What's Threatening the Value of Your Investment Property?

Posted by Chris Clothier on Sun, Aug 17, 2014

realestateinvestment valueAn investment property can come in all shapes, sizes and values. As a real estate investor, it’s within your power to change the property value of your investments. There are many ways to measure value — and some that you think are helping may actually be hurting.

Real estate investing is all about knowing how to make the right improvements to raise the value of your investment property.  Often times investors either make the wrong improvements or they hire the wrong team that spends too many dollars on the areas of a property that actually hurt the value.  

There are both controllable and uncontrollable factors involved with property value, which means that research is a crucial element to making the right choices. You don’t want to make an impulsive purchase, only to find that the property in question is in the wrong location for your goals as an investor and won’t provide positive return on investment because of it.

Another type of value has to do with your potential earnings. For example, if you neglect necessary renovations and hire ineffective property management, you can hurt your potential property value.  Bottom line, real estate investing is not a quick hit type of investing.  You cannot simply open the paper and the p/e ratio and determine if you should move forward.  It take a little more digging!

Here are some tips on what to look out for and avoid if you want to get maximum potential out of your investment.

Bad Location

You can’t fix a bad location. It’s vital to check out the surrounding of your potential investment property before making a purchase. Drive by at night, check out how much crime is in the area. You’ll want your tenants to feel safe in their rental home. A bad location can also mean a property that is in an inconvenient place in relation to amenities or not located in a desirable school district.  Proximity to jobs, highways, bus stops and other necessities are very important.  Simply put, people want to live in good areas that are convenient for what they need in life.

Bad Neighbors

Sometimes bad neighbors can change. Chances are, though, that they’ll stick around for a while. Here, it’s important to introduce yourself to the neighbors and ask about the neighborhood. You can learn some valuable information about the locals and get a feel for the people that your tenants will be dealing with.

Red flags? Hoarders (sometimes you can only tell from the inside of a home, but if the outside is littered with junk, it can really hurt your property’s value), too much noise (from people or pets) and signs of criminal activity.  Loud dogs, cars on blocks or cars parked in the grass can all be bad signs!  If you want your property to hold its value and have the potential for rents and value to go up, then you need to pay attention to the neighbors.

Outdated

Retro may be coming back in fashion, but pastel yellow bathrooms and outdated kitchens do nothing for your property value. You don’t have to make it perfect, but try to make renovations in bathrooms and the kitchen a priority.  This is an area that I will talk about in one second, but you have to make sure you do not over-renovate your property.  These areas are important but simply putting in new does not mean it is wise.  Do not over-spend on materials or decorate in your own personal favorite colors.  The renovations should be simple and clean.  They should be inviting and tell a potential renter that the owner cares about the property and spent time providing a new clean environment in the kitchen and bathrooms.  

Over-Renovations

Beware of making an investment property too nice. While you may have a vision of perfection, your tenants don’t expect it and it’s often not worth it for the ROI. If you over-renovate your property in comparison to other homes in the neighborhood, it can work against your value. The same can be said for unbalanced renovations within the property.

Same as with the kitchen and bathroom, it is important to make the right renovations without breaking your bank.  Yards should be clean and windows and entrances to the house should all be clear of bushes and brush.  The house numbers should be visible from the street and a new mailbox never hurt either!  Trees should be trimmed up above the roof line so your property has a clean appearance from the street.  None of these renovations are costly and they sure beat tearing out everything and redesigning the whole exterior of the house!

Same goes for the inside.  It is important that a potential tenant can see the care that you have put into the property, but care means a clean space.  It does not take a lot of money or effort to make the inside of a house inviting and clean.

Incompetent Management

Bad management can hurt your potential earnings. Watch out for property managers who aren't thorough in their work — incomplete or missing reports, laziness in addressing maintenance and safety concerns or a lack or organization could mean that you’re not making the most of your investments. Put your property in the hands of someone who will take good care of it.  If the property manager only wants to get your property occupied with a breathing person and does not care about its appearance or the type of tenant the property is attracting, then even a great property can be turned into a losing property very quickly.

Make sure that your property management company operates the way you would operate if you were managing the property yourself.  Having pride in the appearance and performance are very important for your property management company!


What do you do to stop threats to your property value? Share with us in the comments.

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Topics: investment property, property value