Refurbishing your property
A businesslike attitude to refurbishing rental properties needs to be at the forefront of the landlord’s mind when organising works.
Doing refurbishments to your rental property which use the space creatively can present opportunities to raise the capital value and rental value of a property.
NLA member Barry Selwyn added value to one of his rental properties by installing a breakfast bar in a large hallway leading from the living room to the kitchen. "By doing this I made use of a large space that was essentially not being used and tenants could use the living room as a second bedroom," says Barry. "Another tip is to take down walls to create a more attractive space. I turned a pokey one-bedroom basement flat into a light and spacious studio by removing walls and excavating to allow in more light. As a one-bed flat it was hard to let and it is now one of the properties we find easiest to let out."
Planning is key
Refurbishing a property before it is rented out will save you time and money. Unless it is really necessary, bringing in the builders during a tenancy should be avoided as it is bound to interfere with your tenants' lives, and give rise to complaints if the work takes longer than initially expected (as it invariably does). NLA Property Woman of the Year 2009 Shona Davison advises:
"Before you own the property or while you still have a tenant in it paying rent, get organised! Make a project plan, include every task organised by room, research your prices for buying supplies, and negotiate prices for labour. The best way of saving money is to not waste time while the property is empty as lost rent can be one of the biggest costs."
It's important to be clear about priorities when embarking on a refurbishment, so that the key elements, such as repairing structural defects, are dealt with and the property becomes marketable.
Tax deductions when you refurbish
All your expenses associated with refurbishing a buy-to-let property are tax deductible and will either be treated as repairs (which are deductible from rental income) or capital expenditure (which is tax deductible only when you sell the property).
Repairs. This is a complex area of tax, but generally speaking expenditure will be considered a repair if it generally restores the property to its previous condition, for example replacing an old carpet with a new one, repainting the walls or fixing a damaged roof.
Improvements. Any expenditure which improves the property beyond its previous condition will, on the other hand, be treated as capital expenditure. Clear cut cases of capital expenditure are, for example, adding an extension to a property, doing a loft conversion or putting in central heating to a property that did not have any.
Acklands Accountants advises that a like for like replacement such as replacing one kitchen for another is treated as a repair, while replacing a carpet for wooden floor could be presented as an improvement, unless the carpet was in such bad shape that it had to be replaced in which case it might well be seen as a repair. Thus works that are undertaken because the landlord chooses to do them, rather than because they had to be done in order to make the property habitable can be treated as capital improvement.
One of the key ways therefore to distinguish between repairs and improvements is to consider whether the property is uninhabitable and not available to let in which case works done would be seen as an improvement rather than a repair.
NLA Recognised Supplier, The Property Owners Directory, underlines the importance of using trusted contractors. It advises landlords to work, wherever possible, with contractors whom friends or colleagues recommend, and ask them for additional references before going ahead. The online landlord directory of recommended tradesmen recommends landlords detail every job required, the materials you want them to use, and getting a firm price for both. This will help minimise the possibility for ‘extras' being added to your bill as the work progresses.
Where relevant, landlords should use qualified tradesmen (e.g. Gas Safe and NICEIC) and check that they have all the relevant public liability insurance in place.
Gas, asbestos and water management are very high priorities to consider when refurbishing.
Chris Rawson of NLA Recognised Supplier OHS, a safety solutions consultancy, advises landlords to ensure that a residential property is safe and healthy for occupiers. This includes checking that electricity and gas supplies and the sanitation (drains, basins, sinks, baths and WCs) are in working order. The property needs to be free from damp, with adequate heating which ideally means controllable central heating and insulation, with equipment and the fabric of the building in good repair. The property should also be safe from trip and fall hazards and fit for general purpose.
You may want to add to your checklist repairing or replacing damaged or rotten floorboards, and changing the locks, and (where appropriate) installing exterior lighting and/or an alarm system. Gas, electrics and plumbing Before completing any property purchase, consider commissioning a full fixed wire report or Periodic Inspection for the electrics and a gas safety inspection so you know what to expect in advance, and these can be good negotiating points if major works are required. If you already own the property it will give you a definitive list of essential works that are required to bring the property up to current regulations. This is the advice of Rhonda Kneller of NLA Recognised Supplier Landlord Response who says "Any responsible landlord wants their tenants and their property to be safe and these comprehensive tests will highlight any safety issues."
