How much value can improvements add to a rental?

Question

How much value can building a garage add to a property? I've found a rental property that is a 4B/1.5Bath/No garage but there is parking at the rear of the property with footings to build a garage. It is currently sitting on a corner lot from a local college. Currently renting at $1300, asking price is $159,000. It is an older home built around the early 1900s so everything is all natural wood. How would you go about adding to the value of this home if you were to purchase it? Would you switch out the flooring for LVP and update everything so it is more modern or would you leave it as is?

Kevin Sobilo · Answer

@Phat Dao, most improvements you hire a contractor for LOSE money and a garage is probably one of the worst tbh.

You might spend $20k on a garage that might get you $50-75 more rents and add $8k in value to the home.

You can make money on improvements if you buy something distressed or in much more dated condition than surrounding homes, but if you buy an average home in a neighborhood and do alot of rehab, you are demoing value to try to add more and often the numbers won't support it.

I would look at what the norms are in your area in terms of features and condition and then look for the EASIEST things you can do to bring your property to be in similar condition. That way you have something to aim for and have an idea of the value you will create.

Scott M. · Answer

Basically impossible to run comps and only apply value differences to a garage being present or not.  How many comps are you going to find that are in close enough condition and the only difference is a garage being present or not.  My guess is not many.

Scott M. · Answer

Adding a garage will cost you more then the value increase you see on an appraisal.  As I read your post you are asking what improvements can you do to increase the value.  Redoing the hardwoods (assuming they are in good shape and can be saved) VS covering them up with LVT I don't think will create a large, if any difference on an appraisal.  I would look at what is hotter in your local market.  But I think they would add a similar value.

Things like gutting an old/outdated kitchen and putting in new, same with bath, those will help increase value beyond what you spend.

Thomas Corley · Answer

@Phat Dao A good use of that extra space we’re you were thinking of adding that gauge could be adding a ADU(guest house or mother-in-law sweet) that will add $500-$1,000/m (depending on the local market) that is my go to to add value to a home if there is extra area to build.

Phat Dao · Answer

All this input has been extremely helpful. Thank you so much everyone.

Joe Splitrock · Answer

@Phat Dao I am in similar climate to you and garages do add value in cold climates. As @Kevin Sobilo mentioned, probably $75 a month on the high end. The cost to build (assuming the foundation is buildable) is going to run you $15,000 or more. It will probably add half that in value to the house. It will take you 15 years to break even based on added rents.

I would never switch out hard wood flooring for LVP. That hard wood flooring has lasted 120 years and it can likely be sanded and stained to last another 50. Unless the floor is in really bad shape, there is no way LVP pencils out as a good upgrade. It is a lower quality finish than hard wood floors so it would reduce value of the home.

Most your value increase comes from updated kitchens and bathrooms or adding living space. Being located by a college, you will get more money renting to students by the room. College students don't demand high end finishes, so there may be no value add play on this property.

Mason Hickman · Answer

@Phat Dao

Run comps in the area to see what type of premium the garage adds to the value of the homes. Also look at the expected standards of the area. ie your property is the only one in the neighborhood without a garage or vice versa.

Then run an ROI on the garage based on increased rents and increased property value.

How much value can improvements add to a rental?

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