Source: Profitably Managing Your Rental Properties

R. Dodge Woodson/John Wiley & Sons, Inc. 
 

Making the right improvements can improve your cash flow and property value. Making the wrong ones can drain your bank account without providing any financial rewards. 

For our purposes, capital improvements are those that will cost more than five hundred dollars. They can include exterior painting and/or siding, as well as extensive remodeling kitchens and bathrooms. A new roof installed is a capital improvement, even tho it may or may not be essential. The same goes for replacement of a heating system and other similar situations. 

When a Landlord makes a capital improvement to his building, it is usually an attempt to generate a stronger cash flow and/or a higher appraised value. The intent is good, but the result is not always what he/she had hoped for. To be successful with major improvements you must research market conditions and plan carefully. It is easy to dump several thousand dollars into a property without any noticeable increase in income or value. This is bad business and can cause serious financial distress. To eliminate the risk of losing big money, invest some of your time in research before going ahead. 

What is your reason for the improvement? Increase cash flow or increase value? If you want both, combine your research duties.

What is the cost of the improvement? Soliciting bids from contractors, projecting the improvement performance, your goals for the property and your investment are some of the issues to be considered while you research.