It can be very easy for landlords to get carried away when refurbishing buy to lets, and over-spend. When looking to renovate a property for let, it’s best to focus on work that improves safety, energy efficiency, marketability or which adds more value than the cost.
In this blog post, I’m going to look at the 5 classic traps that newbie (and even more experienced) landlords can unwittingly fall into.
At a glance: 5 classic mistakes
1. Not matching the specification to the property value
This is a kitchen with a side return extension in a double-fronted 270 m2 house in Clapham, on the market for £2.75m. However, the expense incurred in refurbishing this house to this level of specification, including the installation of a high-end kitchen, is in line with the value of the house.
On the other hand, buy to let landlords, especially newbies, often “over-develop” their rental properties when they refurbish.
For instance, let’s take ground floor side return extensions. Outside of London, it rarely makes economic sense to extend into the side return, as it won’t increase the value of the property or the achievable rent by an amount that reflects the investment. In the pricier areas of London like Clapham, by contrast, a side return extension may be expected in the higher end rental properties where the monthly rent is in the £5,000 – £10,000 range.
When considering an extension on a rental property, only do it if increases the property’s marketability and rent. This may differ, depending on the location and the targeted segment of renters. Letting agents will be able to advise the extent to which an additional bedroom and/or bathroom will result in a higher rent and/or higher demand.
With respect to specifications, sometimes landlords go overboard and “over-spec” a refurb. It may well look fantastic, but beyond a certain point, it won’t improve marketability. Sometimes property investors unnecessarily remove perfectly good white bathroom suites. Not only does this a waste of resources, filling up landfill, but new taps and tiles might have transformed it for far less.
Equally, if the chrome taps are in good order, do they really need to be replaced with brushed copper or black taps? Would that really add value beyond their cost? Again, a lot will depend on your target renter, location and rental value.
2. Under-estimating the cost of the work needed
For landlords refurbishing older buy to let properties, under-estimating the cost of the works is a very common pitfall. It’s often not until work starts on a refurbishment, that the full scope comes to light. In some ways, a back to brick refurb is easier as you cost everything.
It’s projects where a light refurb is assumed, that costs can run away with themselves. Often it’s a case of lots of little things adding up. For instance, that wall that looked solid, may come off in chunks when the stripping the wallpaper, and need skimming. The first downpour after completion may reveal that all of the guttering needs replacing. There may be slow leaks in the pipework, and rotten joists and floor boards below the carpet, that didn’t come up in the survey
Unless you’re buying a fairly new property, or it’s recently had a professional back to brick refurbishment, it’s sensible to take a builder with you before exchange to get a quote for the work. They may also spot things that you and your surveyor haven’t.
With the cost of materials having gone up in price so much this last year, don’t rely on costings for previous similar projects. Be really clear with your builder over whether the prices of the material are firm or estimates. Someone will need to take the risk of increases in materials, and it’s important to know who that is.
Also, sometimes it’s easy to focus too much on the cost of the materials (eg tiles). However, the biggest cost in retiling a bathroom is usually the labour.
The best way to avoid cost shocks is to use a quantity surveyor, although this is probably more usual on bigger projects and new builds. In any event, the more detailed your schedule of works and specification, the more accurate the quotation. It’s also important to establish the process for changes to the scope of works to avoid “mission creep”.
3. Cutting corners on things that don’t show
Landlords need to think long-term when refurbishing their buy to let properties. It makes sense from both an economic point of view and sustainability to choose good quality fixtures and fittings with long guarantees.
Let’s take carpet. Newly laid carpet looks good, regardless of the quality. It can be tempting to cut corners and buy cheap carpet. However, cheap carpet soon looks shabby and wears out quickly.
The marginal additional cost of getting a better quality hard-wearing carpet that will last 10 years instead of 5, is definitely worth it. Not only is it disruptive to relay carpet more often, but you have two sets of fitting costs. Also, in terms of sustainability, there will be double the worn-out polypropylene carpet in landfill. You can save money by lifting and disposing of the old carpet yourself, and sourcing and laying underlay.
Also, it’s really important to focus on the outside of the building, to make it wind and water-tight. As a priority, replace broken gutters and down pipes, and repoint brick work where the mortar is missing. Check the roof for missing tiles, and damaged gulleys between the front and rear elevation.
To prevent mould, hunt down the source of every damp patch, and put proper extractor fans into the bathrooms. Make it clear to renters why they mustn’t turn off the extractor fans. Choose a version that’s quiet, as that’s less likely for renters to turn it off. Use anti-mould paint in the bathrooms, even though it costs more, to help prevent mould.
