Using Property Refurbishment to Increase BTL Returns

The Buy-to-Let (BTL) property market continues to be a potentially attractive option for investors, but one key strategy to increase returns often goes underappreciated, property refurbishment. By carefully renovating and upgrading a BTL property, landlords can significantly enhance both property value and rental income. With growing tenant expectations and a competitive rental market, well-executed refurbishments are becoming increasingly essential to sustain and maximise rental income.

Why Refurbishments Matter in the BTL Market

Increasing Property Value

One of the most immediate impacts of property refurbishments is the potential for an increase in the property's market value. Renovations not only enhance the aesthetic appeal of a property, but also improve its functionality and energy efficiency, which can lead to a higher valuation. A well-planned renovation can add between 10-20% to the value of a home. For BTL investors, this increase in property value can be important, as, in addition to improving return on investment, it might allow them to refinance their property, freeing up capital to expand their portfolio or make further improvements.

Boosting Rental Yields

In addition to increasing property value, refurbishments can directly lead to higher rental income. Modernised properties, particularly those that include energy-efficient improvements or upgrades in kitchens and bathrooms, often command higher rents. For instance, newly refurbished rental properties can generate up to 15% more in monthly rent compared to non-upgraded equivalents. This uplift in rental income ensures a faster return on the refurbishment investment, while also enhancing longer term cash flow.

Key Areas for BTL Refurbishments

1. Kitchens and Bathrooms: High Impact, High Return

Kitchens and bathrooms are often the first areas tenants scrutinise. Upgrading these rooms provides one of the highest returns on investment. Simple improvements, such as new countertops, modern appliances or updated fixtures, can dramatically enhance a property's appeal. Given that renters are increasingly willing to pay a premium for quality finishes, these spaces can influence rental value significantly.

2. Energy Efficiency and Insulation

With the government’s commitment to reaching net zero carbon emissions by 2050, energy efficient homes are more in demand. Properties with improved insulation, double glazing and efficient boilers are not only more attractive to potential tenants due to lower utility costs, but such improvements may also be needed to comply with the updated Minimum Energy Efficiency Standards (MEES) requirements. Under current government plans, from 2030, rental properties must meet a minimum EPC rating of C, meaning landlords who proactively refurbish for energy efficiency will have a competitive edge in the rental market. Properties with a higher EPC rating can sometimes be expected to achieve up to 10% more rent than less efficient homes.

3. Cosmetic Upgrades: The Quick Wins

Sometimes, small cosmetic upgrades can make a significant difference. Fresh paint, updated flooring or even new lighting can transform the interior appeal of a property. These types of refurbishment are relatively low-cost but can help to modernise the look of a home, making it more attractive to potential tenants. Cosmetic changes can increase rental demand by as much as 20%, especially in highly competitive areas.

Cost vs Return: What Landlords Should Expect

Budgeting for Refurbishments

The cost of refurbishments can vary greatly depending on the scale of the project. Minor refurbishments such as repainting or new flooring can cost between £2,000 and £5,000, while major renovations, such as kitchen or bathroom replacements, may range from £10,000 to £20,000. However, it is important to note that these investments should be weighed against the potential increase in both rental income and property value. A carefully planned renovation typically pays for itself within 3-5 years, largely due to increased rental yields and the ability to charge higher rents.

Long-term Investment Benefits

Beyond the immediate financial benefits, property refurbishments can also help future-proof a buy-to-let investment. For example, older properties that are not updated may face longer void periods or require larger discounts to secure tenants. In contrast, properties that meet modern standards, especially in energy efficiency, may enjoy shorter void periods and longer tenancies. Moreover, if the investor plans to sell the property eventually, well-maintained homes tend to sell faster and at higher prices, further boosting long term returns.

Compliance and Refurbishment: What Landlords Need to Know

Safety Standards and Building Regulations

All refurbishments must comply with relevant safety standards and building regulations. For example, any electrical work must meet Part P of the Building Regulations, while major structural work may require planning permission or building control approval. Landlords should ensure all contractors are properly accredited and that work is documented. Failure to meet these standards can lead to penalties or issues with insurance claims. It is also worth noting that properties undergoing significant refurbishment may require updated certifications, including gas safety checks and electrical installation condition reports (EICR).

Impact of the Section 24 Tax Changes

It is important for landlords to consider the impact of Section 24, which restricts mortgage interest relief on buy-to-let properties. While refurbishments can increase rental income, landlords need to be aware that higher profits could result in greater tax liabilities. However, certain refurbishment costs may be deductible, especially if they are classified as repairs rather than capital improvements. Consulting with a tax professional can help investors navigate these complexities and make the most of their refurbishment budget.

Financing Property Refurbishments

Remortgaging for Refurbishments

One of the most common ways landlords finance property refurbishments is through remortgaging. With an increase in the property’s value following a refurbishment, landlords may be able to access a higher loan-to-value ratio, releasing equity to fund further investments or renovations. In some cases, landlords can opt for a BTL mortgage that includes additional borrowing options specifically for property upgrades.

Refurbishment Buy-to-Let Mortgages

Another option is the use of refurbishment buy-to-let mortgages, designed to finance properties in need of work. These loans provide funds for the purchase and renovation of a property, converting to a traditional buy-to-let mortgage once the refurbishment is complete. This allows landlords to secure the property and funding for improvements in one go, enabling them to start generating rental income as soon as the work is finished.

Conclusion

Property refurbishments are an essential tool for buy-to-let investors looking to maximise returns. From increasing property value to boosting rental yields and ensuring long-term tenant demand, refurbishments provide both immediate and lasting financial benefits. By focusing on key areas such as kitchens, bathrooms and energy efficiency, landlords can enhance the appeal and profitability of their investments. However, careful planning and budgeting are crucial to ensure that the costs of renovations are balanced against the potential returns. In a competitive and evolving rental market, refurbishing a property may not just be an option, but a necessity for those seeking to achieve the best possible results in the buy-to-let sector.