What adds the most value to a rental property?
As investors, we always want to know what is it that I should be spending money on that’s going to get me more dollars and what should I not. Something you want to think about when it comes to owning a property is that when you put money into a property, meaning if you put a dollar in, you should get at least one dollar or two dollars or more back out of it.
Make improvements where it adds value
A lot of times, newer investors, they may buy a house and say I’m going to redo the whole roof. My first question to them is: does the roof leak? No, but it’s old. Well, it’s functional and it’s working. If it’s working and it’s functional, you may not need to replace it. Maybe you need to patch it if there’s a leak. But again, you don’t spend a lot of money if it’s not necessary. Now if the roof is bad and it’s got to be replaced, that’s one thing. But if you’re doing it just to do it, that’s not going to get you more value.
Does it increase the value of the property?
Whenever you’re looking to spend money and invest in your rental property, it is a capital improvement so it does help the value of the property. But getting a new roof is not going to take the rent from $1200 to $1800 a month in rent. If the rent’s $1200, putting a new roof on it is not going to get you more value in cash flow. It will get you more capital improvements so there’s value there. But for this conversation, you want to think about, if you put a dollar in, can you get two dollars back out?
Maybe a newer air-conditioning unit? That makes sense. Or for example: countertops. You can put in granite countertops as opposed to corian or some of the lower end countertops. That may be a good investment. They say 80% of the time people spend in the house is in the kitchen, so you may want to think about doing things of value to the kitchen, to the bathroom, other things or just nicer fixtures and switch-plate covers. Believe it or not, you don’t notice them, but they’re very noticeable into your subconscious. When you walk in and you see white switch-plate covers, that actually makes a difference, believe it or not.
Same thing with nicer fixtures, door handles and sinks. That makes a difference. It’s kind of the little things. It’s not necessarily the roof and these big other things that you’re never going to get a return on, it’s the little, maybe, the front yard; doing landscaping, putting in some nice colorful flowers. Those are the things that are going to get you a higher return for your rental property than doing something that no one’s ever going to see and it’s not going to get you more money.
Remember it’s a business. If you put one dollar in, you should get at least one dollar or two dollars back out of it. If you’re not doing that, you have to ask yourself what is the reason you’re doing it? Are you doing it because you think that you would do it for your own property that you live in? Or are you doing it as the investment? Because remember it is an investment. It is a business.
If you like, give us a call. We’d be happy to give you some ideas of more things that you can do. I’d be happy to talk to you, tell you what I think you may be doing right, and what you’re doing wrong, see if we can help you fix those things to become a successful investor.
Steve Rozenberg with Empire Industries Property Management and Realty Services