Refurbishment involves enhancing a property through cleaning, decorating, and re-equipping. It includes making a building more energy-efficient and sustainable, often involving retrofitting. The term is interchangeable with renovation or restoration, with activities ranging from cosmetic changes like painting to major repairs, alterations, extensions, and modernizations.
Investors must grasp the distinctions between refurbishment, renovation, and refurnishing from the outset. It’s a common misconception to consider these terms interchangeable, assuming they convey the same meaning. However, each term has specific implications in the realm of property projects.
What types of assets can be refurbished?
Distinguishing between refurbishment and renovation involves considering various elements beyond the apparent definitions. While many associate refurbishment with aesthetic changes, it also encompasses structural modifications. Upgrades to wiring, plumbing, or ventilation fall under the refurbishment category.
To plan effectively, it’s crucial to have a clear understanding of the necessary work. Identifying specific property elements undergoing upgrades helps determine the required workers or establish the refurbishment budget. This clarity ensures a focused approach to the project, whether it involves aesthetic enhancements or structural improvements.
A dated bathroom can discourage tenants, impacting their sense of relaxation in this space. Signs of aging, such as cracked tiles, peeling paint, and rust on fixtures, can create an unclean impression. Refurbishing the bathroom not only modernizes the property but also has the potential to boost its value by an average of 4-5%.
The kitchen, often considered the heart of the home, holds significance, especially for older tenants. While wear-and-tear may not immediately impact the kitchen, addressing it can be a costly endeavor. Ensuring white goods are in top condition and appliances like ovens are professionally cleaned is crucial.
Tenants, particularly those paying a premium, notice these details. Adding a dishwasher can justify a higher rental charge, providing an extra perk for tenants. Opting for quality countertops, especially in darker shades like granite, minimizes marks and reduces maintenance needs. A new kitchen is estimated to add up to 4% to your home’s value, as per the Royal Institution of Chartered Surveyors (RICS).
3. Living Room
For landlords letting furnished properties, the living room often bears the brunt of wear-and-tear. This high-traffic area demands regular maintenance. When choosing items, factor in the need for durability. Having a clear refurbishment budget for this space is practical.
Given the rise in remote work, consider adding functional surfaces like a larger dining table or a desk. Carpets tend to flatten over time, and underlay replacement becomes necessary. Opting for wooden floors can reduce damage and enhance longevity. Real wooden floors contribute to increasing the property’s overall value.
In the context of HMOs, having a spacious communal area is advantageous for tenant relaxation. Consider open-plan conversions for a sense of expansiveness. Explore conversion bridge loan options if you’re contemplating transforming your property.
A spacious, uncluttered bedroom is a tenant’s ideal haven. However, maintaining a chip-free, fresh appearance poses a daily challenge. As a frequently used space, it requires practical upkeep.
In properties with limited living room space, placing desks in bedrooms can be a practical solution. Creating an office space within multiple rooms appeals to tenants, especially since the shift to remote work during the pandemic.
Consider installing built-in wardrobes to enhance storage space and attract potential tenants. A quality-standard implementation can yield increased returns, especially if selling the property in the future.
What are the advantages of refurbishment?
Refurbishment has the potential to enhance property value, allowing investors to sell for a profit. However, the outcome is influenced by various factors, and investors must carefully consider refurbishment costs.
For buy-to-let investors, refurbishment creates opportunities as renters may pay more for an upgraded home. This doesn’t solely pertain to aesthetic improvements. A late 2021 survey revealed a strong preference for homes optimized for energy efficiency, cost reduction, and minimal environmental impact. A significant percentage expressed willingness to pay higher rent for greener properties, with over half willing to pay up to 10% more.
How to finance your refurbishment?
When undertaking a specific refurbishment project, understanding financial options is crucial. Specialized lending expedites renovations, with funds available in as little as 3 days. The key is finding a lender with a proven track record in financing renovations, refurbishments, and conversions. Alternative finance like bridging loans offers flexibility to purchase, refurbish, and either refinance or resell the investment asset at a higher value. Financing the works through a second charge bridging loan is also an option. Explore more about second charge lending on our product page.
With expertise in refurbishment loans, we collaborate with property owners or their brokers to meet deadlines and ensure timely project completion. For details on our specialist finance products, contact a member of our team.
5 Common Landlord Refurbishment Mistake
Landlords should steer clear of these five common refurbishment errors:
- Specification vs. Property Value
- Underestimating Costs
- Neglecting Unseen Areas
- Being Too Trendy
- Energy Efficiency
Mistake 1: Specification vs. Property Value
One common error is over-specifying renovations. Consider the property’s location and target renters. In some areas, extensive renovations may not significantly increase rental income. Be cautious with extravagant refurbishments; focus on cost-effective updates like new taps and tiles.
In regions outside London, like Clapham, side return extensions may not justify the cost, unlike high-end London areas where they can add value. When planning extensions for rental properties, prioritize marketability and rental potential. Adding extra bedrooms is a smart choice if space allows, but be mindful of size. Extension decisions depend on location and target renters, with input from letting agents on rent and demand impact.
