When it comes to adding value to real estate, the concept can be confusing. What does it really mean to add value? To add value means to increase the value of the asset beyond what it costs you to build or to improve the asset. If you spend ten thousand dollars making an improvement to a property and it increases the value of the property by ten thousand dollars, you have not added value beyond what it cost you to make the change. The property might look better, but if it doesn’t increase the value it’s hard to justify making the change from a return on investment perspective. Whether your home improvements are for you or potential buyers, consider their impact on your home’s potential resale price before picking up your toolbox or the phone to call a contractor.
The first way to add value to a property is to do a few remodels. Some remodels could be a brand-new kitchen or bathrooms. Most people consider the kitchen to be the heart of the home, and because of this, updates in this room pay off. Although new kitchens does increase the value of the property, you should never make your kitchen fancier than the rest of the house. As for bathrooms, the cost of adding a bathroom depends largely on the types of additions and accessories you want to use, and the cost of each of these items. The remodel doesn’t have to be very expensive either, just like improvements or new appliances will do.
The second way is to improve the landscape and exterior of the property. Adding a deck or patio, with room for seating and a built-in or freestanding grill, is a way to create a defined space for outdoor living on a large or small scale. But remember the rule of low upkeep, especially if your future buyer is likely to be a millennial. “They love outdoor spaces, but whereas prior generations might have gone for the pool, Gen Yers recognize the maintenance costs associated with it,” Berger says. “They’d much rather see an outdoor fire pit surrounded by a simple seating arrangement.” Don’t go for overly lush landscapes, especially in drought-stricken regions with high water costs.
Lastly, give the property a few amenities. Some additions can include washer/dryer in each unit (if it is a rental building) or a laundromat on the premise. Also, other amenities such as a pool, children playground, security, or a dog park can increase the value of the property. For single family homes, amenities such as a pool or extra space on the property will be attractive to tenants.
In conclusion, investors should approach the management side of their buy and hold business as not just “what you have to do to own properties,” but instead as a profit making business in and of itself. The more investors can add value to their properties, they can raise rents, lower costs, and increase retention, the better the bottom line. Good management can save bad investments, and bad management can kill good ones. Be proactive in increasing your rental returns. Always find ways to add value to your rental properties.