How to Increase Investment Property Value

Increasing the value of an investment property is a different process than adding value to a personal residence. While the value of a residence is determined by its desirability compared to other properties in its immediate neighborhood, the value of a piece of investment property is set largely by the cash flow that it generates. With this in mind, many improvements that would make significant changes in the value of a non-investment property will have little or no effect on the value of an investment property. However, operational improvements that may cost the owner nothing can have a significant effect on the value of an investment property.

Instructions

1. Renegotiate the lease with your tenant to increase its term, if the rent is at a market rate. Investors typically will pay more for properties with stable, long-term leases. The exception to this rule would be if the rents are below market or are likely to be in the future.

2. Replace tenants whose leases are expired or who are paying below market rents. This strategy is important for apartment buildings with long-term tenants. Frequently, they are paying below market rents and will accept an increase in rent if given the choice of paying more in their current unit or moving out. If the long-term tenants will not pay more, you can fill it with new tenants at market rates.

3. Lease longstanding vacant space to paying tenants. Although this process can be costly, especially in office and retail spaces, it may increase the value of that property. As of 2010, in markets where occupied spaces sell for $100 per square foot, comparable vacant space may carry a distressed value of $40 to $50 per square foot.

4. Make improvements to the property that will generate additional rent. In an apartment building, this may be a kitchen renovation that leads to an additional $40 to $100 in monthly rent. In an office building, you can renovate common areas or add amenities, such as a fitness center, that lead to tenants paying more rent. Retail centers could add a large monument sign, if zoning allows, and charge tenants for use of the sign.

5. Reduce the expenses of running the property through targeted capital improvements. If you are paying for the common area lighting, for example, installing motion sensitive timers or high-efficiency lighting can reduce your electric bill, which will increase the income of your investment property and be more desirable to a buyer.

6. Make physical improvements to the property that will increase its life or the life of its systems. Although a new roof, for instance, may not increase the property's income, it will save the new owner from having to endure a costly re-roofing. You may recover some portion of what you spend on those types of improvements.