As a buy-to-let investor, one of the keys to maximising your return on investment is unlocking the hidden potential in your properties. Most properties have scope for improvements that can significantly boost their rental yield and value over time.
Whether you want to refurbish a property to attract higher rents, convert unused space into additional bedrooms, or add desirable amenities to reposition the property to a more prized segment of the market, there are several ways landlords and investors can maximise the development potential of their assets.
Here, we’ll explore practical tips and advice for landlords and investors looking to realise the maximum potential from their buy-to-let properties through extending, converting, refurbishing and repositioning. Whether you’re a hands-on DIY landlord or prefer to work with architects and contractors, you’ll find valuable guidance on how to boost yields and take your property profits to the next level.
Survey the property for unused space
The first step to maximising floorspace and identifying opportunities for updates is thoroughly surveying what you currently have. Carefully evaluate each room and area of the property, including the loft, basement, garage and surrounding garden. Look for any spaces that are currently unused or underutilised and could potentially be converted into living spaces according to building regulations.
Lofts and basements are two of the most common areas where extra floorspace can be gained through conversion, so check if the space has adequate head height, suitable flooring, proper stair access, and appropriate insulation and ventilation to meet building standards for livable rooms. For basements, you also want to ensure the space is not too damp or prone to flooding and that access points, staircases and windows meet fire safety standards regarding providing an exit in an emergency.
Detached garages, sheds and outbuildings also present opportunities for conversion, depending on their size, condition and the proximity to the main house. If well-constructed, these spaces may be suitable for conversion to extra bedrooms, home offices or extended living areas. Carefully assess how the spaces could be connected to and integrated with the existing property according to building regulations.
Extend or convert
One of the most effective ways to maximise the development potential of a property is by physically extending it or converting unused space into livable areas. Extending upwards or outwards by adding extra rooms or converting your loft or basement can increase the available rental space and significantly boost yields.
While extending or converting the property is ideal where possible, it may not always be feasible based on the property layout or construction. In such cases, you can consider side returns, such as extending into your garden space on ground level. Though more complex, side returns can still provide a cost-effective way to create an extra one or two bedrooms, significantly adding to your rentable area. Working with a surveyor to carry out a measured survey will give you a clear overview of what’s possible based on your specific property.
Upwards or outwards?
On the subject of extending a property, landlords need to decide if they want to extend upwards or outwards. In other words, do you convert the loft, add an extra room to the back of the property or add to the side. Each option has its pros and cons to consider based on your unique property and needs.
Extending upwards through a loft conversion is often straightforward, as it usually doesn’t require altering the exterior footprint or foundations of the existing structure. Conversions may also fall under permitted development rights, avoiding the need for planning permission, though this varies between properties.
However, upward extensions require there to be an existing loft space, and one that can be properly converted according to building regulations regarding elements like stair access, head height, lighting and fire safety. Naturally, not every property will fit this bill. The costs for installing new staircases, flooring, windows and improving insulation can also potentially be quite high per square metre of gained floorspace.
Building outwards through home extensions or clever renovations like conservatories, orangeries or side returns provides the opportunity to gain more generous amounts of new floorspace, as long as you have a large enough garden. Outward extensions may also be more appealing for tenants who prefer larger, open-plan living spaces.
But bear in mind that adding exterior ground floor extensions typically requires full planning permission and building control approval, which can be time-consuming and expensive to obtain. Outward extensions also usually cost more per square metre, reduce your outdoor space and can be more difficult to integrate with the existing property layout.
In the end, determining whether extending upwards or outwards is more suitable comes down to evaluating your specific property layout and needs, alongside your budget, target tenants and desired returns. Securing proper permissions and ensuring compliance with building regulations is critical regardless of which option you choose. While both can be routes to gaining very valuable added living space, be sure to go into either project with your eyes open regarding the potential drawbacks and costs involved in addition to the benefits.
Reconfigure the layout
The layout and configuration of rooms in a property can significantly impact its rental appeal and the rents you are able to charge. Making certain changes to the existing layout may allow you to reconfigure space more efficiently and maximise usable floor area. As a landlord, it is worth evaluating your property layout objectively to identify any rooms that feel cramped, dark or inefficient, and considering potential modifications.
For example, non-load bearing walls between smaller rooms could be removed to create larger, open-plan living spaces which many modern tenants prefer. Removing walls is also a relatively straightforward job for increasing spaciousness and adding value. However, you will need to ensure any walls you plan to remove are non-structural, and consider the impact on elements like flooring, moulding, and window and door placements.
While this means reducing the room count of the property, you might recoup that money by being able to charge more for larger rooms. For many tenants, natural light and bright, open spaces are also priorities, so it could make the property more desirable.
