What adds value to Buy to Let (BTL) properties?

Commenting on the figures, Andrew Harvey, Senior Economist, said:

“Nearly nine in ten (88%) landlords have undertaken renovations on at least one of their rental properties over the past five years, according to our latest research.¹

“Kitchen and bathroom improvements were the most popular, with one in five (c. 20%) renovated properties receiving these upgrades over the past five years. As we explored in our recent report, these were also the most popular projects amongst homeowners who had made improvements.

“18% of properties that had work done benefited from green improvements. Of these, just over a third (37%) had solar panels added, 33% improved pipe & boiler insulation and 32% had electric car charging installed. Some of these improvements are likely to have been targeted at achieving minimum energy efficiency standards (MEES), which require most rental properties to have a minimum energy efficiency rating of E in order to be let out. Indeed, more broadly, 22% of landlords said they chose to renovate to ensure compliance with required standards and regulations (which includes but is not limited to energy efficiency).

“As we explored in our recent special report on  housing stock, solar panels are becoming an increasingly popular feature, with nearly 1.5 million dwellings in England now having photovoltaic (PV) panels, which equates to nearly 6% of all dwellings (up from less than 3% in 2013). Electric vehicle (EV) charging is also becoming more widespread, with 1.8 million dwellings having access to an EV charge point – around 7% of the total stock.

“In terms of larger scale projects, 17% of privately rented properties had a multi-storey extension built, while 15% had a basement conversion. Interestingly, two thirds (68%) of landlords said some of the work undertaken was related to converting a property to a House of Multiple Occupation (HMO).

“Across all landlords making renovations in the last five years, the average spend was around £88,000 in total, although there was significant variation, which reflects the mixture of work undertaken and portfolio size. Taking account the number of properties renovated, this works out around £43,000 per property.

“Landlords cited a variety of reasons for renovating, but the most popular were to attract new tenants and reduce vacancy periods (27%) and to boost the value of the property (25%). 24% of landlords said their property/properties needed it due to general wear and tear. Meanwhile, 23% wanted to ensure they had a good reputation as a landlord by showing care for property and tenants.

“23% of landlords chose to renovate in order to increase the rental income. And over 80% of landlords increased the rent charged once the renovations were complete, with an average increase of 17%. Interestingly, nearly a third (32%) were able to increase the rent by more than 20% following completion of the work.

“Perhaps surprisingly, just over half of landlords (51%) said they regretted renovating their rental properties. This is in stark contrast to findings from our survey of owner occupiers, where only 4% regretted undertaking renovation work.

“For landlords, the most common gripe (cited by 35%) was loss of income when tenants had to move out while the work was undertaken. Indeed, nearly half (47%) of landlords said they had carried out renovations when the property was vacant.

“32% of landlords said the end result wasn’t what they wanted, or they didn’t get the rental income they wanted after doing the work. While 30% said the renovations cost too much.

Value of a bedroom

“We’ve used our data to look at the factors that affect the values of BTL properties, and the potential to add value². While we can’t identify the value associated with kitchen and bathroom renovations, we are able to explore the impact of more substantial projects, particularly those which increase the size of the property.

“Location remains key to house values, but other factors, such as the number of bedrooms and bathrooms, are also important to landlords. Improvements that increase the size of the property, such as an extension or loft conversion, can add value and boost rental income.

“Interestingly, our analysis suggests there’s a larger premium for an additional bathroom in the BTL market compared with owner occupier. For example, adding a second bathroom to a BTL property adds 8% to its value, around twice as much as for an owner-occupied property (4%).

“Adding space to create an additional double bedroom can add 13% to the value of an existing two-bedroom house³. The table below shows the value added for the main BTL house types by increasing floor area to accommodate an extra bedroom.

“Landlords that add a loft conversion or extension, incorporating a large double bedroom and bathroom, can add as much as 24% to the value of a three-bedroom, one-bathroom house⁴. This is similar to what we see in the owner occupier market.

Rental rise

“We’ve also explored how making improvements can impact potential rental income. Our analysis suggests that adding space to create an additional double bedroom can add 12% to typical rent, equivalent to around £125 per month (compared to an existing two-bedroom house)⁵.

“Meanwhile, a BTL property with a second bathroom attracts a 6% rental premium (around £60 per month). Landlords undertaking a larger scale project such as loft conversion could potentially see a rental uplift of 26% - around £285 per month on the typical rental property⁶. 

Energy efficiency

“Aside from extending, another way to add value is to improve energy efficiency. These is particularly relevant to landlords since the introduction of minimum energy efficiency standards (MEES).

“As we explored in our PRS report last year, a more energy efficient BTL property (rated A or B) attracts a significant premium of 10.9% compared to a similar property rated ‘D’ (the most commonly occurring rating).

“Ultimately of course, the decision to invest in a property is an individual one, which has to take into account the costs and hassle involved, as well as potential benefits.”

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