Use Your Loft to Generate a Rental Income
Whilst most of us want to extend upwards to realise potential space, it’s certainly becoming evident that many of us also want to realise potential income from our homes – and with a loft conversion, it’s possible to achieve both!
Go up in the loft, go up in income
A loft conversion can offer many benefits, but when it comes to adding to income, there are two distinct ways it can do so:
- Long term by adding value to your home – increasing the square footage of your home with a loft conversion has considerable potential to increase your home’s value, as a study by the Nationwide reported, demonstrating that a major home improvement such as a loft conversion can add as much as another £104,000 to the value of a home in London. With loft conversion prices starting around £10,000 upwards, even a high specification loft conversion of £40,000 could offer a high potential return on investment – and long-term profit in home value.
- Short-term by adding to your income – having a loft design which is suitable for the letting or home hosting sectors is a way to achieve instant income from your new room. With average room lets in the London area achieving over £600 per month, and extra £7,000 a year, this income may not only boost the finances on a month-to-month basis, but over time could easily cover the cost of the conversion itself.
Loft designs for letting
Design is important for any loft conversion, but if you’re thinking of converting a loft space with the intention of renting it out, then it’s worth considering exactly who you might want to let out to…
- Long-term tenants – with a large enough loft space, creating a self-contained apartment can be the a good option for maximising both space and income potential. The long-term letting market is always buoyant in cities such as London where good, affordable accommodation is hard to find, but even in other areas on good commuter routes to major towns and cities, creating a flat out of the attic space could also be a way of bringing in extra money with very little extra effort.
- Lodgers – if potential space is limited or you’d rather share more of your house than close off a part of it, lodgers offer another letting possibly. If you live in a university town or near a training hospital, taking in a lodger could be an easy option.
- Holiday makers or visitors to area – since the advent of the Airbnb and Freebird Club era, letting out a room in your home to a short-term visitor has never been easier. In major cities, hosting foreign students is also an option which can pay extremely well.
But what designs best suit these potential tenants? If you’re creating a loft conversion which aims to both enhance your own accommodation (ie: could be incorporated into the home space if needed) whilst also fulfilling the needs of a potential lodger, tenant or paying guest, then design options should include:
- Dedicated bedroom space
More than just a place for sleeping, the room should also offer ample storage.
- Ensuite facilities
- If you’re looking to maximise your income through renting your loft space, then offering exclusive use of an ensuite is essential. If headroom is very limited, then a bathroom comprising a bath with shower mixer taps would be the next best option, requiring less headroom but still offering ease of bathing and hair-washing. However, if your loft space or headroom is limited and if your house design already includes an ensuite which you use yourself, as well as a family bathroom which could be allocated to the tenant or guest for their own private use, then it’s possible to work around the need for an ensuite in the conversion (although the amount of rent you can charge is likely to be less).
The main difference between loft rooms for letting and accommodation for your own household to use is that your conversion will need to have door locks, to render it private and self-contained for the person using it.
To make sharing your home in this way comfortable for everyone concerned, adequate soundproofing to prevent noise travelling back and forth between the main home and the converted space is essential.
- Convenient access
The access to the new accommodation must be convenient for everyone, whether using the space or living underneath it! So, whilst you wouldn’t have a problem with a loft staircase in an existing bedroom if the loft conversion’s for your own use, if you intend letting the conversion (either straightaway or at some point in the future) then you’ll need to focus on designs which offer access which doesn’t intrude on your family areas.
Even better if…
If space allows, a kitchenette (with access which is not through a bedroom) adds to that self-contained element and takes your rental potential to the next level.
- Separating sleeping area from any living areas
Although it sounds like you’d need a large loft to do this, the truth is that even in small loft spaces using design features such as a mezzanine area, or using glazed panels or carefully placed shelving can create distinct zones within the overall space. This both maximises options for use and levels of potential rent.
When you’re setting anything up for the first time, there’s bound to be a bit of admin required. However, much of this requires doing only once initially or a couple of times a year, so it’s easier to keep organised and make sure your loft letting is legal. Consider:
- Home insurance – to avoid having claims rejected in the event of accidents or problems, always speak to your insurer. General household insurance doesn’t usually cover the belongings of temporary guests or tenants, so you’ll also need to ensure that any extra premium your household insurer charges you is added to the rent you propose charging. Alternatively, the tenant should insure their own belongings separately. If you’re going to have a full tenancy agreement then full landlord insurance may be needed. Either way, a conversation with your home insurer is a must.
- Liability insurance – this shouldn’t be an issue if you have organised a professional loft conversion, with full compliance and sign off to building regulation and planning standards. The completion of any works by a non-professional, on the other hand, can lead to questions of safety, which could render you liable in the event of problems. Always check paperwork and if in doubt, check up on your responsibilities.
- Filling in a tax return
Any home owner letting out a room in their home is allowed to earn up to £4,250 tax free through the Government’s aptly named Rent A Room Scheme. This annual amount broadly equals a rent of £350 a month. Although this amount is about right for some parts of the UK, in major cities and particularly London, the rent you will be able to charge could easily be more than this across each month and year. As such, you will need to register for self-assessment with HMRC and declare additional earnings beyond the tax-free threshold.
- Informing mortgage company
If you have a mortgage on your property, or are increasing the mortgage to fund the conversion, it’s essential to check the mortgage small-print for clauses on how you can use your accommodation. Some mortgage providers will not permit sub-letting of any part of the property whilst there is a mortgage on it, so check paperwork thoroughly first.
Get letting by attracting the right person
Although it’s easier to give notice to a tenant if the property’s your own place of residence, when it’s your family home, it’s essential to get the right person in to start with.
Whether it’s a lodger or longer term tenant, always follow process similar to that which letting agencies use to vet potential tenants, including gathering confirmation of employment details and reference checking from at least 2 independent sources.
If you’re working with Airbnb, an education provider or a student hosting company, follow their guidelines for safety and accountability and always try to correspond with the person who will be staying in advance of confirming the let.
In all, converting your loft and opening your home to new people can be a fun and exciting way to earn cash from the attic, so long as you take the professional approach and work with professionals across all aspects. Getting it right means your new loft conversion has the potential to provide the winning combination of short term financial gains from rent, that long-term gain in property value and a real return on investment!