Exercise caution with specifications; avoid excessive refurbishments that may not boost market appeal. Swapping out perfectly good bathroom suites is wasteful and not eco-friendly. Opt for cost-effective updates like new taps and tiles instead.
Consider the value gained when replacing functional chrome taps with pricier options like brushed copper or black. Assess the area’s water quality, as black taps may show marks in hard water regions.
Mistake 2: Underestimating Costs
Underestimating refurbishment costs can lead to financial headaches. Older properties often reveal hidden issues during renovations. To prevent cost surprises, engage a builder for a pre-exchange assessment and clarify material pricing with suppliers.
A “back to brick” refurbishment is straightforward for budgeting, but lighter refurbishments can lead to unexpected costs. Solid walls may hide issues like the need for plastering when removing wallpaper. Post-renovation rain might reveal gutter replacement needs. Hidden problems like pipework leaks and damaged floorboards can emerge.
For older properties, a pre-exchange assessment by a builder is wise to spot unforeseen issues. Due to material price increases, relying on past project costs isn’t reliable. Clarify if material prices are fixed or estimated with your builder. Labor costs, especially in tasks like bathroom retiling, are significant.
To avoid cost surprises, consider a quantity surveyor, common in larger projects. Detailed work schedules and specifications lead to accurate quotes. Establish a process for managing changes in project scope to prevent “mission creep.”
Mistake 3: Neglecting Unseen Areas
Landlords sometimes cut corners on things that don’t immediately show, like carpet quality or building exteriors. Invest in durable materials to avoid frequent replacements and ensure long-term sustainability.
Let’s talk about carpeting. While a new carpet can initially look good no matter its quality, opting for cheap options can lead to quick wear and a worn-out appearance. Investing a bit more in durable carpet that lasts a decade instead of five years makes sense. Frequent carpet replacements disrupt tenants and come with double fitting costs. Plus, from a sustainability perspective, replacing carpet twice means twice as much polypropylene carpet in landfills.
For cost savings, think about removing and disposing of old carpet yourself and handling the underlay sourcing and laying.
Another priority is the building’s exterior to ensure it’s weatherproof. Replace damaged gutters and downpipes, and fix missing mortar in brickwork. Inspect the roof for missing tiles and damaged gulleys between the front and rear sections.
To combat mold, find the source of damp patches and install proper bathroom extractor fans. Explain to tenants why they shouldn’t turn off these fans. Opt for quieter versions to discourage tampering. Despite the higher cost, consider using anti-mold paint in bathrooms to prevent mold growth.
This aspect of refurbishment might not be glamorous or Instagram-worthy, but it’s vital to thoroughly evaluate and repair every part of the building. Regular maintenance preserves your assets and provides a comfortable home for tenants.
Mistake 4: Being Too Trendy
While it’s tempting to follow trends, consider the long-term viability of your choices. Trends change, and staying current can be costly. Opt for timeless options that won’t quickly become outdated.
When it comes to decision-making, finding the right balance is key. It’s important to choose items that will stand the test of time while avoiding trends that quickly become outdated, like the avocado bathroom suites from the 1970s.
Over in the US, real estate investor Tom Brickman, known as The Frugal Gay, advises against going for “cheap trendy finishes.” Instead, he values quality and timelessness, choices that have long-lasting appeal. He sets his properties apart by using different tiles and taps.
Many landlords find it convenient to stick with white walls and grey carpets. This not only provides a neutral backdrop for tenants but also avoids the challenge of picking an “on-trend” color. The issue with trendy paint colors is their tendency to be discontinued shortly after gaining popularity, making it difficult to find the same paint for touch-ups between tenancies.
> Pro Tip: Consider ordering an extra paint tin during the initial purchase and keeping a record of the specific brand and shade of white chosen for future reference.
Mistake 5: Energy Efficiency
With rising energy costs, neglecting energy efficiency is a mistake. Properties with higher energy efficiency ratings attract tenants and can command higher rents. Start the journey toward energy efficiency, even before regulations demand it.
The government is looking to raise Minimum Energy Efficiency Standards for private rentals, potentially moving from EPC band E to C by the end of 2025 for new tenancies, with a cost limit of £10,000.
Although the official announcement is pending, Michael Gove’s statement in The Daily Telegraph on July 22, 2023, indicated a desire to “ease the regulations” and reconsider the pace of improvements in the private rental sector, recognizing the financial challenges faced by landlords.
In light of this uncertainty, some landlords are delaying energy efficiency investments, anticipating the £10,000 expenditure limit to take effect later. However, I believe it’s not wise for landlords to postpone energy efficiency improvements. Instead, consider a gradual approach over several years to manage costs and cash flow. Roof insulation, if feasible, provides a cost-effective way to lower tenants’ energy expenses. Wall insulation, though more expensive and disruptive, may be necessary for specific property types.
Investing in energy efficiency not only enhances property value and attracts tenants but also represents a responsible choice for landlords.