Have you ever wondered what sort of home improvements will add value to your buy-to-let property? Here is the rundown.
Buy-to-let investors are quite rightly eager to squeeze a little more profit from their rental income. Most often, opting for home improvements that boost the overall value of your property will also boost rental income.
Still, the main question lingers. What sort of improvements will boost your buy-to-let profits the most? Moreover, when considering improvements, what should you avoid?
Why Improve a Rental Property?
If you are looking for ways to increase the overall value of your buy-to-let property, you may want to opt for adding additional space. For instance, you could add a bedroom, and that in turn, would increase the rental and overall market value. Although, the market will remain the main driver of value and that is often difficult to predict.
However, if you reinvest some of the money you have acquired through your buy-to-let and put it back into the property, you are already making moves to control how your rental works for you, no matter what market forces are ahead.
The Price to Pay for Home Improvement – Taxation
When it comes to sorting out your budget for property maintenance, you will be pleased to know that you could offset the cost against the rental income. Home improvements however, are a different story. Slashing your income tax by accounting for the cost of a home improvement is not possible. Although, when the time comes to sell your buy-to-let, the cost of a home improvement can count towards a reduction in your capital gains tax liability.
The Spotters Guide to Improvements that Boost Profits
A Second Bathroom is Never too Much
A great way to cater for the needs of modern society is to add a second bathroom. Gone are the days when a single bathroom property will suffice and adding an en-suite to the master bedroom is certainly worth considering. Incorporating a new bathroom in your property will typically cost between £2,500 and £6,000, subject to how lavish your taste in tiles, fixtures and fittings is, but could increase the value of your property by as much as 6 per cent.
Freshen up the Kitchen
Not surprisingly, kitchens take a central place at any party and are the hub of a modern home. Open-plan kitchens are proving very popular as they provide the space for a host of family activities.
Refurbishing your kitchen is not all that complicated. Consider how your space can be improved and focus on where the fridge, sink and cooker are in proximity to each other, convenience is the key. If there is an outbuilding adjoining the kitchen, think about making a utility room, particularly if you go for an open plan design. Depending on the scale of your kitchen freshen up, you could spend between £4,000 and £20,000 but this should add around 6 per cent to your property value.
Converting a loft
Converting your loft is perhaps the simplest way to add value to your buy-to-let property, depending of course, on the layout of your roof space and planning permissions required. The average cost of a loft conversion, according to NAEA, is between £15,000 and £40,000 but should add around 10 per cent to the property value.
There are some key considerations to take into account before embarking on this project; Is the ceiling height sufficient so people can stand up? Will your floor joists need strengthening? If the ceiling height is adequate, the floor joints can be strengthened quite simply so converting your loft should be high on your list of things to do.
Perhaps the best use of loft space is an additional bedroom and if there is space, also add an en-suite bathroom to make a sumptuous master suite.
Add Living Space
Extending your property with bricks and mortar could be a touch extravagant for a buy-to-let but living space can be added quite easily with a conservatory. If you are happy to surrender a bit of garden space, and you have the room to accommodate a conservatory, they can be a welcome addition to any home.
The space should complement the property and bring a little bit of the outdoors in, so consider running the flooring from the main building through to the conservatory for a seamless transition. You could also opt for a rather stylish glass curtain that connects the living room and conservatory.
Depending on the size and style of conservatory, you could be investing between £4,000 and £10,000, but it will add around 5 per cent to your property value.
Warm in Winter
Central heating is almost a given in any property but if your buy-to-lets system is antiquated or if it does not have a system at all, this is definitely an investment you need to make. At only a fraction of the cost of other improvements, approximately Â£3,000, a new, efficient heating system will add around 5 per cent to the value of your property.
Should you Invest in Improvements When it Comes to Your Buy-to-Let Property?
When debating the merits of an investment, you should ask yourself several questions; Does your property already command a high rental price compared to the local area? Will you see a return on your investment? Are you likely to price yourself out of the market?
If your property is already at the higher end of the rental scale, you will be unlikely to achieve more unless major works are undertaken to extend the living and bedroom space and even then, this may not reap the returns you expect. Another concern is whether the market is prepared to pay what you need to charge after improvements. In other words, improve too much and request unpayable amounts, and you could, quite quickly, see you and your property pushed out of the market.
Improvements to Avoid
If you are looking to improve your buy-to-let, you may want to bear in mind that some enhancements, while appealing, add little to the rental value of the property. For instance, new furniture may look great and may help your property rent quickly but this value is lost as soon as the pieces of furniture have been used.
In addition, you will not add value from creating more than four bedrooms. There is a significant difference in rental and sale value between a two-bedroom and a three-bedroom house though, so if you have a property with two bedrooms, adding a third would be a good move.
Most importantly, when preparing your property for the rental market, keep in mind who you will be renting to. For example, if you intend to let to young professionals, presenting a small bedroom as a study could help you achieve a higher rental income and agree a tenancy more quickly.
You may think that improvements are not possible as you do not have the money in the bank to do them. That is where a good finance broker could help. They can look at the whole market and give you the best options to pay for the work. The cost of the finance needs to be taken into account, as it will affect your profits.