Any property investment is undertaken with the expectation that the property value will likely increase. It only feels right for homeowners to want their property value to rise after its initial purchase. Value-added can only be quantified when you determine its profitability from the onset. One such factor that can help establish a property’s profitability is the capitalization rate value.
Calculating The Capitalization Rate Of A Property
This is otherwise known as cap rate. Its calculation is necessary because it helps to decide the profitability of the property you own and the amount of risk involved in taking it on. This value can be used as a springboard for understanding how to strategically increase your property’s value.
It is calculated by dividing the Net Operating Income (NOI) by the property value. The NOI is even more complex to calculate if the value is not readily available. It involves deducting all direct building expenses accurately from the gross net income (i.e., rentals). In situations where the property is not rent-ready, then rehabilitation costs need to be included.
A cap rate calculator can be used to calculate the cap rate of a property more easily. This value is essential for determining the relative profitability of properties. Having determined the cap rate value of a property, you can then take decisive steps to increase the property’s value.
Some ways to increase your property’s value include:
1. Make A Financial Plan
Having a financial plan is an easy, fast, and verified way to increase your property’s value. Having calculated the cap rate value of the home, you already have an idea of how valuable the property is at the moment. Conventionally, the higher the value of the cap rate of a property is, the higher its profitability.
House modifications and other expenses need to be planned out over a more extended period to avoid excessive pressure on your finances which can result in a reduction in your investment returns. Start with a checklist of things you want to attend to, and get them done systematically in a cost-efficient manner.
2. Carry Out An Architectural Remodelling
Remodeling often involves some major work, but it can rightly pay off by increasing the value of your property in the short term. A larger home square footage often commands a higher sale value in today’s market.
This can be achieved by converting a conservative house model to a more open design. Tearing down a few internal walls to increase room sizes and eliminate barriers between spaces will help you achieve this easily.
For better results, you can consider creating a basement or deck that can significantly add to the square footage of the home. This would easily amount to an increase in home value.
3. Carry Out Some Internal Repair And Upgrades
Internal repairs and upgrades often prove to be a great way to raise your home’s value. Kitchens, bathrooms, and bedrooms are spaces to inspect for necessary repair works. With the repair carried out on the spaces, more functional spaces are created.
Taking it a step further would mean upgrading existing features around those spaces. These might include changing existing floor patterns to suit modern trends, repainting the spaces, and adding new furniture. The culminating effect is that both the repair and upgrades translate into a home with a higher value in the market.
4. Enhance The Curb Appeal
Curb appeal is generally an understandable concept for homeowners, but many don’t place the needed importance on improving it. There is always an adjustment to make that can result in the outside of your home looking even better. Major and minor repairs, repainting works, exterior cleaning are some of the several efforts homeowners can put in to increase their property’s value.
Also, you can very quickly achieve a low-maintenance structure by improving curb appeal. This reassures buyers that they won’t have to do much repair in the event of a purchase, making it even more likely for them to pay the right amount.
5. Improve The Energy Efficiency Of Your Property
Poor energy efficiency is one of the main causes for driving up the annual costs of running a building. Energy efficiency can help to cut down on these costs and is a lot more applicable in regions experiencing either of the two weather extremes very frequently.
Improved window and attic insulation, and installation of energy-saving light bulbs and appliances are some simple ways to improve your home’s energy efficiency. These often make for a timely spike in the resale value of your home.
Information is key to taking steps towards a value increase in properties. Capitalization rate values are a great piece of information for real estate investors, as they help to determine the profitability of a property. With this important information, you would be able to raise your property’s value progressively.
The need to first plan out your value increase strategically is key. Carry out a remodelling and make some internal repairs and upgrades. Improve both your home’s curb appeal and energy efficiency, and it should go well up in value after making these efforts.