Tips to using carport to increase your property value.
Add a Carport for potentially 100% ROI
A carport can potentially add more value to the property, much above the cost of implementation.
Consider the case when you own a residential investment property that lacks a carport and a garage. The tenant’s car must be left outside in the rain, sun, hail, sleet, and snow.
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It is logical to believe that providing a carport with this property will increase the value to the tenant.
Having a carport in many parts of Australia, New Zealand, the United States, and Canada is easily worth $20 per week or $80 per month.
It will be a little less in some regions and a little more in others, but let’s suppose that this is a reasonable increase in the rental when you install a carport.
A carport is no longer a complex building to construct. Its most basic form consists of four poles and a slanted roof.
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How your investment impacts your bottom line
You could get away with three poles if you wanted to be cheap, but it would not be very smart. You should easily be able to collect an extra $80 per month with the carport in place.
This corresponds to a carport income of roughly $1,000 per year.
In this example, the annual return on your $1000 - $1500 investment would be 100%. Why would you add a carport or garage if you owned a home investment property without one?
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Other than real estate, I’m unaware of any other investment vehicle where you can quickly pay an extra $1,000 and receive a significant annual return of 100%.
Assume you have the carport constructed. Because you haven’t paid for it yet, keep in mind that we still owe $1,000.
However, now that you have a new rental, you contact a valuer and tell him you want a valuation based on the fact that your annual income has increased by $1,000.
Based on capitalizing the rental at 10%, the value of the property is projected to increase by $10,000 with an extra $1,000 in income.
You can go back to the bank and receive a new mortgage with this updated appraisal for $10,000 extra. Using a meagre loan-to-value ratio of 70%, the bank will lend you $7,000 at a ten per cent interest rate.
So the bank has given you $7,000 to spend. We still have to pay for the carport, so we pay the contractor $1,000 out of the $7,000.
We must additionally pay $700 in annual interest to the bank. We now receive an extra $1,000 yearly, leaving us with only $300 in annual income after paying our mortgage interest.
However, you still have $6,000 in your pocket (after paying off the $7,000 mortgage and the $1,000 for the carport).
Consider the following: Is the $6,000 taxable in any way?
Because it isn’t income, there isn’t any income tax to pay. And since you didn’t sell anything, there’s no way to talk about capital gains or sales tax. On $6,000, there are no tax obligations. This money was made up out of thin air!
Conclusion
To summarize, you may either pay in cash for your carport and receive $1,000 per year indexed for inflation (a 100 percent return on your $1,000 investment), or you can pay in kind and receive $1,000 per year indexed for inflation (a 100 percent return on your $1,000 investment).
Alternatively, you can pay nothing and earn $300 per year that is adjusted for inflation and leveraged (an unlimited return because you did not put up any capital) plus $6,000 in your pocket that is tax-free.
In any case, why would you not do that if you possessed such property?
And if you don’t believe it’s worth it for a modest $1,000 per year, imagine having 20 of them.
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