Should you conduct a Survey on a BTL investment?
By West One Loans
It is recommended that homebuyers and investors seek an independent survey to be carried out to protect their investment before contracts are exchanged. A survey is not a legal requirement in the UK for existing properties, with BTL investors seeing profitability reduce, this could be an area where they look to make savings.
With the number of privately rented properties expected to hit just below 5.8 million in the year 2025, with UK government numbers currently stating 4.4 million for 2022 housing over 11 million people, the need for BTL properties will continue to rise. But with higher borrowing rates, increasing inflation and cost of living, all driving down profit margins for landlords, are surveys a necessary expenditure or is this something investors simply cannot afford not to do?
With any large purchase its essential to be as cost effective as possible, with any additional outlay stretching budgets. The type of house, location and type of survey effect the cost, with average UK residential surveying costing between £300 to £1,500 (equating to a monthly payment from a tenant). This is one potential saving investors may wish to make, especially if they consider themselves experienced investors with large portfolios. For a BTL investment, a survey will include a market rental figure which can be used to determine if the property will generate sufficient income to meet the landlords needs.
If no survey is conducted, the owner could be burdened with unexpected costs which haven’t been factored into the budget. There could be structural issues potentially caused by subsidence, poor building practices or environmental factors. A survey may find issues allowing investors to ready themselves to secure additional funds promptly before any tenancy agreements are made, potentially in the form of a development loan to help fund any large refurbishments needed.
If a survey uncovers issues such as damp, ineffective insulation, or window/door problems, not only will these need to be rectified to a satisfactory standard, but this can also impact the properties EPC rating. With proposed EPC regulations meaning landlords will potentially need an energy rating of C or above, this can further add to the expenditure faced by landlords, and they could opt not to purchase the property as the profitability in the short-term doesn’t make the investment viable due to the repairs needed. Explore change to EPC ratings with Paul Huxter, Head of BTL sales at West One loans.
Unforeseen problems could be found in a later survey which could mean landlords may not only face the cost of maintenance, but also tenancy void periods. If there are no tenants within the property paying rent this can deter investors from purchasing properties.
BTL is often see as a long-term strategy, so the shorter-term expenditure may not be a deterrent. It is important to understand the opportunities around surveying. If issues surrounding the properties are highlighted, it doesn’t need to result in the sale falling through. It can allow for the renegotiating of the price, making sure the problem is rectified before exchange of contacts, so the investor is not drastically impacted financially.
There are certain scenarios which can change the viewpoint of conducting a survey, these can include auction purchases and cash buyers.
Buying at Auction
When the hammer goes down on a successful bid you have committed to the purchase of your BTL investment. In the first instance you’ll have to pay a percentage of the sale price, and the completion needed typically within 4 weeks. Being unable to complete within the designated timeframe could result in losing the property, money paid as a deposit, auction and solicitor fees, and potentially the auction house charging you to resubmit the property into another auction.
The time implications from auctions needs agility, from instructing solicitors, ensuring ample finance is in place or being able to secure finance is imperative. Conducting a survey may not be viable within the timeframe, although if a survey revealed anything which wasn’t known about prior to the auction, there is little the buyer can do. Conducting a survey prior to an auction can be difficult as access to properties can be limited, and buyers may not wish to pay for a survey especially as the prospective buyer is not guaranteed to secure the property at auction.
Investors purchasing with cash may not want the additional step of having a survey as they are likely to look to complete in a short space of time and have tenants in place to reduce any void periods.
A possible solution when a survey is challenging, or time constraints are in play is utilizing an AVM (Automated valuation models). These often provide a quick turnaround without access to the property being required. The AVM will provide a value of the property (using market data, AI, mathematical techniques) and a confidence score (where available) which indicates the accuracy of the AVM estimated value. This can help investors judge the value of a property before investing.
It is encouraged to always thoroughly research all aspects when making an investment. Ensure you seek professional and independent advice with the adequate checks being undertaken before making any decisions.
Securing funding from West One for the initial purchase and any additional funding for refurbishment, aided by an in-house surveying team which sits within the Development Finance department, with long-term experience in surveying and construction. For further assistance explore West One buy-to-let here, email our support desk ‘firstname.lastname@example.org’ or call 0333 1234556.
For adviser use only. Please note this content has been supplied by our lender partner and as such, is their responsibility. No party shall have any right of action against Legal & General in relation to the accuracy or completeness of the information in this article.