In a previous article (you can find here…) we discussed how to use a budget to ensure consistent cash flow while steadily improving real estate value. Today we want to discuss some value added repair projects that will help you to not only increase your rent, but improve your property value as well.
Maintenance vs. Improvement
Before we get started, we want to help you reduce your income taxes as well. The IRS allows you to write off repairs and maintenance. Improvements, on the other hand, must be depreciated. So, while we will talk about making “improvements,” we encourage you to do it in a way to be able to classify it as maintenance.If you decide to upgrade all the windows in your apartment at the same time, it is considered an improvement and cannot be written off. If, however, you replace one window at a time perhaps when the seal starts leaking or a pane gets broken, then it is classified as a repair and can be written off as an expense on your tax return.
Tenants know quality when they see it. They can also recognize a cheap landlord a mile away. If you want to be able to maximize your rent, then opt to improve important features. Rather than installing a higher grade carpet (which will soon need to be replaced again), opt to replace an old battered vanity with a more modern one that will withstand the test of time. Rather than painting the unit every time a tenant moves out, why not use that money to upgrade the hardware such as kitchen faucets and door handles.
Another option could be to update the trim in the apartment. Most apartments have that standard 3” baseboard which is dated and lacks character. If you want the whole apartment to look new and modern, install 4 ½” baseboards. If the baseboards are in good condition, you can simply add a 1” x ¼” piece of molding ¾ to 1” above the baseboard. Then paint the whole baseboard, including the section of wall between the two pieces of molding a high gloss white. Now you have modern baseboards for very little cost.
Better Quality Equals Higher Market Value
While tenants may equate quality with things they can see, a buyer is going to require more solid improvements. Why not considering slowly updating all of the windows in an apartment building to more energy efficient models. Not only will it lower your heating costs but it will increase building value as well.
Do not always opt for the cheapest repair or upgrade just because it is an apartment. Tenants appreciate quality, are willing to pay for it and generally stay longer. Higher quality replacement items last longer and hold their value. Minor improvements can make a big difference. You will be able to charge more rent and the building may even increase in value. It is a win-win for all. Just remember to stay within that budget and upgrade as you repair.