Deciding whether or not to extend and improve buy-to-let properties needs a cool analytical head and a calculator, or spreadsheet. What are the parameters you need to consider?

Homeowners' motivations for making properties larger or updating them are all about living choices – more room for the family, perhaps a house that better suits modern living. They are often thinking about adding value to the property as well, although extensions and reconfiguring to increase the number of rooms are more likely to realise a return than updating décor or putting in new bathrooms and kitchens.

The buy-to-let landlord has to put most of those considerations aside and remember that they are serving a market, not pleasing themselves.

Rentable value

Extensions that will allow you to charge a higher rent are most likely to be worth doing – loft conversions or double-story rear extensions, for example. You need to look at the capital cost of the work against the rent increase, over the number of years you are likely to own the property.

Make sure the work suits the property and the market. If you have a three-bed home in an area that’s good for renting to executives with families, then adding a sizable, well-equipped master bedroom suite will suit the property and the market.

On the other hand, if you have a student property, forget the en suite and add bedrooms. It’s no good putting luxury fittings into the bathroom or kitchen either – put in the cheapest equipment and resign yourself to replacing it every three to five years.

Capital gains

Another aspect to keep in mind is the potential increase in the value of the property. The examples listed above are most likely to deliver there too. If you are thinking of selling the property in the relatively near future, the price increase is more likely to justify the work than the potential rental uplift.

It’s also important to get advice about your tax position, as the capital expenditure on the building work can be offset against capital gains made when the property is sold.

Spreadsheet at the ready

The balance between capital expenditure, rental value, upkeep costs, your tax position and mortgage payments is going to be different for every landlord and every property.

So get the calculator out and do the maths – keep the emotions in check.

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