There’s a big difference between remodeling your rental property and repairing your rental property. Of course, there are cost variances to consider. You may only have the budget available to make small repairs, for example. But both can significantly secure and grow your ROI bottom-line.
As you consider your year-end budgets and plan for the new year, you’ll want to aim for a few remodel goals. There are considerable benefits to remodeling your rental property, including the surge in ROI. Here are some of those remodeling benefits that might convince you to explore your home improvement options through another ROI lens.
1. Rental Property Remodeling Tax Deductions
The IRS rules on renovations are complex. Improved features will provide value to your home over time, rather than just this year. As a result, you may not deduct the full cost of a kitchen remodel in a single year. Instead, you’ll depreciate portions gradually over time, including the date of purchase or installation.
On a general 39-year schedule, structural improvements such as adding a room are depreciable. Non-structural changes, such as installing wall-to-wall carpeting, depreciate over a 15-year accelerated plan. Here’s how the IRS dictates depreciation and capitalization requirements.
2. Increasing Rental Property Marketability
Any rental property remodeling you do will make the property itself more desirable to renters. And marketability matters, especially in today’s volatile housing industry. Focus on the rooms that tenants consider deal-breakers, like the kitchen, family room, and bathrooms. Fresh designs and layouts can help overshadow any drawbacks to your property, too. For example, people might be willing to overlook a smaller backyard if they know they have a brand-new kitchen with all-new appliances.
3. Improving Energy Efficiency
Rental property remodels don’t just improve the aesthetics. They can also improve the efficiency of the home or space, helping to save you money over time. New windows, for example, might translate to reduced draft and lower utility bills. A smart home thermostat might also trim those monthly bills with better temperature and humidity management.
4. Tenant Satisfaction and Loyalty
You can also remodel a currently occupied rental property and inspire greater tenant satisfaction and loyalty. Renters will be less apt to move if they know you’re keenly interested in the upkeep and refreshing of the property. Plus, when you take the steps to update the appliances or improve the layout of a space, it demonstrates you care.
5. Rental Property Remodels for Every Budget
When you think of a remodel, you might immediately assume you’ll have to tear out walls or install expensive amenities. But there are plenty of other improvements, complementary to any budget, that can significantly improve ROI.
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Betterment Remodels: These types of remodels involve improving conditions, strength, or capacity of different aspects of your property. These quality-driven efforts can be methodical, like a new front door or a new deck, and will typically cost less than entire-room remodels.
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Restoration Efforts: These types of remodels are intended to improve aspects of your property that could fall into a state of repair soon. You could, for example, restore a chimney and fireplace, adding value to your property, before a significant chimney failure event occurs. You’re essentially killing two rental-property birds with one stone – preventing a repair and improving your investment.
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Adaptation Remodels: These types of rental property remodels can vary in size and scope but are meant to alter the property. Adding a fence to a backyard adapts the property. Turning a single-family property into a multi-family unit is another example, at the other end of the price spectrum, that adapts the property’s use.
If you need help carving out your rental property remodel strategy, contact us!
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