Expand Your Property Portfolio for Less with a Loft Conversion

August 19, 2015 10:50 am

Landlords consistently want to keep costs low while increasing ROI on every property. In many cases, a home improvement won’t necessarily yield a better return on investment but may just fill a property quickly. However, a loft conversion can have a significant impact on your monthly income and the property value overall.

Increasing Property Value

Nationwide Building Society’s annual survey has consistently shown that loft conversions add a huge amount onto the value of a property. The latest survey in 2014 showed that an intelligently designed conversion can add up to a fifth onto the value of a property in the UK – or £37,000.

Putting that into context

  •   a 10% increase in floor area only increases value by £8,900
  •  an additional bedroom adds £19,600
  • and an additional bathroom only adds £8,900 (or 5%)

 What About Monthly Rental Income?

The increase in your monthly rental income depends on the rental property itself. If you are letting to several tenants on a per-bedroom basis, there is potential to increase your income by up to a quarter by taking in an additional tenant.

The most valuable loft conversions are entire apartments – these are particularly sought-after in London, where the size is not an issue and the additional privacy is particularly valuable in a city run on flat-shares.

Studio and 1-bed loft conversion flats on the outskirts of London are typically let for £500-£1,250pcm.

What Investment is Required?

A standard loft conversion with a bedroom and bathroom costs £13,000-£14,000, inclusive of labour. The largest costs are insulation (£2,000), plumbing (£2,000), stairs, (£1,800) and labour (£1,200). Based on the typical rental income, you could recoup your costs within a year and then make an additional profit every month, as well as more money when you finally come to sell the property.

Over 10 years, a loft conversion could make you an additional £150,000 (not accounting for increases in house prices and increase sale value). In London, the average property generates an annual return of £24,221 – with a loft conversion, you could boost that figure to £38,621.

Building a self-contained flat rather than additional bedrooms would increase the required investment, but has a huge impact on potential returns as well.

When Is It Worth It?

In some cases, disrupting tenants with an improvement of this size wouldn’t be worth it. For example, if a single family occupy the entire house, the disruption and possibility of sharing the building may actually push them to move. However, if you let to multiple tenants, you will gain maximum yield from the loft conversion without making tenants compromise on privacy or access.

In large, spacious properties there is no need to fight for every additional square metre. However, in London space is always at a premium – creating an additional property within your existing assets means that you do not need to pay stamp duty, deposits, or arrange mortgages in order to expand your property portfolio. In these areas, an extension rather than acquisition is the intelligent choice.

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