Renovating rental properties is a crucial part of the BRRR strategy (Buy, Refurbish, Rent, Refinance, Repeat). It involves boosting property value through refurbishments. However, overspending during renovations is a common pitfall. In this blog, we’ll discuss five classic mistakes landlords should avoid when renovating their rental properties.
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.
When renovating rental properties, landlords should prioritize cost-effective improvements that enhance value and sustainability. Avoiding these common mistakes can lead to successful property upgrades and long-term financial benefits.