Rising mortgage rates may be making things difficult for UK landlords, but the rental market still has much to offer, with 'refurbish to let' being one of the latest trends to emerge in the UK property market. Let's take a closer look.
The power of presentation
Unfurnished property can be so stark that their flaws stand out like a sore thumb; add some furniture, however, and suddenly the flaws fade into the background. The advantage of property with obvious flaws is that they can usually be bought at bargain prices. This is good news for landlords who want to invest in new property (in need to TLC) and who aren’t afraid to use a little elbow grease to whip it into shape.
More good news is that sometimes the makeover can be as simple as sanding surfaces and painting the walls. Voila, the place looks as good as new. More extensive repairs and refurbishments will start to rack up the costs but not only are they necessary, they also provide a range of fringe benefits. For example:
• Refurbishment makes the property more presentable, which will in turn make it easier to attract high quality tenants. Such tenants will be more likely to pay their rent on time and to remain in the property for a long period of time.
• If the refurbishment job is done properly, with the assistance of professionals and without cutting corners, then it can save you significant repair and maintenance costs of in the long run.
• Last but not least, a refurbishment job makes a big difference to the value of the property, enough for landlords to rent it out at higher rates than the original purchasing price would have allowed.
A trend that has made refurbish-to-let particularly attractive is the popularity of HMOs (Houses in Multiple Occupation). To qualify as an HMO, a property must be let out to multiple tenants who are not members of the same household.
Seeing the value in rundown properties
There is one significant obstacle facing landlords who refurbish-to-let and that is acquiring the necessary funds. Understandably, banks are reluctant to provide loans on properties that verge on being uninhabitable.
However, some lenders have been offering specialist loans for landlords looking to carry out refurbishments. In such cases, the lender will provide a smaller loan for the landlord to purchase a property, and then increase the loan once refurbishment has been carried out (provided the landlord completes the refurbishments within the agreed time frame).
Hazel Clarke, a property investor who has profited from the refurbish-to-let approach, provides a good example of how this kind of finance can work well. In her latest project, the bank approved a short-term loan equal to 70% of the value of the property, and gave her 18 months in which to carry out the necessary changes. If successful, the loan would become a mortgage at 75% of the value of the newly refurbished property. It's clear from such cases that banks and lenders are recognising the value in improving rundown properties.
Featured image "Victorian Houses" via Natesh Ramasamy