Should I increase my tenant’s rent or renovate?
Q: I have a two bedroom flat that I rent out (£975 per month). The current tenant has been there six years and I haven’t increased the rent by much. Other two bed flats in the same block would rent for around £1,200 per month. My agent suggests a small increase of £25-50 per month. Should I keep renting to the same people until they eventually move or bite the bullet and do it up?
A: Your scenario is quite common, you own a rental property which needs an upgrade; do you take the hit on the cost of doing so, meaning that you lose rent while carrying out the works.
You need to run the numbers. If you’re renting to the same tenants you presumably aren’t paying any renewal fees / or very small renewal fees. If you factor in a £1,200 pcm ‘refurbished’ rental income and the letting fee for finding a new tenant (this is typically 8% of the first year’s rent), the figure can equate to approximately £1,100 pcm after you have paid the estate agent. If you can renew with your existing tenants for approx. £25 – £50 pcm more than the £975 pcm you currently receive, this equates to approx. £1,000 – £1,025 pcm – assuming you are not paying renewal fees to the letting agent. The gap isn’t that big.
I would say your deciding factor should be the maintenance costs you’re incurring for the property in its current state. If the property is starting to cost you money each month to do ‘touch up’ works or short term remedial works then it might be better to fully refurbish it, rather than waste money on short term fixes. That way you are essentially future proofing your property for the coming years, rather than incurring short term expenditure. However, if the property is ticking along without many maintenance issues, (apart from being dated in appearance) then you may choose to leave the existing tenants in place and do the works when they move, assuming they are good tenants.
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