[Depreciation of old house renovation assets] How do real estate investors evaluate the capital expenditure (CapEx) and resale premium of "mechanical, electrical and water supply and drainage systems"?

Invisible hidden projects: real money in old house investment

In the real estate market in the Greater Taipei area, 30, 40 or even 50-year-old apartments have always been prime targets for real estate investors to conduct "buy low, renovate and resell (flip)" or "long-term rent collection and management" because of their extremely low public utility ratio, large indoor real estate, and usually located in elite mature areas. When conducting object evaluation (Due Diligence), most investors focus on "visible decoration", such as polished floor tiles, imported kitchenware or Nordic style paint. However, seasoned businesspeople in real estate asset management knows. If this capital expenditure (CapEx) is assessed incorrectly, it will directly eat into the profit margin when the property is resold.

Fact check: Reasonable depreciation life and replacement standards for water and electricity systems

When conducting asset valuation and depreciation calculations, real estate and electricity investors should refer to the following physical and safe life spans of core water and electricity components, which will help evaluate the "estimated repair discount" at the time of acquisition:

• Water supply pipes (hot and cold water pipes): In early Taiwanese apartments, galvanized steel pipes (iron pipes) or ordinary PVC plastic pipes were mostly used, and their safe lifespan was about 15 to 20 years. After this period, iron pipes will become severely corroded, clogged and release red water, while plastic pipes will become embrittled and cracked due to long-term exposure to high temperatures of hot water.
• Distribution box and circuit breaker: The safe life of the main switch of the electrical box, the mechanical structure and copper bar of the non-fuse circuit breaker (NFB) is approximately 15 to 20 years. Older circuit breakers may experience "no tripping due to overload" failure, posing a high risk of wire fire.
• Indoor wires (cables): CNS national standards stipulate that the safe service life of general household single-core copper wires (such as Taidian and Walsin Lihua brands) is about 20 to 30 years. If an old house is overloaded for a long time, the wires will deteriorate and become carbonized, which can easily lead to short circuits.

[CapEx Facts] When acquiring an apartment in Taipei that is over 30 years old, no matter how new the previous owner claims to be, as long as he cannot produce "a complete replacement of water and electricity and qualified construction invoices and completion photos", investors should automatically include the CapEx budget for water and electricity renewal (approximately NT$ 150,000 to NT$ 250,000) when making an offer. Yuan) will be deducted directly from the bid amount.

CapEx capital expenditure trends for whole-house water and electricity replacement in Greater Taipei

We take a standard medieval house in Taipei City and New Taipei City with 3 bedrooms, 2 living rooms, and 2 bathrooms, about 30 square meters, as an example to compile a reasonable project budget for the replacement of water and electricity in the whole room:

Asset Premium: How does a utility replacement certificate bring a 15% resale premium?

When conducting real estate flip resale, experienced investors will actively package the "invisible CapEx" as the "most powerful sales point (USP)" to create an excessive resale premium:

• Provide "Full Room Replacement History of Water and Electricity": During the decoration process, record every detail of the water and electricity construction in detail - from photos of the pointer for water and air pressure tests, the packaging and production year of the Taidian wires used, to the construction photos of the white iron double-pressure pipes in the wall. Compile these photos into a "House Health Inspection and Plumbing Resume Booklet" and hand it to potential buyers.
• Attracting owner-occupiers who seek peace of mind: For owner-occupiers in the greater Taipei area (especially newlyweds, first-time buyers or those who are downsizing), they are most afraid of buying a leaky house that is "gold on the outside but shabby on the inside." When investors can produce professionally certified photos of updated water and electricity and a lifetime warranty on pipes, buyers are more than willing to pay an additional 10% to 15% price premium. Because this can save them from the huge trouble and secondary construction cost of having to build walls and repair pipes again after buying it.

Conclusion: Mechanical, electrical and waterways are the security line of defense for the investment value of old houses

In the field of antique house investment in Taipei and New Taipei, rational real estate businessmen should not invest all their funds in flashy soft furnishings. Although the update of water, electricity and water supply and drainage systems cannot directly show the visual effects of Internet beauty in photos, it is the only safety net to prevent major water leakage and damage to assets and power outage fires. Treating water and electricity replacement as a non-negotiable CapEx investment, and systematically packaging and presenting it to future buyers is the golden business logic for reshaping depreciating assets into "high-premium high-quality residences."