A new report by Nationwide Building Society has revealed what the most popular renovations have been for buy-to-let (BTL) investors who have renovated a rental property over the past five years. Kitchen (19%) and bathroom (21%) renovations were the most popular, with 18% making green improvements, such as adding solar panels or insulation.
When it comes to adding real value to a property, 17% chose to add another floor to a property, while 15% added either a new bathroom or converted a basement.
However, Nationwide also found that over 50% of those surveyed regretted renovating their rental properties. The company added: ‘Our analysis suggests that adding an extra bathroom can boost a BTL property’s value by 8%, while increasing the floor area to incorporate an extra bedroom can add 12% to a typical rent (around £125 per month), while a second bathroom attracts a 6% rental premium (c. £60 per month).
Commenting on the figures, Andrew Harvey, senior economist at Nationwide, says: “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.
“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).
“Solar panels are becoming an increasingly popular feature, with nearly 1.5m 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 1.8m dwellings having access to an EV charge point – around 7% of the total stock.
“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 into account the number of properties renovated, this works out at 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.”
Harvey adds: “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.”
The value of an extra bedroom
Nationwide has used its data to look at the factors that affect the values of BTL properties, and the potential to add value. “Location remains key to house values, but other factors, such as the number of bedrooms and bathrooms, are also important to landlords,” says Harvey, adding, “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 the owner occupier market. 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%), while adding space to create an additional double bedroom can add 13% to the value of an existing two-bedroom house.”
Harvey concludes: “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 house. This is similar to what we see in the owner occupier market.”
