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Many owners and investors in apartments and commercial buildings believe that older buildings in good neighborhoods offer better investment potential than new construction.
April 01, 2003 -- Through modernization, rents can be substantially increased and, if modernization can be carried out without disturbing tenancies, the investor would not have the expense of carrying the property as he would in new construction.
If the existing tenants could be expected to remain and pay the increased rents, the investor has neither the costs or the risks of renting that are involved in new construction. His investment is usually less, too, for although he may be paying a premium for the property in relation to its present rent roll, the final cost for the property after modernization can turn out to be far less than the cost of new construction. The investor may be able to charge lower rents than new nearby buildings, putting him in a very competitive position.
The Basics of Modernization
There are five basic aspects to modernizing a building; (1) structural changes; (2) architectural changes; (3) functional changes; (4) mechanical replacements; and (5) aesthetic improvements.
An old building may require structural changes to make it safe. An inspection of the building should be made by a professional engineer before the building is purchased to determine whether the building is structurally sound and what changes, if any, need to be made.
Architectural changes can be made in the design of a building in the course of modernizing it. Many investors believe that a building that has a distinctive architectural features has greater potential than a simple box-like structure.
Functional changes and mechanical replacements increase the efficiency of a building or reduce its cost of operation. For example, changing from manned to automatic elevators eliminates a substantial labor cost. Many old building need new electrical wiring to provide safe installation of modern appliances. Old heating systems and boilers are inefficient and require high maintenance costs.
Aesthetic improvements to a building can usually be done at relatively little cost. An investor intending a quick sale of the property will often emphasize this type of improvement over all others. Such things as new paint or wallpaper, new lighting, and cleaning the outside of the building are typical ways to spruce up the property. |
