One of the significant mistakes that new Kennewick rental property investors make is to over-improve their rental house. It is natural that you want your rental to be in good condition and appeal to quality tenants. But improving the property too much can limit or even remove any profits you expect to gain while you recoup your remodeling costs. One of the safest ways to mitigate this error is to think strategically and address obstacles to profitability upfront – before you even acquire the property, if possible. If you start with your final objective in clear view, you will be less likely to catch yourself in a financially shaky situation from over-improving.
Many professionals advise starting by planning the end of your investment’s life – your exit strategy. When you purchase an investment property, you must feel confident that sooner or later, you will refinance or sell the property to make a tidy profit. If not, what is the reason for purchasing in the first place? So as you’re crunching the initial numbers, think about what you will need to get out of your property for a few years down the road – including any improvements you have intended. Speak to certain lenders to learn about mortgage products, costs, and whether your goals align with your financials. A good lender should be able to clarify what barriers you may face and whether your strategy is solid or not.
Another important piece of information you need to avoid over-improving your Kennewick rental property is your After Repaired Value (ARV). To make sure that your investment is profitable, you must know the asking price of the house as soon as you finish improvements. Using this figure, you can be confident that you won’t be spending too much for your remodeling plans. Using good comparable properties, calculate your ARV. After that, talk to real estate agents, other investors, and your contractor. The more knowledge you get, the more confident you’ll feel that your improvements are enough – but not too much.
Finding that balance can be a real challenge, specifically if you are a first-time investor. Erring in either direction can cost you big time. However, one place to find the right improvements for your rental house is to rely on your comparables once more. If you know what the other rental homes in the neighborhood look like – and what they rent for – you can improve your property up to the point that it will allow you to charge market rents and no more.
Having your property nicer than others in the vicinity is one terrible decision you can make. If most neighborhood houses have tile floors and composite countertops, don’t put in hardwood and granite. Although anything you upgrade must be of good quality, mostly, luxury materials and high-end products are a complete waste of money. There are exceptions to this rule, mainly if your rental is in a high-end neighborhood or certain upgrades would offer you a major boost in a property. But even in such cases, you need to aim for mid-grade materials and good but not very good improvements.
Ultimately, avoid over-improving your rental house by remembering not to get too attached to the house. Try to view it as an investment, not a home. If you become emotionally involved in your rental properties, you will begin making upgrades that you desire but will do nothing to improve profitability. It is common to want to take pride in your rental properties, but that pride must come from being the owner of profitable and well-run investment and not how much you spent on improving the property.
Would you like some expert advice on how to improve your rental property to maximize profits? We can help! At Real Property Management Tri-Cities, our team of Kennewick property managers can help you find comparables, calculate your market rents, and much more! To learn more about what we offer investors like you, contact us today online or call us at 509-572-5440.
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