If you have a property that you rent out, it is natural for you to want to maximise your profits from the venture. While being a landlord is sometimes seen as a lucrative way to make money, there are many potential financial pitfalls and challenges, and you need to be careful about how you spend your money.
That doesn’t however mean that you need to avoid spending at all. In fact there are actually many benefits to investing in your buy-to-let property – you just need to understand when and where to spend most effectively.
“Landlords are sometimes criticised by tenants for failing to put enough investment into the upkeep of a property,” says Chris Plumridge, Director of Chartered Accountants Wellden Turnbull “in truth, investing in the properties can be extremely useful from a tax perspective – not only in terms of renovating and refreshing the property, but also looking into the possibility of extending it.”
Here we take a look at what you should do when investing in your buy-to-let property. Some spending is a good idea, but there are smart ways to save too.
If you own a house to rent, it might be tempting turn it into flats. However, it isn’t necessarily this simple. Of course, the first step is to thoroughly research the area. Understanding your local property market will tell you whether or not flats are genuinely in demand. Remember that while potential yield from flats may be higher than one large property, you also face the challenges of finding and losing tenants on a larger scale.
If the area does have high demand for flats, there are still further issues to consider. Perhaps the most crucial point is that you will need to get planning permission for the conversion from your local authority – this will include applying for Building Regulations before the work can begin.
There are plenty of other things to consider, including whether the overall costs of the project do make the conversion financially viable. Additionally, there may be tax issues in converting a house to a flat, and it is important that you understand them too.
It may be possible for you to add value to your rental property by extending it. Larger properties are able to command higher rents, and this is especially true if you can add an additional bedroom. However, even adding rooms such as an extra bathroom or ensuite can increase the potential yield from the property.
Yes, extending a property can be very expensive and it is important to understand the specifics of your extension to consider whether this is the right choice. For example, if the property has a substantial garden it may be actually relatively simple to get the planning permission for an extension. Of course it is also worth noting that if you have any intention of selling your property at a later date, extending it can be very valuable. According to research by Nationwide, you can increase the value of a house by as much as 23 percent with an extension.
Remember, that if you’re wondering whether to invest in the outdoor space and garden improvements, prospective tenants might actually prefer having a low-maintenance lawn to manage, so be mindful before you over-spend on any outside areas.
One type of property investment that involves a form of extension is the loft conversion, however, unlike the kind of extension discussed above, a loft conversion typically does not require planning permission – this actually eliminates some of the financial pitfalls.
Loft conversions are also typically far less expensive than traditional extensions, so this is actually a good way to save money on your investment. A loft conversion can potentially open up an additional bedroom and that can increase the potential rental yield as well as the resale value.
It is worth noting that the loft is a storage space that can actually be very valuable from the perspective of a buy-to-let landlord, and converting the loft would mean losing this space. Additionally converting the loft will mean significant disruption – you would likely lose rental income for a period of months.
You are far more likely to keep good tenants in situ and attract higher rents if your property is well maintained and attractive.
It is really worth having a budget in place that covers general decorating work that can be carried out every so often. Things do start to look worn out after a few years, and investing in your buy-to-let property by spending just a little time, effort and money can be more than enough to ensure that the property looks attractive.