Betterment is more than the act of improvement. The term also has major ramifications for anyone who wants to invest.
A betterment is a specific improvement that increases an asset’s value. As fiscal experts note, these improvements are typically associated with capital expenditures.
Betterments can take various forms. In general, however, they contribute to asset value growth by: Ensuring that properties remain attractive when they would normally just lose value to depreciation; Significantly improving the material condition of properties to extend their useful lifetimes; or modernizing properties with new features that add previously absent functionalities.
Betterment strategies also have the potential to make asset ownership profitable in other ways. For instance, if you spend money on bettering a commercial venue, then you might satisfy your customers more or attract new rent-paying tenants.
Imagine that you’ve just bought a home. You don’t plan on living there forever, but you’d like to profit from the future sale, so you make the place more habitable by adding a new air conditioning system and sunroom. These betterments might increase the asking price when you eventually list the home.
You’ve started a small appliance repair company that makes money by performing local service calls. After a few months of successfully drumming up business and generating revenue, you decide to spend some of your profits on enhancing your vehicle fleet. Your installation of tool boxes, dispatch computers, ladder racks, and other hardware would count as betterments.
Having trouble telling whether something counts as maintenance or a betterment? Most definitions say that a critical difference is that repairs and other forms of upkeep are designed to maintain things in their current conditions.
Making up for or correcting known deficiencies is typically viewed as an act of maintenance even though it technically makes the property better. So are restorative actions that only add a minimal amount to a property’s value, such as; Repainting a home, Adding or removing a window, door or divider to or from a building, or
Repairing a vehicle engine.
This isn’t to say that some forms of maintenance can’t cross over into betterment territory. For example, major material alterations to commercial rental property, such as new rooms or accommodations, could be viewed as value-adding improvements. If you completely renovate an old, dilapidated property that’s long gone neglected, you’d be conducting a betterment by extending its lifetime.