Weighing up the pros and cons of a fixer-upper vs ready-to-let

Wed 17 Sep 2014


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. This applied to 6 out of 10 UK cities analysed in the study: Liverpool, Leeds, Birmingham, Newcastle, Cardiff, Edinburgh, Norwich, Exeter, London and Brighton.

“These findings are interesting and confirm what we always advise landlords: that a good quality property will command a higher rent and attract more tenants. However, landlords should be cautious when reviewing research such as 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 when it comes to deciding on the best buy-to-let property for them. “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 if it is 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 and developed 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 access to a significant supply of high-quality properties across the UK with proven buy-to-let success.

“Many of the properties included in our scheme are already owned by landlords which means investors have the opportunity to acquire a property with a tenant in place and start receiving rent from the day of completion,” says Charis.” They will also be able to see details of the property’s maintenance history, rental income, inspection reports and tenancy records for previous years.

“We also have properties that have been hand-picked for their significant capital appreciation potential using official government statistics to forecast the growth investors can expect. Typical return on these properties is around 15 per cent over five years.”

The Investor Network offers detailed, impartial advice and guidance on the best properties and locations to suit investor’s needs. Expert advice from solicitors and mortgage advisors is also available.

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