Reconfiguring room layouts and openings is often a more complex job that may necessitate input from an architect, so costs can vary significantly depending on the specifics. However, changing the internal layout of a property in the right ways, whether through subtle tweaks or more elaborate reconfigurations, can be an effective strategy for maximising usable space and boosting rental demand from tenants.
Evaluate the ROI
Once you have determined which extension or conversion projects are possible for your property, it’s time to evaluate the potential costs versus the likely financial returns. The goal is to ensure any works undertaken will generate a good return on your investment, whether through higher rents, increased property value or (ideally) both. Costs to update a property can vary from a few thousands pounds to six figures, depending on the project, and the more you spend, the more at risk you are of not seeing a return.
Check recent rental listings for comparable local properties that have undergone similar conversion or extension works in your area to determine what level of rent increase may be justified for your project. You can also ask letting agents in your area their opinion on how much additional rent converted lofts, basements or home extensions might reasonably command. In addition to higher rent, the extra living space created by your project may also boost the capital value of your property, which is important to consider for its long-term investment potential.
Evaluating the financial viability of your project before proceeding with works is one of the most critical steps to optimising your rental yield and maximising development potential. While additional living space in a property is attractive to tenants and adds value, that value must sufficiently outweigh the total costs incurred to generate a good return as an investment property.
What else can landlords do to increase rental yields?
Refurbish the interiors
Even if you don’t have the time or budget to consider extending or converting your property, simple renovations and cosmetic refurbishments can significantly boost its rental appeal and your yields. As anyone who’s taken on a fixer-upper will know, upgrading fixtures and fittings like kitchens, bathrooms, flooring or even lighting can make a space more attractive to tenants and allow you to push rents up.
Kitchens and bathrooms are two of the rooms tenants often care most about. If yours are outdated, consider freshening them up with a coat of paint, stylish new cabinetry, modern countertops or contemporary tiling. New energy-efficient appliances and flooring can also make a big impact for a relatively modest investment.
Cosmetic enhancements like new paint, carpeting, lighting fixtures or hardware also make a space feel fresh and new, which tenants will appreciate. Pay particular attention to any areas that are worn or scruffy-looking and in need of minor repairs or touch-ups. First impressions matter, so a newly painted front door, well-maintained entryway and landscaped outdoor area can also help convey that a property is desirable and cared for.
Add desirable amenities
Certain amenities and fixtures are particularly important to tenants, so it pays to be strategic with the upgrades you make. For example, adding amenities such as parking, storage or smart devices can make your property far more appealing to a prospective tenant.
When determining what extra amenities to add to maximise your rental yield, survey properties currently on the market targeting your intended tenants. Note the amenities being offered and the asking rents for those properties. You may find certain amenities that could justify a rent increase of 5-10% or more for a minimal capital outlay on your part.
You’ll also want to consider how much tenants in your particular market and rental segment may be willing to pay for each additional amenity. Spacious private gardens or premium parking spots, for example, may attract higher rent premiums than basic storage units or communal laundry rooms, depending on your tenant demographic. Added amenities only enhance your rental yield if tenants are willing to pay sufficiently more to cover the costs of providing those amenities, with additional profit margin for you as the landlord.
Review operating costs
One of the easiest ways to improve your profit margins is reducing your operating costs. Operating costs refer to the ongoing expenses associated with running and maintaining your investment property, such as utility bills, insurance, repairs and property management fees. Lowering or optimising these costs means achieving a higher net rental income and a better return on your investment.
Review your utility bills and look for ways to improve energy efficiency in the property. Additions like insulation, double-glazed windows, LED lighting fixtures and energy-efficient appliances can help reduce heating and electricity costs.
It’s also worth shopping around for more competitive insurance policies for your rental, including building’s insurance and landlords insurance. The coverage and premiums can vary between providers, so getting multiple quotes is worthwhile to help you make a saving. You may find you can decrease your premiums by adjusting details like the level of building coverage or the types of incidents that are covered. Reducing or controlling operating costs should be an ongoing process over the duration of your rental property ownership.
As a landlord or investor, maximising the development potential and rental yield of your assets is key to increasing your returns over the long run. There are several effective strategies for unlocking hidden value in your properties, from extending and converting unused spaces to renovating and repositioning what you have to better match tenant demand.
While some options may require significant upfront investment, the rewards can be well worth the effort. Implementing even one or two of the strategies discussed here, such as extending into your loft or garden, updating kitchens and bathrooms, or removing internal walls to reconfigure space, could boost your rental income considerably. Over time, that additional return on your investment will far outweigh the initial costs involved.