Rental properties need periodic renovation, whether to keep such units in a state of good repair or to keep up with changing renter requirements. While the general processes of renovating a rental property are similar to those used for a personal residence, they are also different in one key way. You’re not renovating the property for yourself — you’re doing it to make money.
Repairs vs. Improvements
A complete property renovation usually qualifies as a capital improvement, which you will have to depreciate over 27.5 years. Unrelated repairs, on the other hand, can usually be expensed in the year you pay for them. If you can structure your renovation as a series of small repairs, you may save a great deal of money when you file your taxes. You also may be able to do the repairs while the unit is occupied, saving you from having to take it out of service and losing rental income.
Keep It Neutral
As you remodel a rental property, remember that you’re preparing it for someone else to occupy. Neutral colors, finishes and accessories may prevent anyone from falling in love with the property, but it will also prevent potential renters from ruling it out because it doesn’t suit their personal tastes. Renovate your property with durable, easy-to-maintain materials so that they can withstand long-term use.
Leaving Good Enough Alone
While a neat, clean and attractive property is easier to lease out than one that is beat-up, there is a point of diminishing returns. For many rental properties, a coat of paint and a good carpet cleaning can work wonders and save you from more expensive renovations. Another example of this is that if your bathtub is a bit tired, you might be able to keep using the original tub after resurfacing it, saving you the cost of a replacement. If something in your rental property is good enough that a tenant will accept it, it probably doesn’t need replacing.
Remodel for Rent
When you renovate your property, remember that your goal should be to get your money back. If your tenants won’t pay additional rent for skylights, there’s essentially no reason to have them cut into your roof. In many cases, tenants will pay rent for nicer bathrooms, kitchens and closets. Renovations like these can recoup their cost relatively quickly in increased rent and, with it, through a higher property value due to having more income to capitalize.
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