Thanks to the chancellor’s tax measures, many landlords now have to review their portfolios to find ways to protect their profits.
Some landlords may be selling off unprofitable properties, while others will be incorporating their portfolio, or extending and refurbishing to enhance the rental income.
While the stamp duty surcharge on second homes introduced in April is unwelcome, it may drive a boost in home improvement projects, as landlords unleash the potential of their properties by adding 1-2 bedrooms, an additional bathroom or extended and upgraded kitchen. An extension can often be more cost-effective than buying a larger home and of course there is no stamp duty or estate agent’s fees to pay.
Carrying out refurbishments to your rental property which use the space creatively can present opportunities to raise the capital value and rental value of a property. Taking a commercial attitude to refurbishing rental properties will help landlords manage the works and expenses.
All expenses associated with refurbishing a buy-to-let property are tax deductible and will either be treated as repairs (which are deductible from rental income) or capital expenditure (which is tax deductible only when you sell the property).
Any expenditure which improves the property beyond its previous condition will, on the other hand, be treated as capital expenditure. Clear cut cases of capital expenditure are, for example, adding an extension to a property, doing a loft conversion or putting in central heating to a property that did not have any.
Refurbishment not only increases the value of the investment, but it also cuts down on long-term maintenance costs and attracts higher quality tenants who tend to stay put for longer.
Here are a few dos and don’ts when refurbing a buy-to-let property:
+ Start off by thinking about who your target market is and build/renovate with them in mind. If you are targeting young professionals, you will need a good, clean high standard. If the property is in a family area, it may be worth focusing a bit more on the garden etc.
+ Try and create a very good blank canvass – I aim to keep thinks white, clean and modern so that when people walk in they say “Wow”. However, I don’t want the design to be overpowering and to potentially put some people off. No purple walls!
+ The kitchen and living areas are the most important rooms – Focus your energies there.
+ Kerb appeal is key – Make the front door and exterior and garden, if there is one, look smart and well turned out
+ Don’t overspend – Work out your end rental value (if you are keeping the property) and end value of the property post rent and then work backwards from this figure to give yourself a budget.
+ Never start the renovation work without all the money for the build in the bank
There is a different standard for ‘for sale’ properties than for rentals. A higher standard is needed for properties you intend to sell on.
+ Do not underestimate a good architect or interior designer.
+ A dark property is a bad property. If in doubt, paint the walls white and add lights.
+ Ask yourself can I take out a kitchen if it’s in a separate room, create a combined kitchen/living area and gain an extra bedroom? Can I go into the basement and create living room there? Can I go into the roof and create living room there?
+ Always think about gaining any unused space or better using existing space and think ‘clean and fresh’
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