From Tired to Tenanted: Funding Property Improvements in the UK

However, it does not mean that a property needs to be fully redeveloped to improve its investment value. Funding property improvements can support smaller changes such as renovating kitchens and bathrooms, improving energy efficiency and making better use of unused space, which can significantly enhance a property’s rental appeal and overall value.

The problem of financing this process may arise in front of landlords and property investors who need to secure funding without using their own money in any other way. This is where property renovation loans come in handy.

The type of loans needed would differ from case to case depending on the scale of the renovations, the condition of the property, its valuation after the completion and the financial position of the borrower.

Why are Property Renovations Getting More Important?

Competing rental assets have to do more than just compete on location alone; their condition and quality are key.

An old interior design, inefficient heating system or badly managed facilities might make it more difficult to find appropriate tenants. In contrast, a thoughtful renovation process could bring improvements in all three categories.

Furthermore, from the investor’s perspective, a renovation might be linked to an overall investment strategy. For example, a renovation process can prepare an asset for renting, enhance its market value for selling, or reposition an already owned asset in a portfolio.

The key element is that renovation should be seen as an investment activity and not merely as a construction task.

What Can Refurbishment Finance Cover?

Funding varies depending upon the lending party and the type of work being undertaken; however, funding towards refurbishment can be used towards a variety of works.

The list includes:

• Kitchen and bathroom renovation
• Floors, decorations, and fittings
• Renovation of roof and structures
• Renovation of heating system and wiring
• Making the property energy efficient
• Change in interior design
• Property conversion
• Improvements of HMO
• Extensions and bigger renovation projects

Investors need to first determine the exact nature of the project and its costing before seeking any financing.

Different types of work require different levels of finance; thus, the financing needs to be in line with the project.

How Do Lenders Assess a Refurbishment Project?

The lender will probably take more into account than just the purchase price.

The state of the building, costs of repair, value now and on completion, may all have a bearing.

Personal financial position and past experience will be taken into account in many cases, especially complex ones.

For larger scale developments, it may be important that the lenders know about the construction timetable and how the building will be sold at the end of it.

That is why it is useful to have a project plan in place.

A simple checklist of desired improvements will never give the same degree of detail as an accurate budget.

Why Is the End Value Important?

The potential value after the renovation might affect the way the project is appraised.

The buyer can acquire the property at below its potential value due to the needed renovation. After the renovations are made, the value of the property will most likely increase.

It must be remembered that any potential value cannot be underestimated.

A renovation will not necessarily increase the value of the property by a certain percentage. Demand, competition, quality of construction and other factors might impact the final result.

Hence, it is advisable not to expect that each pound invested in the property will raise its value equally.

Refurbishment of Buy-To-Let Properties

Whereas a renovation is made with the aim of selling, a refurbishment process has a distinct goal.

In most cases, landlords may aim at making a property attractive enough to have suitable tenants that will give them sustainable rentals and be easy to manage.

Some improvements in terms of making something more durable and functional could prove to be helpful compared to only cosmetic changes.

Better quality floors, new heating systems, insulation, or even storage could play a big role in this.

Landlords should take into consideration the kind of tenants they may have in the future when allocating their refurbishment money.

Can Refurbishment Help Increase Rental Earnings?

Perhaps, but this will not necessarily happen.

The impact of improvements will depend on the local rental market and its tenants.

Prior to undertaking costly renovations, a landlord needs to investigate the rental market of the neighbourhood and find out what is lacking in the property. Otherwise, he might invest considerable amounts of money in things which would not help him increase rental earnings.

Another thing the owner should know is what kind of improvements could fill the gap between his property and the others which are rented at a certain rate.

Energy Performance Should Also Be Taken Into Account

Energy performance is now becoming a very important issue for property owners.

Upgrading insulation, heating, windows and all other aspects related to energy consumption of the building might potentially increase its performance and attractiveness for tenants.

Landlords could include energy improvements into their long-term plans for property maintenance.

Instead of seeing such an upgrade as a one-off expense, the property owner might consider whether this could be incorporated into some refurbishment program.

What Documentation May Be Required?

There are various factors that may affect each transaction, but the investor will likely have to provide some documentation such as information about the property, valuations, information regarding any work needed and associated costs, quotation of builders and their financial status.

When it comes to a large project, there is going to be information related to planning, architect or schedule of work.

Preparing these documents in advance is going to make the process more effective and provide a better insight for the lender.

Selecting The Proper Financing Structure

There is no one-size-fits-all when it comes to financing products for refurbishments.

• A cosmetic renovation, a conversion and even more extensive projects can be financed in different ways.
• It is vital to think about the budget, time frame, property value, estimated rent and other factors before choosing the right structure.
• It is also necessary to consider what is going to happen if the project will take more time than initially expected.
• The realistic plan must allow for a little delay.

Where Specialist Finance Can Make a Difference

Refurbishments of properties may get complicated where there is a lot of work involved, unusual properties, multiple financing needs or even a combination of other investments by an investor.

A specialist finance broker can assist in nalysing the transaction and determining possible funding solutions depending on the property and the project itself, and not just the traditional lending criteria.

Corporate Finances offers a wide variety of property financing solutions, including bridging, development, buy-to-let and commercial loans. This will enable investors to discuss their refurbishment needs along with other property needs.

The aim should be developing a funding solution that will help finance the project, taking into consideration the intended use of the property as well as its repayment.

Final Thoughts

While renovating a property means upgrading its look, for property owners and investors, there has to be a purpose behind renovations and upgrades in terms of either attracting tenants, preparing assets for rental, enhancing functionality, or facilitating further investments.

Funding must be taken into account along with the renovation project itself. The information on overall costs, intended outcomes, time frames, and exit points can be useful when making decisions concerning major renovations and investments.

For those property owners who are planning to renovate their property, perhaps, the most important question isn’t only about how much money they can borrow, but what funding structure would suit their property and renovation projects best.

Want to transform your renovation idea into a financeable project? Let’s discuss your property and renovation needs at Corporate Finances.

Contact Details:

Call: +44 7973 215758

Email Us: n.parkin@cfnuk.com

FAQS

1. What is property refurbishment funding?

Refurbishment funding refers to funds that are allocated for the purpose of buying or improving a property.

2. Can landlords obtain funds for property renovation purposes?

It is possible, but the possibilities available depend on factors such as the value of the property and the works that need to be done.

3. Can refurbishment funding be used for buy-to-let properties?

There are some kinds of funding that can be used for buy-to-let refurbishment purposes.