She also suggests considering a good quality breakdown cover on your gas, electrics and plumbing so you can plan your budget and ensure you are fully compliant year on year.
With digital switchover a fact for all households in the UK using televisions from now until 2012, it will be financially advantageous and generally easier to pre-wire flats if they are going through a full refurbishment so that cables can be concealed in the ducting along with other electrical wiring. NLA Recognised Supplier Sky Digital suggests that if the install is more of a retrospective project then landlords should arrange for either the Integrated Reception System (which is externally cabled), or a shared dish system which only requires cabling to a communal TV dish when residents subscribe to Sky. Landlords should ensure the property is surveyed to establish what system is currently in place, if any. Sky recommends contacting its network of Sky approved engineers for advice on either 08442 410 388 or visit http://communaltv.sky.com/contact.aspx
If damp is visible, or a potential problem, you need to deal with this as soon as possible to avoid it becoming a problem in your property post-refurbishment.
NLA Recognised Supplier EnviroVent warns landlords to take precautions to prevent refurb changes actually increasing the likelihood of damp: "As we seal up our homes to make them more energy efficient through loft and wall insulation and double glazing this results in a cling-film effect. By gently introducing fresh filtered air into the home at a continuous low rate the moisture-laden air is diluted, displaced and replaced. This reduces the relative humidity, condensation cannot form and mould spores dry out into a powder which can be brushed off."
Sprucing up your property through interior decor, fittings and furnishings should be seen as an investment as this will make the property more appealing to prospective tenants as well as sparing you future complaints when they have already moved in.
Remember always that you are preparing the property for tenants not for yourself so the decoration and standard of fixtures should be of an appropriate standard for your target market, and you should aim for a light, cheerful and uncluttered impression when showing Picture supplied by Envirovent the property. Mark Garner of NLA Recognised Supplier LettingZone advises landlords to "keep it simple, fresh and neutral, allowing tenants to personalise their new home with their own style of furniture. In my experience over the last 15 years of being a landlord I believe tenants appreciate this approach and tend to stay longer."
Landlords need to be aware that any refurbishment to the property, regardless of how minor the work is, can affect their insurance policy.
According to NLA Partner Hamilton Fraser Insurance, the main problem is the fact that the property is unoccupied, possibly for long periods of time and can therefore be an easy target for opportunist thieves, or worse still, squatters.
Hamilton Fraser advises anyone undertaking refurbishment of a property between lets to firstly contact their insurers. The first question most insurers will ask is what type of work the landlord is intending to undertake, and the second is how long will the work take. Both questions give the insurers an idea of the extra risk involved and whether additional terms such as restricted cover or a higher excess should be applied. Usually if the work is of a purely cosmetic nature a standard landlords policy will automatically extend to cover this period of unoccupancy and minor works for up to 90 days.
Landlords ought to bear in mind however that even if the policy automatically covers this, there may be additional terms or conditions applied so it is essential that they check their policy carefully so as not to fall foul of these. It is also the landlord's responsibility to inform insurers when the work is completed and the property becomes occupied, and not the insurer's responsibility to keep chasing the landlord for updates.
For landlords having their property refurbished by a third party the above would still apply. However Hamilton Fraser recommends that landlords advise their insurers of the full schedule of works and, more importantly, make sure the builder or contractor undertaking the work has Public Liability cover in place. Apart from protecting members of the public whilst they are undertaking work at your premises landlords should be mindful of the fact that they cannot claim from their own property insurance for damage that the contractor does to their property or even a neighbouring property.
If undertaking a major refurbishment, such as structural alterations or extensions, the above should apply, but in addition a joint contract insurance (JCT as it's more commonly known) should be arranged between the landlord and the builder or contractor. This will protect the landlord for work in progress and would usually make allowance in any claims settlement for materials on site and work in progress (which may have already been paid for by the landlord). In addition to this it will also protect the landlord should the property or a neighbouring property be damaged as a result of the builders'/contractors' actions.