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Refurbish-to-let: An attractive investment for buy-to-let landlords

POSTED: 19th February 2015
IN: Landlord helpful guides
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Over recent years, Britain’s buy to let market has shown continuous growth. However, with rising mortgage rates, many property investors are looking for ways to maintain a reasonable return on their investments.

Over recent years, Britain’s buy to let market has shown continuous growth. However, with rising mortgage rates, many property investors are looking for ways to maintain a reasonable return on their investments.

In the face of rising repayments, it’s not uncommon for some landlords to increase tenants’ rents to cover the additional charges, but many acknowledge that this can be a risky practice, and can lead tenants to look elsewhere for more competitive rents once their contract is due to expire.

Improving a property’s worth

As a result, many investors are looking for ways to increase the value of their properties, while keeping tenants happy and reducing the likelihood of void periods, which can prove extremely costly for landlords.

One of the most popular ways of improving a property’s worth is by buying it cheaply and refurbishing it to improve its value. An increasingly popular strategy amongst entrepreneurial investors, it enables them to transform a property that may be somewhat outdated or neglected, into one fit to bring in higher rental yields.

Harnessing the power of HMO

With the growing desire to make more money on property investments, houses in multiple occupation (HMO) are also becoming increasingly popular with landlords. As the name suggests, HMOs are created to house multiple tenants who do not form one single household. By investing to create a HMO property, landlords can benefit from much higher yields, as they can charge each tenant individually.

Like most rental properties, when creating a HMO, landlords are more likely to receive more applications from high quality tenants if they renovate the property to a higher standard. Another incentive to spend time and money on renovations comes in the form of a reduction in longer-term maintenance costs.

Things to bear in mind

While refurbishing a property can increase rental yields and a property’s value, it’s worth remembering that depending on the location, every property has its limits. Even if a house is fitted to a luxury standard, if it is situated in a less desirable area, it’s likely to be worth much less than a property in a really popular area that is in need of some work.

Also, it’s often easier to tackle large scale refurbishments when there are no tenants living in the property. Making elaborate changes such as knocking down walls or installing a new bathroom will need to be scheduled in suit the tenants’ lives, so it can really pay off to get these amends completed before the property is advertised.

Financing

While investors with strong finances can usually gain easy access to buy-to-let mortgages, financial support for refurbishment projects is often more difficult to obtain.

Many lenders can be reluctant to agree to a mortgage if the property is uninhabitable and in drastic need of renovation. However, banks are beginning to accept that renovation projects can result in greater returns, and as a result, some lenders do have options available for investors in need of financial support.

For investors unable to pay cash for their refurbishments, alternative finance solutions, such as bridging finance, may give them the support they need in the short-term for up to 18 months.

Bridging finance is a type of funding secured on property whereby lenders will supply the owner of the property with a percentage of its value. The quick, short-term release of cash is well-placed to facilitate a refurbishment project where the owner is either planning to sell their property on quickly after renovation or will be able to let the property at an inflated rate allowing them to pay off the loan within 18 months.

About Aldermore

Aldermore Bank is a provider of bridging finance for property refurbishment so whether you’re looking to buy a property to let, refurbish an existing property or carry out a conversion, Aldermore can help you to get the funding you need. 

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