TO WHAT EXTENT SHOULD YOU RENOVATE AN INVESTMENT PROPERTY?

If you’re anything like me, you’ll find that when you buy an investment property, you want to pour a bunch of love into it, and turn it into something beautiful and fantastic.  

I think one of the biggest ways to plunge yourself into financial ruin is to “over-renovate” a property.  So, how much work should you put into an investment property?  Having renovated nearly 40 properties, I’ve found that before you consider cosmetic improvements, you want to make sure the following items are in good shape first:

Roof

If the roof is more than 15 years old, unless its in surprisingly good shape, I’d just replace it.  I suggest you also invest in gutters if they are not present or damaged.  

If you’re going to flip the property to a buyer getting FHA/VA/USDA financing, its likely gutters will be required for financing anyway.  

Even if you’re keeping the property as a rental, gutters will obviously help to keep water away from the property and mitigate the chances of water making its way inside.

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HVAC

I’d hire a HVAC professional to give you an opinion on the heating and air as to whether its good as-is, needs servicing, or should be replaced.  

Sometimes you’ll notice the outdoor air unit is missing from the property (likely because its been stolen).  If the seller isn’t willing to install an AC unit as part of the deal, you’ve got 3 options:

  • If you’re going to rent the property, you can wait to install an AC unit until the property is rented.  No sense in risking having your AC unit stolen as its sitting outside your vacant property.
  • If the property is single story and around 1,000 sq. ft., and doesn’t currently have central heat/air, you might consider buying a heating/cooling energy-efficient window unit. They work great, save you a bunch of money, and won’t break the bank for another owner or tenant.  Lowes or Home Depot carries them.  You just want to make sure you get the right measurements.  If they don’t have what you need in stock, they can likely custom order you one.  Also, you’ll want to make sure the unit has the square footage capacity you need.
  • If you’re flipping the house, you can have your Realtor make a note on the listing that you’re willing to do certain HVAC improvements prior to closing.  This way you can defer the expense until the home is actually under contract.

 

Electrical

I’d pay your electrician for a service call to come out and do an electrical inspection.  Even if the wiring is in decent shape, the electrical may not be up to code.  Even quick fixes such as GFIs and smoke detectors are much easier to take care of before you rent the property or when you’re under a deadline to close.

Plumbing

When you have your plumber check for any plumbing issues, have him check the sewer line. They likely won’t do this by default and may want a bit extra to do it, but it’s worth it.  If a sewer line needs to be replaced, it’s much better to do it up front before you do any landscaping as they’ll need to get a backhoe to dig up the sewer line.

Now, I realize I still haven’t answered the question as to how much you should renovate an investment property.  To fully answer that question, you need to understand how appraisers determine value for residential properties.  For that, check out our post “Understanding The Sales-Comparison Approach.”

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