A ‘fixer-upper’ versus ready-to-let

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According to a recent survey by HSBC, a buy-to-let property in perfect condition will make a better investment than one requiring renovation.

But is that really the case and how much notice should landlords take of surveys and statistics when choosing their ideal buy-to-let property?

Leaders’ Investor Network account manager, Charis Henn, examines the findings: The research found that landlords who purchase a buy-to-let property requiring no renovation receive an average yield of 5.4 per cent , compared with a yield of 4.4 per cent received by those who purchase a property that requires extensive refurbishment.

It also showed that a buy-to-let property in perfect condition and ready to let costs 43 per cent more than one requiring renovation, but will be the better long-term investment because it will achieve higher yields.

These findings are interesting, however, landlords should be cautious when reviewing research like this because every property and area is different and needs to be considered on its own merits. It is dangerous to generalise when it comes to making investment decisions.

Charis points out that every landlord has their own individual priorities and concerns which need to be taken into account above anything else. Some landlords are more concerned with how much rental income their property will generate right now and over the medium-term, others are more interested in its capital growth potential over the long-term and would choose a lower rental yield now if it means greater capital appreciation in the future.

Landlords relying on a mortgage to finance their purchase may prefer to spend less on their investment and therefore choose a property in need of refurbishment to keep their interest payments down. This can cost them a lot less in the long run, even if their yields are lower.

Bearing in mind the greater outlay for a property in perfect condition, it would take an investor a longer period of time to recuperate the extra money spent than if a cheaper property was bought and refurbished. There would also be more pressure to secure a long-term tenant to avoid losing money through void periods and re-letting costs. In order to justify the higher level of rent and satisfy tenant’s expectations, the landlord would need to regularly invest in maintaining and updating the property to keep the same high standard. Some landlords would prefer to avoid this kind of pressure. So it’s not as simple as saying that properties in perfect, ready to let condition are always better, says Charis. The financial situation and priorities of each individual investor should be what influence their choice of investment property, not studies and statistics which show only general patterns and trends.

The location and property type will also influence the decisions you make. A four bedroom house in a rural area – even in perfect condition – is not likely to let as quickly or to be occupied as consistently as one or two bedroom town or city centre apartment with access to good employers and transport links.

The bottom line is that each property must be considered on its own merits, taking into account purchase price, projected yield, the cost of refurbishments, any borrowing costs and the investors own financial situation and priorities.

The Investor Network is a comprehensive and unique service created by Leaders that allows people seeking a buy-to-let investment to identify and acquire the perfect properties for their individual investment needs. It gives investors impartial advice and access to a significant supply of high-quality properties across the UK with proven buy-to-let success.

Joining the scheme costs nothing and new landlords or those interesting in becoming one are welcome, please call 01273 744881 to speak to a member of the Investor Network team or visit leaders.co.uk/pages/invest for more information.