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Investment Property Cash Flow Killers

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Turnkey Investment PropertyHave you ever stopped and thought about why The Biggest Loser, Extreme Makeover and Flip this House are such popular reality TV shows?

One word: Transformation. People love to see transformation happen, especially if it can be done while sitting on the couch.

Like most people, I also enjoy the before and after process of transforming a distressed home into a neighborhood gem. There’s nothing better than the shine of freshly installed granite countertops and stainless steel appliances. And that new carpet smell, so good!

But if you’re only spending money on the cosmetic stuff then your remodel is little more than lipstick on a pig. When owning a rental investment property in Milwaukee, Wisconsin, or anywhere else in the country, it’s imperative that all deferred maintenance costs be eliminated. By doing so there will be no surprises later that will negatively affect cash flow and harm your net return on investment.

So how do you eliminate deferred maintenance costs? By replacing all of the major mechanical components inside and outside of the home prior to advertising it for rent.

Before we purchase any property (and ultimately sell it to an investor client) it’s completely updated. Here’s what we do:

  • Inspect the basement and install a sump-pump and drain tile.
  • Upgrade the electrical panel to a minimum 100-amp service.
  • Install new heating/cooling systems and water heater.
  • Replace the roof (if there are less than 5-7 years of life).

Why? A foundation problem in the basement could cost you $10,000 or more. The same goes for a new roof. A replacement furnace could go for over $2,000 and upset your customer (tenant) when it goes out in the dead of winter. And while an electrical panel upgrade is relatively affordable (around $1,500) it will be difficult to insure the property without replacing it.

Sure, it’s much more fun to fix the stuff in the house you can actually see like cabinets and wood flooring. I know how you feel. Do you think I really wanted to use a picture of an electrical panel at the beginning of this post? But are you buying rental properties to show off before and after pictures to your friends and family or are you trying to earn an above average return on investment?

Both cosmetic and mechanical improvements are important. Finding a highly qualified tenant willing to pay top market rent will be difficult if your property doesn’t look pretty. But replacing the stuff you can’t see will save you down the road.

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