When Does it Pay to Replace rather Than Repair?

The world of real estate investment is full of subtle nuances that can yield handsome profits, if handled intelligently.  The flip side is that we may lose everything without properly regulating our spending on a “fixer.”  One of the reasons I am recognized as one of the nation’s most effective real estate mentors is the fact that I have made my share of mistakes and I have learned some valuable lessons from these.

I cringe when I see novice real estate investors remodeling a house on a street that doesn’t deserve that kind of attention.  This is called over-improvement and is a very costly mistake.  That’s why it pays to know your market and the neighborhood where you buy.

I always try to help my students see the need to “rehab” rather than “remodel.”  Rehabbing is more closely associated with repairs than replacement.  There are, however, times when replacement is more cost effective than repairing an old or outdated fixture.

The following 3 reasons are:

    * When the cost of repairs exceed reasonable replacement
    * When the perceived value of the property increases due to an upgrade
    * When yours is the only house on the block w/o (energy efficient windows)

In my real estate mentor program I advocate never over-improving a property.  It would be tantamount to throwing your money in the trash.  Each and every rehab decision must pencil out and NEVER be based on an emotional impulse or personal taste.

I will be discussing more specific types of improvements that are fiscally responsible in subsequent articles.  For now, a good rule of thumb is to repair when possible, and only replace when it makes sense.