Looking for ways to maximise your rental yield? Renovating could be the way to go, writes Heather Martens of Mortgage Advice Bureau.
Renovating your property can be a powerful way to increase rental yield, but it’s something that must be done strategically and with careful consideration.
Refurbishments could be light or heavy, and rely on minor cosmetic changes such as painting or fixture upgrades, or they could require major structural changes like wall reconfigurations. Rental yield potential could be a ‘quick fix’ with small but noticeable results, but they could also drastically increase a property’s value and rental yield potential.
This guide explores the benefits of rental refurbishment, a few handy renovation ideas to increase your rental yield, and how to pay for them.
The benefits of renovating your buy-to-let property to increase rental yield
Renovation can be a strategic investment in buy-to-let properties, and it could increase your property’s rental and market value. Upgraded properties tend to attract higher-paying tenants and more demand.
The important thing is to make sure it’s a well-executed plan, and one that balances aesthetics with functionality. Perhaps the property is simply a bit out-of-date and needs some modernising. Perhaps it needs something more significant, such as major repair work, the pulling down of walls, or a total wiring or plumbing overhaul
Regardless of the reason, the right renovations can reduce maintenance costs, minimise vacancy periods, and increase property value over time, further boosting your return on investment.
A large one-bedroom property could be converted into a two-bed, which can be rented separately to students or as a professional house share. It also becomes more appealing to small families, or young adults looking for a property with a home office space.
Furthermore, if your rental property looks and feels modern, is well cared for, and makes the most of the space, it tells tenants a lot about you as a landlord. If you look after your property, it shows that you care about the property’s condition, and could improve your reputation as a landlord alongside your relationship with your tenants.
If you’re on the hunt for a mortgage for your buy-to-let, whether buying new or remortgaging, check out this handy calculator designed specifically for landlords.
When do renovations not work?
When you put too much of yourself into a renovation, you run the risk of deterring tenants who want a blank slate. What may seem attractive to you may not be the case for your tenants. Most prefer functional spaces over ornate or overly decorative ones, so you may want to avoid the below, as a start:
- Over the top lighting pieces
- Brightly painted rooms
- Extremely modern kitchens and bathrooms
- Gardens that require a lot of maintenance
Renovations are a big investment, so be sure you’re spending your money in practical ways if you’re looking to enhance rental yield.
Renovation ideas to increase rental yield
The type of tenant you rent to should heavily influence your decision making process. If you know what a tenant would want, it becomes easier to plan. However, if you’re looking at improving your property but don’t know where to start, here’s a list of starting points to consider:
- Extensions – while expensive, extra bedrooms or bathrooms provide extra space and comfort
- Kitchen upgrades – new appliances, flooring, or worktops can have a big impact on overall appeal
- Bathroom revamps – depending on the condition, you could consider new tiles, paint, and updated fixtures
- Flooring – replace worn-out carpets or consider forgoing them entirely with laminate or hardwood for durability
- Fresh paint – a fresh coat of paint can make the whole house look brighter, cleaner, and more inviting
- Curb appeal – enhance the property’s exterior with a fresh paint job, landscaping maintenance, and outdoor lighting
- Off-street parking – adding off-street parking where possible can be a major selling point for tenants who drive
- Improved energy efficiency – upgrading windows, doors, boilers, insulation, and draught proofing can not only improve your EPC rating but reduce your tenants energy bills
Adding extra rooms and renovating a whole property can be big projects, but they tend to offer a higher return on investment, which could mean stronger rental yield. Bigger projects also come with more logistics, while minor improvements can even have an element of DIY.
Regardless of timelines, consider how disruptive the renovation might be to current tenants. If the work is likely to be very messy, then you may need to carry it out when tenants aren’t living there. If this is the case, plan to get the work completed in as short a timeframe as possible to reduce vacancies and financial losses.
By strategically planning and executing your renovations, you could significantly increase your buy-to-let property’s rental yield. The thing to consider is where is this financial investment coming from?
Refurbishment finance and how to pay for buy-to-let renovations
The cost of renovation relies on several factors, be it the area, the cost of materials, or the extent of the renovation being done.
Unfortunately, property renovations don’t come cheap. While you can manage your budget (and should!), if you don’t have money set aside for this, you may need to take extra steps to secure financing for buy-to-let renovations. If you can’t afford the renovations needed, don’t cut corners, save until you can afford it. If you get work done to a lower standard for a lower price, it could cause you and your tenants issues in the future, and could potentially end up costing more than the original renovations would have to fix.
Keep in mind that going beyond your planned budget will likely lower your return on investment rather than improve it, so be sure to work out what is going to be a good investment for your individual circumstances.
