What is the best way to Increase appraisal value

Question

What improvements should be made in a property if trying to increase appraisal value in Texas. I am submitting an offer for a multiplex and it needs some tlc. What do I hit first? I am trying to keep as much money in savings right now until I get the feel of things. This will be my first property. I will also be a landlord, sincerely novice Texas investor.

Maybe listing in order from greatest significance to least : flooring, new paint on outside, metal roof, central ac and heat in each unit, landscaping, updating restroom (shower, countertops), kitchen counter tops

Danny Webber · Answer

I teach a course on this but do the most obvious things that make it different from any pics on the mls.

ie. paint, cabs, counters, flooring, hardware upgrades, smell good, daylight bulbs in lights, etc... make a list of all upgrades, have your preferred comps in package, talk nice, schedule appraisal mid morning, not on a rainy day, etc..

Katie Greenman · Answer

@Anthony Vicino good information thank you! It is 4 units but the more I know the better. Thank you for the education.

Anthony Vicino · Answer

@Katie Greenman NOI - Net Operating Income (ie: Total Revenue - Total Expenses (not including Debt Service) = NOI). If you're looking at multifamily properties over 4 units, this is going to be a critical number to know as the banks derive the valuation of a property in part from the NOI (NOI/Cap Rate).

The Cap Rate is going to be dictated by your local market for that particular asset class, so there's nothing you can do to control that, but you can control the NOI by increasing revenue (raise rent and additional income sources (parking, laundry, pet fees) and by decreasing operational expenses (spend less to actually operate the property).

One of the biggest expenses you'll have on a property are the utilites. A lot of buildings these days will have split electricity that the tenants pay themselves, but it's not all that common to have split water. In many cases, the landlord just ends up paying this themselves, but that can add up to be a massive bill.

That's where RUBS comes in. RUBS is Ratio Utility Billing Services and really all it's doing is charging the tenants a ratio of the water consumption bill. This can be calculated in a bunch of ways (also there are some companies that will just handle this entirely for you), but it's important to know you absolutely cannot make a profit by charging more than the cost you incurred (as now you would be selling a utility, which is strictly regulated). Generally speaking, landlords will charge up to 80% of the total water bill to the tenants so that they always stay well clear of that regulation.

All this really means is that to increase the value of the building you need to increase the Net Operating Income. The renovations you implement should all have an eye-towards that goal.

Ask yourself: Can I charge more rent if I implement this renovation?

If the answer is yes, then give that strong consideration. If the answer is no, then you need to ask yourself:

Will this renovation lead to decreased expenses? If the answer is yes, well, again, give it strong consideration based on what the numbers say. If the answer is no, well, then the final question is:

Do I have to do this renovation? For instance, is there a safety concern or some long term problem that will be caused by not making the fix?

Very last thing: If the building you're looking at is 4 units or smaller than you can pretty much disregard all of the above because these properties are going to be valued based on comparables, which is a whole other topic of discussion.

Katie Greenman · Answer

@Danny Webber understood thank you!

Katie Greenman · Answer

@Anthony Vicino @Anthony Vicino lots of great advice I truly appreciate it. What does RUBS and NOI stand for? Great teacher, thanks

Katie Greenman · Answer

@JD Martin sf is for the future. I do not have the capital to do so right now. I do agree though, thank you. As for systems do you mean installing central ac system?

Anthony Vicino · Answer

Hit the things that lead to the highest increase in rent. That's going to differ area-by-area, but I've found paint and flooring are the two biggest hitters that almost always make an immediate impact. From there, fresh paint on cabinets and new appliances go a long ways. Then, bathroom touch-ups.

The new roof isn't going to increase value. It's like a shower, you don't get bonus points for having done it, but you do get dinged if you don't.

Heat and AC are things that you can conceivably raise the rent for (unless it's market standard that these are already included). Otherwise, implementing RUBS (if it flies in your area) can be an effective way to pump up that NOI.

JD Martin · Answer

Forget about amenities. Add sf, replace major systems. You won't get anything for those.

What is the best way to Increase appraisal value

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