The Property Column 24  May 2006

When to sell your rental flat

Liz Hodgkinson interviews a landlord and agents on whether to renovate or sell

After many years of slow decline, rents are now climbing.

But what if you’ve got a property that was last decorated or renovated some eight to ten years ago and now needs a refit? If you leave it, the property will soon become too shabby and dated to attract tenants, yet if you renovate, you will be spending thousands of pounds to achieve the rent of nearly a decade ago. 

What does a landlord do? Jackie Taylor, a former bank official, now a full-time landlord, has amassed 16 properties in eight years, starting with an ex-council flat. She feels that sometimes, there is no choice but to sell, as the potential small increase in rent will never cover the huge cost of renovation.

The property in question is a four-bed house in East Dulwich which has been successfully rented out to students. “It now needs a new kitchen, at a minimum of ?4000. It is starting to need other work, as well. In its present condition, the house rents out for ?1400 a month, but in absolutely wonderful condition, it would fetch no more than ?1500 a month.

“So I am faced with the choice of seeing the rents go ever downwards, or of doing necessary renovation. But in the present market, if I pay upwards of ?5000 for renovation, I know I will not get it back in rent. “So the current dilemma is: can I afford to keep it on and what would I get on resale? If the present tenants move out and I put it on the market, I will get no income anyway for four months. If I renovate, I will still have a void while work is carried out.”

Jackie reckons the Dulwich house would go on the market for ?360,000, and she would have to consider offers of around ?330,000. “I bought the house in 1999 for ?195,000, so it has increased in value, but it now needs so much work.

“The other consideration these days is that if I do a refit and get new tenants, they may well negotiate me down. For the past few weeks I have been agonising over what to do and there is no perfect formula. At the moment, I am inclining towards selling.”

Jackie, a member of the NLA (National Landlord’s Association) advises: “Whenever you buy a property to rent out, you have to think about future repairs and maintenance. So many new landlords who have jumped on the buy-to-let bandwagon, never take this into account, nor do they have a financial cushion when faced with a boiler breaking down or washing machine packing up. In my years as a landlord I have so far had to replace four boilers at ?3 -?4000 a time.

“The other thing is that the bigger the property, the more maintenance it will need, even if in excellent nick to start with. It is easy for costs to get out of hand. As I am a full-time landlord, I have to make it pay, and I work on a 7% rental yield. If my rent rent is ?1300 a month and the mortgage is ?800 a month, this gives a big enough margin. The whole game involves continuous looking at figures.”
Catherine Cockroft, lettings director at Aylesford, says: “After five to seven years, rental properties have to be upgraded, otherwise they sit on the market, or the rent just keeps going down.

“When we tell landlords they must renovate, they argue that the property has always let before. But what they don’t realise is that people are buying for investment all the time, and today’s tenants have a huge choice of very high standard, brand-new properties at bargain rents.”

Neil Chegwidden, head of residential research at Cluttons, adds: “The main problem landlords always face is voids, as these destroy performance. Renovation reduces the possibility of voids, since tenants want nice, clean, easy, low-maintenance properties.

“In recent years, investors have flooded the market, so although rents are getting better, the increases have been small. Nor does it look as though we are going to see big increases this year. The only thing landlords can do is keep a constant eye on the figures and when they no longer add up, sell and move on.”

Liz Hodgkinson is the author of

The Complete Guide to Letting Property

 

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