This part of refurbishment is not glamorous, or particularly Instagrammable. However, it’s important to go through every part of the building to repair what needs repairing. With regular maintenance, this will help preserve your asset for the future. It will also make it a decent home for your renters to live in.
4. Being too “on trend”
In these days of Instagram, it can be easy to think that what’s important is how something looks. The look and feel of a rental property are important, but being a landlord is a long-term business, and tastes change.
Consequently, when making choices, it’s a question of getting the right balance between choosing items that will stand the test of time, whilst ensuring they’re not old-fashioned. Try to avoid the latest trend that may date, like that 1970’s classic, the avocado bathroom suite.
It’s the same across the “pond” in the US. Real estate investor Tom Brickman from Texas, also known as The Frugal Gay, advises against “cheap trendy finishes”. He focuses on quality and timelessness, which stand the test of time. And he uses different tiles and taps to set his properties apart from the competition.
Certainly, it’s easiest for a landlord to keep the walls white and the carpets grey. Not only does this provide a blank canvas for the renters, it avoids the problem of going for an “on trend” colour. The problem with fashionable coloured paint, is that it tends to be discontinued after a short period of fame. This can make it trickier to find more to add another coat between tenancies. I always order an extra tin at the time so there’s some readily available, and make a note of the exact brand and shade of white I’ve chosen.
Likewise, I keep my windows white. I know that grey and black are currently very fashionable. However, green was on trend in the 2010s, and tan and brown before that. White may be boring, but it’s timeless. It won’t look dated in 10 years time (provided the windows are good quality!) Therefore be very careful when you are choosing the colour of your UPVC windows. The last thing you want to be doing is paying huge sums to replace windows, only to find they quickly date.
Finally, colour can provoke strong reactions. You might love purple or red, but the next person might prefer black. By keeping walls white, it’s not only economical, but it allows renters to add splashes of colour through soft furnishings.
5. Neglecting energy efficiency improvements
The cost of living crisis and the UK government’s Net Zero Strategy have pushed the question of energy efficiency to the forefront of people’s minds. Rightmove data confirms that properties with an EPC of Band C or above get more click throughs.
The government has previously announced it wishes to improve the Minimum Minimum Energy Efficiency Standards of private rental accommodation. This would require the minimum standard to increase from an EPC band E to C by the end of 2022 for new tenancies, up to a £10,000 ceiling of cost. However, there’s currently some speculation as to whether, when and how this will go ahead.
The Department of Business, Energy & Industrial Strategy commissioned a review in September 2022 to “ensure we are delivering net zero in a way that is pro-business and pro-growth”. The review is due to report in December. It’s possible that the requirement for an EPC band C will be phased or modified. Particularly an EPC doesn’t actually measure the amount of carbon produced by a property.
Amidst all this uncertainty, some landlords have been delaying investing in improving energy efficiency. Not least because the time period for the £10,000 cap on expenditure isn’t likely to start until a future date.
However, I believe that landlords shouldn’t put off improving energy efficiency. Instead, they should stagger it over several years to spread the cos and help cash-flow. Improving roof insulation is fairly low cost (in comparison to UPVC windows – see my blog post on improving EPCs). If it’s feasible for the loft, this is something that will make a big difference to your renters’ energy bills. Insulating walls is more costly and disruptive, but may be necessary for detached, semi-detached or end of terrace properties.
Improving energy efficiency is something all landlords should be doing, regardless of the law. Not only does it make property more valuable, but it improves its attractiveness for renters. It’s worthwhile at least starting the journey towards energy efficiency, as is the right thing to do as a good landlord.
Refurbishing properties can be, as it tends to be the most creative part of becoming a buy to let landlord. However, it’s also an area of high risk. It’s easy to exceed budgets for what seem like good individual reasons. However, when added together and viewed strategically, they might not represent value for money.
Refurbishment should first focus on improving the fabric of the building and addressing safety concerns. It’s a false economy to buy cheap fixtures and fittings as they will need repair more quickly. The management time and disruption for renters of repairs should not be underestimated. Don’t worry if the fixtures and fittings aren’t the height of fashion, if they’re in good condition. It’s more important that they’re built to last.
You may also find useful
Landlord essentials: Tips on what to get for your Buy to Let
How to spot 10 problems when viewing Buy to Lets
Why ESG and sustainability matter to landlords
My 5 biggest mistakes as a newbie landlord
What all new landlords need to know
How to find renters without letting agents
Managing rental properties – is it really that hard?