If you have a rental improvement project in mind, you’re probably thinking about value.
Rental improvements increase the base value of your properties, allowing you to increase rent and generate more revenue. Improvements also attract high-quality tenants who will pay more for the newest amenities and increase the satisfaction of the tenants you already have.
If you invest in materials of good quality, your property will also last longer. This means saving money on the frequent repairs that come with cheaper options.
As valuable as improvements are, you need to balance the money you invest. You still need to see a solid return on investment, which means you shouldn’t overinvest like you might for your own home. You should not expect your renters to treat your rentals as excellently as you would.
Here are seven improvements that are certain to add value to your properties.
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New Countertops
Countertops cover a large surface area and greatly influence the perceived quality of a kitchen. Low-quality materials like laminate can stain or dent while preparing food. They also make kitchens look older than they are. Try granite, quartz, or stone alternatives for a sleek, improved look.
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Durable Flooring
Flooring is one of the first things renters notice when they view a unit. While carpet may be cheap, it also needs to be replaced frequently. Carpet absorbs stains and odors, and is often damaged by pets. Instead, invest in tile, laminate, or hardwood flooring. These options give your units a high-quality look and require less frequent maintenance.
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Kitchen/Bathroom Remodeling
Kitchen and bathroom remodeling each have a high return on investment. For tenants, the kitchen and bathroom are two of the most important spaces. When you remodel, consider installing new cabinets, opening the floorplan, or installing new plumbing and water fixtures.
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Smart Home Security
Smart home security offers immense benefits to landlords and tenants. Video doorbells and smart locks allow tenants to monitor intruders at their doorstep, lock their units remotely, and deter porch pirates. It can also be integrated with certain property management software platforms.
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Upgraded Windows
Clean, new windows can make a rental feel lighter and bigger. Upgraded windows are a great investment that your tenants will appreciate. However, while bigger windows create a brighter atmosphere, they will also require more insulation. Keep the cold and heat in or out depending on the season by investing in strong insulation.
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Community Co-Working Space
While lockdowns are over for now, many tenants still work remotely. If you own a large complex or have extra office space, consider converting the area into a co-working space. Tenants who work from home will appreciate the ability to get outside their units during the workday.
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Energy Efficient Appliances
Energy-efficient appliances conserve resources and save your tenants on their utility bills. Try installing energy-efficient laundry facilities, convection ovens, or low-flow faucets to improve your rentals and protect the environment at the same time.
Depreciating Your Rental Improvements
Come tax season, these projects (and similar ones) have the special designation of ‘improvement’ by the IRS. Improvements advance a unit of property (e.g., a building) beyond its basic, usable condition. They are more than simple repairs, but result in the permanent betterment, adaptation, or restoration of your property.
As improvements, the cost of these projects will need to be depreciated. Depreciation is the process of deducting a portion of an expense over several years to reflect its gradual decline in value. Improvements are depreciated because they add long-term value to your rental properties.
The length of depreciation, or recovery period, depends on the type of property. Here are the most common types:
- Building Improvements – Improvements to buildings or their structural components are depreciated over 27.5 years. This includes windows, flooring, plumbing, and other structural improvements.
- Land Improvements – Land improvements are depreciable if they are directly related to the building (e.g., the cost of excavation for construction). Non-building permanent structures like fencing, parking lots, landscaping, or swimming pools are depreciated over 15 years.
- Improvements Involving Personal Property – If you purchase personal property used to improve your rentals, the recovery period varies from three to seven years. For example, new furniture for your rentals gets depreciated over five years, while refrigerators, stoves, countertops, and other appliances are depreciated over ten years.
Improving Your Rental Properties
Improving your rentals is a smart way to add value and appeal to your properties. Improvements such as remodeling, replacing flooring or cabinets, or adding new technology will satisfy current and new tenants. Plus, by carefully tracking your improvement expenses throughout the year, you can benefit from depreciation deductions too.
