You may not be thinking about it, but at some point you are going to sell your property. Some of the decisions you make now, or even before you buy, can greatly affect the future value of your property. Contrary to what some investors may have thought, your property will not automatically appreciate 5-10% every year without doing anything to it. In order to create value, you need to buy in the right location, do the right upgrades or add living space to your property. The days of buying and selling for a profit in six months are long gone. Therefore, it is important to know how to add value to your property, regardless if you plan on selling or not.
It is as cliché as it gets, but the most important factor in determining property value is location, location, location. You can have the best property in town, but if it is not in a good location, you will have a difficult time creating value. The location of a property greatly influences its value. If it is in a good location, more people will want to live there, creating more demand. Always look for properties in a good location, as opposed to better properties in undesirable ones. You can always improve physical defects of a property, but you can’t change its location.
If you are considering working on your property, think about what the long term effects will be. You may be looking to get through a year or two of rent, but in many cases you will end up holding on to the property for five years or more. It can be easy to put a band-aid on a housing problem and defer the issues down the line. Sooner or later, you will be looking to sell and regret some of the work you did or didn’t do.
Every investor has a budget, but some expenses make more sense than others. If you are looking at mechanics, a roof, appliances or a deck; those hold more weight than others. You may think you are getting off cheap by covering up an issue in the bathroom or basement, but when it is time to sell, those issues will be exposed and will cost you. Buyers will look at the quality of the property. If they realize a number of cover-ups, they will look at other properties.
One of the main features that impacts the value of a property is the number of bathrooms or bedrooms it has. If you can add one without compromising the integrity of the property, this will have an impact on the value. This can be costly, depending on where you are and how you do it. However, if you treat this as the investment that it is, it will pay off down the road. If you are going to spend money on any one upgrade, this should be it.
Before you spend any money on your property, look at your area and what is on the market. Most improvements will not return dollar for dollar on your investment. Adding a hot tub to the bathroom may seem like a positive, but if that is the only bathroom in the house, it may not be such a good idea. The same could be said for a pool or other amenities. Just because you like these doesn’t mean that buyers will. They could actually have a negative impact on your value.
Even if you are not planning on selling any time soon, you should know that any work you do to the property will affect the value in some way. It may not be realized until years later, but you will feel it. You will sell at some point and when you do you want to get top dollar. Everything you do from the time you buy until the time you sell will have an impact.
