One of the typical errors made by new rental property investors in Kennewick is over-improving their rental homes. Although it’s natural to want your rental in top shape to attract good tenants, over-improving can reduce or eliminate potential profits. This cautionary advice is meant to highlight potential risks and assist you in making informed investment decisions.
We advise thinking strategically and addressing profitability challenges before purchasing the property. By keeping your end goal clear from the start, you can avoid financial difficulties from over-improving.
Plan for the long-term
Experts usually suggest planning your investment’s exit strategy right from the beginning. It’s important to feel confident that you can refinance or sell an investment property at the right time and make a profit. Otherwise, what is the purpose of buying it in the first place?
Talk to multiple lenders to learn about mortgage products, costs, and whether your goals fit your financial situation. A competent lender can outline potential obstacles and determine if your strategy is sound.
Calculate property value after repair
An essential detail to avoid over-improving your Kennewick rental property is its After-Repaired Value (ARV). The ARV is the estimated worth of the property once it has been repaired or renovated. Ensuring your investment is profitable requires knowing the house’s worth post-improvements.
Calculate your ARV by using quality comparable properties. Afterwards, confer with real estate agents, other investors, and your contractor. The more data you collect, the more confident you’ll be that your improvements are sufficient—but not over-the-top.
Striking the right balance can be difficult, particularly for first-time investors. Nevertheless, comparables, which are similar properties sold or rented recently in the area, can guide your improvement choices. Understanding the local rental market enables you to enhance your property to charge market-competitive rents.
Don’t go overboard with improvements
Over-improving your property compared to others in the area is one of the worst things you can do. If neighborhood houses generally have tile floors and composite countertops, don’t opt for hardwood and granite.
Though upgrades should be of good quality, luxury materials and high-end products often waste money. Instead, choose mid-grade materials that are of decent quality without being the most expensive. Even for rentals in high-end neighborhoods, focus on mid-grade materials and nice, non-extravagant improvements.
Prioritize profitability over personal preference
Finally, steer clear of over-improving your rental by keeping emotional attachment in check. Consider it as an investment rather than a personal residence. Becoming emotionally involved in your rental can result in renovations you like but won’t significantly enhance profitability. It’s normal to want pride in your rental properties, but it should stem from having a profitable, well-run investment, not from excessive spending on improvements.
Want expert advice to increase your rental property profits? Real Property Management Tri-Cities can help. We’re a team of experienced property managers in Kennewick and nearby. Contact us online or call us at 509-572-5440 to learn more.
Originally Published on Jan 29, 2021
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