Self-Directed Real Estate IRA investors everywhere have a vested interest in maximizing their rental income, increasing the marketability of their investment, and reducing vacancy or speeding up the sales cycle in a fix-and-flip situation.
Furthermore, you want to make your property appealing to the retail market, and not just to other investors like yourself. Investors are always looking to buy good properties at a substantial discount, so you are never going to get full price from another investor. The key to generating capital appreciation is to buy wholesale and then make the property appealing to the retail market.
That is why curb appeal is so important – so that you stand the best chance of getting a good sale price from a family looking for their dream home, or a good rental price from a tenant simply looking for a nice and pleasant place to live.
Repeated studies have shown that major renovations or improvements generate little or no return on investment, from the landlord’s point of view. By and large, they do not add value in the marketplace net of their costs. The annual Cost Versus Value study shows that major improvement projects are nearly always money losers. Save your money to do it on your own home to make it a nicer place for you to enjoy, but do not worry about doing major improvements to rental properties, except as necessary to keep up with habitability standards and the standards for the neighborhood.
Studies DO show, however, that more cosmetic projects designed to improve curb appeal have a meaningful effect on sales prices and the attraction potential tenants have when it comes to renting the property. A study from Michigan State University estimates that projects that enhance curb appeal actually do add value – potentially increasing the sales price of a home by between 5 and 11 percent.
That is the difference between a wholesale price and a retail price.
Taking care to maintain the curb appeal of the property also makes a meaningful difference at renewal time and helps you get the best possible rental price from your Self-Directed Real Estate IRA property.
Here are some proven ways to enhance your Self-Directed Real Estate IRAs curb appeal – and increase your investment profits:
- Powerwashing or sandblasting. Blast the grime, grease, mud and dust from your exterior walls and also from your driveway and garage floor. By some studies, a $600-$700 investment in a good power wash can add $10,000 to $15,000 to the resale value of a house. That’s about the best ROI anyone can expect, anywhere.
- Invest in professional landscaping. A Weyerhauser study, cited by the University of Michigan researchers, found that professional landscaping added approximately 15 percent to the sales price of homes, while a survey of real estate appraisers estimated that landscaping added about 7.3 percent to sales prices. Another study estimated the average gain as 12 percent. Either way, those price increases add significantly to the expected sales price, and may provide a key to flipping arbitrage: Find a neglected home with a sad-looking yard, spruce it up with some good landscaping and gardening and other relatively inexpensive enhancements to curb appeal, and turn it around for a 6 or 7 percent profit every time you do it.
- Paint it. A coat of paint and some attention to detail on the trimmings can go a long way in transforming a drab house to one people want to live in. Studies show that painting is one of the most cost-effective projects landlords can do.
- Declutter. Ensure the yard is free of debris, dead vegetation, old toys, cars and car parts. Get that aging elevated pool out of the front yard. Any clutter is distracting to the eye and detracts from the curb appeal of the home.
- Replace old or missing roof tiles. Not up to a whole new roof yet? At least replace missing, damaged or obviously worn tiles. It’s one of the first things buyers will look at, because nobody wants to buy a home and then get stuck with the need for a major re-roofing project.
- Replace front door and garage door. If the front door and garage door are looking the worse for wear, replace them. The Cost vs. Value survey shows that these projects roughly break even from an ROI project. But if the doors are obviously old and worn out and damaging your home’s curb appeal, chances are you’ll be fine making the investment.
- Replace your mailbox. Find something fun or distinguished-looking. It is a small project, but it is a significant part of curb appeal. Spruce up your house numbers while you are at it.
- Light up your exterior. Once you have the home looking nice, you will want to light up the exterior. It looks great for night-time viewers and drive-bys. It also deters crime – and you can get it done for relatively little cash outlay.
As always, remember to pay for these projects using money from within your Self-Directed Real Estate IRA. Do not try to use your personal funds to do improvement projects on your Self-Directed Real Estate IRA property. Doing so could expose you to taxes and penalties, and even cause the IRS to disallow your IRA altogether.