Improve your house or pay off your mortgage? The Landlord’s dilemma.
Some of us find ourselves in the fortunate position of having a bit of spare cash to hand. Should you spend this spare cash on home improvements or paying off a portion of your mortgage thus reducing monthly payments? If money is a problem, you may want to consider none of these options and it may be best to save any spare cash you have should you need it at a later date for replacing a tenant’s fridge for example.
Paying off your mortgage.
It may seem like a good idea to pay off part of your mortgage as this will reduce monthly payments. Provided there is no early payment penalty this would seem like a feasible option. For example, if you overpaid £200 a month on £200,000 mortgage at 4.5pc and you would repay your loan six years early as well as saving yourself over £36,000 in interest. This is all well and good if you are just a homeowner. What about if you’re a landlord?
Home improvements
If you’re a home owner, deciding whether you want to invest in home improvements depends entirely on its effect on the property value. Anything really profitable is therefore only achievable through the increasing in square footage. You’re looking at the addition of space by virtue of a loft or garage conversion for instance. Spending a few thousand on minor improvements (especially if they are not neutral) will most likely see a loss and no significant added value.
If you’re a landlord?
If you’re a landlord however, the situation is slightly different. Home improvements may prove to be a better option: Not only can they add value to your property but they increase the rental prospects. A simple lick of paint or some mild home upgrades may well prove a viable spend. If done properly, you will be able to justify a higher rent, and as such higher paying tenants, who have been shown in several studies to be more reliable and less liable to cause damage. The higher monthly rate could even eclipse the monthly over-payment of a mortgage.
If you factor in this potential boost in property value as well as rent expected from tenants, you may well be on to a winner. Make sure you register any home improvements with your property insurance provider to make sure you receive full cover in the event of an accident. You don’t want all that money to be wasted after all.