landlord want to escape the market also provide opportunities for a would-be landlord to work with an estate agent to find a significant discount on their next property.
The Renters’ Rights Bill and its sweeping changes have dominated the news in that regard, but whilst the end of Section 21 eviction and fixed-term tenancies will affect some landlords, others are more likely to be affected by the alterations to the Decent Homes Standard.
The Decent Homes Standard is expected to require many rented properties to reach an upgraded standard, which will disproportionately affect some properties more than others and possibly cause some landlords to want to sell.
What can be a potential issue for some landlords, particularly if they are not working with a letting agent or have a plan in place to make regular repairs and upgrades to meet regulatory standards, can be an opportunity for other landlords who want to buy a proven property and wish to scale their portfolio.
Given that buying an unmodernised property can save you up to 10 per cent compared to the average property price for an area, is it a good idea for a landlord to buy a property they know they need to upgrade?
Here are the positives and negatives of buying to upgrade.
Pro: Greater Profit Potential
As with traditional house flipping, buying to upgrade as a landlord means that the potential to ultimately profit from a rental accommodation is much greater and much easier as long as you have a plan to make the required upgrades and make the property desirable.
With house prices remaining high, an ex-rental is an ideal way to save money, particularly if you already have a network of trusted contractors or have the expertise to make the required upgrades yourself.
Con: Risking Good Money After Bad
The same benefits that come from house flipping are also paired with the same risks, which is that any prospective landlord needs to buy an unmodernised property with a plan and an understanding of the scale of the work involved.
This means that surveying, ascertaining the value of a property and setting hard limits on the price mindful of the cost of upgrades is critical to establishing a profitable rental property quickly.
As can often happen with renovations, not being aware of the full scale of a project can lead to soaring costs and scale creep, and the greater the expense from the initial estimate, the more months of rent it will take to make that money back.
Pro: Keeps Your Options Open
Buying to rent and renovate ultimately keeps your options open if you decide to sell down the road. Having a property that is in keeping with the Decent Homes Standard and is energy efficient will save you money.
Whilst there are some restrictions when it comes to selling your home later due to the Renters’ Rights Bill, there is still some scope to sell whilst making passive income in the interim.
Con: Expensive To Go It Alone
There are extra costs to renovating the property and renting it out yourself, which means that it can be beneficial to opt instead to work with construction, renovation and rental partners.
Whilst this can reduce your profit margin in the short term, the benefit of expertise far outweighs the costs.
