One thing that has really resonated with me over the years is the philosophy of having to spend a lot of money in property work, upgrades, etc. in order to get a high price when you sell. As a matter of fact, many owners have it ingrained in their heads that in order to make their properties more profitable they need to do some work or improvements on the property.
Also, many owners feel that they will get their improvements cost back from the increase in value. Bad news. They are wrong. At least partly anyway.
The first thing you need to work on that does not cost any money is your property expenses. Reducing your fixed expenses is where you start.
Property taxes, insurance, lawn care, waste hauling, etc. are all fixed expenses. If an owner works on these and really focuses they can easily generate an additional $2,000—$20,000+ in additional income to the bottom line, depending on the size of the property.
However, most owners do NOT do this, they go right to the spending money part. Whatever you do, go to the expense cutting part first. This is where the majority of your money will be made when you sell not in the upgrades. If you want to do
Upgrades that is fine, however make sure that it is part of a plan of overall profit. To increase your value $100,000 but spend $100,000 on property improvements makes no sense, however, many owners do this every day. The most important thing to always remember here is it is ALL about the math. All of it. So, make sure that you run your numbers, many times if need be in order to get you to a point of being profitable. If the math does not work, do not do the improvement. Let me give you a small example…
Lets say your 12 plex needs to be painted. Lets say that the cost is $5,000 to paint it. However, you want to sell and want it to look great so you consider a vinyl siding. The siding costs $13,000 but it will last forever. The paint will not. What most people will do is opt for the siding since it looks better and lasts forever. Cost in this example $13,000.
But the problem is that this expense will NOT be returned to you when you sell. Why? The $13,000 expense will NOT increase the value of the property from a cash flow standpoint. In other words because you place siding on the property this will in and of itself NOT raise the net income the property produces. It just makes the property look better but does NOTHING for the income it produces. That will go unchanged, at least for a long while.
So do you think a buyer is going to say, “Hey, the cash flow is the same now after the siding vs. before the siding but since you spent the money on this I will be glad to pay you back when I buy it.” Not going to happen! Always think to yourself—Is this expense going to be one that will be able to be paid back in INCREASED NET INCOME? If not, think about how it can be…