An excellent way of increasing the value of your rental property is through Value Add. Value add is the process of making strategic improvements, whether it is curb appeal (exterior) or interior finishes to your property which will increase the value.
Typically, at renewal time you will get a 3% or 4% rental increase. For example, a 4% rental increase on a monthly rent of $1,200.00 will bring your monthly rent to $1,248.00. However, if you invest $10,000.00 in strategic upgrades (exterior and/or interior finishes) you have the opportunity, to command a higher monthly rent. With the value-add investment you could push the rent to $1,456.00 or $208.00 more per month than the $1,248.00. The payback will be about 48 months, or in other words the new tenant will be paying for the upgrades at the higher rent within 4 years ($10,000/48 mos.=$208).
Examples of potential upgrades:
- Exterior paint
- New appliance package
- Vinyl plank flooring
- Carpet/pad in the bedrooms
- New interior paint scheme
- New faux Formica countertops, sink and faucet
Some of the benefits of doing a value-add upgrade:
- Attracting a better quality of potential renters
- Potentially less turnover as a happy tenant will typically renew more often
- Increase the value of your rental home as we just increased the annual rental income by almost 17% ($14,976.00 annually to $17,472.00 annually).
- Lowers your on-going repair costs as you have updated your appliances and some of your other finishes in the rental home.
