The goal of every real estate investor is to make profit on an investment property. If you are renting out a property, you’ll want to minimize vacancy losses and deduct the cost of improvements and repairs from your rental income to reduce your tax liability. Thus, it’s important to understand the difference between capital improvements and repairs, as the former is calculated differently and will adhere to a set depreciation schedule.
A capital improvement is a property update that will extend the useful life of the property. Rather than being a short-term fix, these upgrades add value to your home for years to come and may include a kitchen remodel, window and roof replacements, new plumbing, and more. Conversely, repairs are made to maintain the home in good condition and neither add significant value to the property nor extend its life. For example, repainting a room, staining the deck, or updating old appliances are all considered repairs.
In some scenarios, investors will find it more beneficial to classify an expense as a repair because it would maximize the investor’s after-tax dollars for the given year. If you fall into this category, here are some inexpensive ways to increase the value of your investment property for future revenues:
- Energy Efficiency
Energy-efficient systems and appliances are particularly appealing to many renters and buyers who are willing to pay a little bit extra on rent or the sale price if it means that they will save on electricity later on and help the environment by decreasing power plant emissions. Some simple ways to make your investment property more energy-efficient include:
- Changing existing windows to ENERGY STAR certified windows
- Adding solar panels
- Installing a smart thermostat
- Installing low-flow toilets and showerheads
- Curb Appeal
Enhancing the curb appeal of your investment property will help attract more prospective buyers and renters. There are several things you can do to make the yard more look inviting to tenants that do not require a lot of money or effort:
- Pressure-washing the walkways
- Adding mulch and pine straw for ground cover
- Upgrading lighting with sconces and lanterns
- Installing window box planters
To ensure your property continues to provide an income stream throughout its useful life, you should invest in professional cleaning and small maintenance jobs in between tenants. Maintenance work includes gardening, plumbing and electrical checks, pest control, and more.
- Kitchen Upgrade
The kitchen can make or break a deal. Many, if not most, prospective buyers and renters see the kitchen as one of the most important places in a home and will gravitate toward an investment property that boasts a clean, modern, and ready-to-use kitchen. With this in mind, here are some ideas to give your investment property’s kitchen a facelift without breaking the bank:
- Repainting cupboards and doors
- Replacing old hardware with new handles and knobs
- Installing new countertops
- Mounting new kitchen taps