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Justifying Repair Costs As An Investor

Published on Friday - March 21, 2014

Not all repairs are created equal. The primary goal of any upgrade is to improve the value of the property. Sometimes, however, work can be done without seeing an immediate bump in value. Does this mean the work was a mistake? Not exactly – it is very difficult to see the true value of replacing a front door or adding a deck to the property. Sometimes you will be able to rent your property at fair market value strictly because the door caused a renter to feel comfortable about the property. You may not have seen a direct increase in your bottom line, but the impact was felt because you didn’t have to deal with a vacancy. Before you do any work to your properties, think about why you are doing it. Justifying repairs is critical to success.

Regardless of the work you do, you will most likely not see an equal return on your investment. There is a misconception that if you put $20,000 worth of work to your property that you will see a $20,000 increase in value. This may be the case in certain areas, but in general, the return will not be felt immediately. This is why you have to be selective in what work you do and why you are doing it. Just because you think it would be a nice touch to put a hot tub on your back deck doesn’t mean the market will. If you think about the big picture before you do any work you will not regret any additions or changes.

Aside from a new front door, the biggest return for any work you can do would be adding a deck to your property. This may not be the glamorous addition that you think works, but if you put buyers needs in mind, it makes sense. Buyers want to move in and not worry about doing anything to the property. Garage door upgrades and central air improvements are both seemingly minor things, but buyers will like the fact that they don’t have to worry about this for the foreseeable future.

On the flipside, items like home office additions and master suite renovations will not be felt by a large majority of buyers. With the increase in laptops and other mobile technology devices, the need for a dedicated office is fading. This is now viewed almost as wasted space and buyers on a budget do not want to pay to convert that back to a kid’s room or another room. Sometimes with home improvements, less is more. You don’t need to add a room to make your property appealing. There are many times when you can repair or upgrade as opposed to replacing or adding on. Having a room labeled as a bedroom sounds nice, but if the room is the size of a closet it will hold little to no value and may actually turn buyers off.

Think about what your goals are before you do any work. If you are looking for a quick bump in the rent or looking to increase your sales price 5-10%, your goals may be a little misguided. The value of any work you do to the house should go well beyond the immediate return. In many cases, this return may not even be felt.

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