you can’t control the market. Savvy investors understand that by making further investment in an existing property, they could increase the value of that property. Adding a bedroom increases value, for example.
When you reinvest some of your buy-to-let property in the property itself, you take some control away from the market and put it in your hands.
Home improvements and tax
When you spend money on property maintenance, you can offset this cost against your rental income when calculating your income tax liability. Home improvements are treated differently. You can’t reduce your income tax by considering the cost of a home improvement. However, when it comes to selling your property, you can count the cost of a home improvement to reduce your capital gains tax liability.
What improvements could boost property investment profits?
A 2014/15 survey by the NAEA Propertymark (National Association of Estate Agents) found that several home improvement projects will add value to your home, and by more than the cost of the improvements made. Here are the top five:
· A loft conversion
It is perhaps the easiest way to add value to your buy-to-let investment property. Whether it can be done may depend upon the layout of the property, and planning permissions needed. Floor joists will need to be strengthened, and you’ll need to ensure that ceiling space is adequate for people to stand up. You might easily fit at least one bedroom in the loft space, or a spacious bedroom and luxurious en-suite bathroom.
The NAEA puts the average cost of a loft conversion between £15,000 and £40,000. However, the value that is added to a property is likely to be around 10%.
· Upgrade the existing bathroom or add a second
The days of a single bathroom serving the needs of an entire family are disappearing. Modern families are more likely to demand a second bathroom, as an en-suite to the master bedroom. The cost here is between £2,500 and £6,000, depending on bathroom suite, tiles and fixtures. A new bathroom should add around 6% to your property’s value.
If you can’t afford a second bathroom or don’t have space, then upgrading your existing bathroom could also prove a good investment. You might consider a new set of taps, heated towel rail, a power shower and glass screen. These improvements will cost around £1,000 and could add up to 2.5% to 3% to the value of your property.
· Modernise your kitchen
Have you noticed how the kitchen becomes the centre of activity at any house party? Current trends are for open-plan kitchens that invite communal activity. Children do their homework here. Many kitchens have a television. Visitors gyrate here for conversation.
When designing a kitchen, concentrate first on the kitchen triangle – cooker, fridge, sink. Install modern kitchen equipment, and create space where there was none before. A new kitchen will cost around £8,000 and could add around 6% to a property’s value.
When considering a new kitchen, always think about the value of your property and match the kitchen to the property. If you spend £20,000 on a kitchen in a property worth £150,000, you are unlikely to see a return on your money.
· Make sure your property is warm in winter
Most modern homes benefit from central heating. If it isn’t already on your property, then consider installing. You will be likely to spend about £3,000 for installation, which would then increase property value by an average of around £5,000 and as much as 5.4% of property value.
· Add space with a conservatory
Though you give up some garden space when you build a conservatory, you add indoor space and ‘bring the outside in’. If you add a conservatory, it’s important to ensure that the style matches the house. It must be integrated, and not appear a separate living space. This effect can be achieved by adding floors that flow between the main house and the conservatory, or glass curtain doors that open the conservatory to the living room.
Typically, a conservatory costing between £4,000 and £10,000 should add around 5% to your property value.
A buy-to-let investor’s story
One of our clients decided to make some improvements to one of his buy-to-let properties. The end-terrace two-bedroom was achieving a rental price of £630 per month. When the current tenant moved on at the end of a tenancy, the investor upgraded the kitchen and bathroom. He spent a total of £6,000 doing so.
We increased the rent by £60 per month. Now, this increase in rent may not appear to be worth the thousands that he had spent. However, when he had the property appraised he discovered that the improvements had increased the property’s value by £9,000. Also, the investor had previously been having a constant flow of niggling maintenance problems in the kitchen and bathroom. The improvements made eliminated these.
So, by spending £6,000 on improvements, the investor raised his rental income and increased his equity by £3,000 more than he paid. He also made his life easier and reduced his maintenance bills.
Should you consider investing in improvements to your buy-to-let portfolio?
Whether it is a good strategy to invest in improvements in your buy-to-let property depends on several factors. For example, if your property is already the highest priced in the street, your investment may not reap the return you expect.
You should also be wary of pricing yourself out of the tenant market. The potential for rental income is limited by the local market, and while you could increase an average rent to a high-end rent, it’s unlikely you could achieve more.
Improvements that aren’t improvements
There are some ‘improvements’ that may help your property rent more easily but won’t add value. New, expensive furniture looks great, and would certainly add a degree of comfort for tenants. But it doesn’t add any value to your property, and as soon as furniture has been used it becomes second-hand and loses value.
Also, while there can be a substantial difference between the rental price (and property value) of a two and a three-bedroom house, creating a home with more than four bedrooms will not add the value you might think.
When you are staging a home towards a target market, consider who that target market is. If it is young professionals, then presenting a spare room as a study could help you achieve a higher rent and quicker tenancy agreed.
As investment property managers, our aim is to give you effortless property management and ensure you use the best strategies to maximise your rental profit. Why not contact Ezytrac today on +44 1522 503 717, and discover the positive difference that our investment property management services could make to your property portfolio?
Yours in effortless property management,