Over-improving a rental house is a common pitfall for new Titusville property investors. Wanting a well-kept rental to attract quality tenants is natural, but too many improvements can diminish or wipe out your profits. This advice serves to alert you to potential risks and guide you in making informed investment decisions.
We advise thinking strategically and addressing profitability challenges before purchasing the property. Starting with your end goal in mind helps you avoid financial instability caused by over-improving.
Plan for the long-term
Many experts recommend beginning with an exit strategy for your investment. It’s important to feel confident that you can refinance or sell an investment property at the right time and make a profit. Otherwise, why buy the property 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
To avoid over-improving your Titusville rental property, knowing its After-Repaired Value (ARV) is crucial. The ARV is the projected value of the property after repairs or renovations. To make sure your investment is profitable, it’s essential to know the property’s value after improvements.
Calculate your ARV by using quality comparable properties. Then, speak with real estate agents, other investors, and your contractor. The more knowledge you gain, the more confident you’ll be that your improvements are appropriate—but not excessive.
Balancing improvements can be challenging, especially for those new to investing. However, comparables—similar properties sold or rented recently in the area—can guide your improvement decisions. By understanding the local rental market, you can upgrade your property to command competitive rents.
Don’t go overboard with improvements
It’s a major mistake to make your property nicer than the surrounding homes. If most homes in the neighborhood have tile floors and composite countertops, avoid installing hardwood and granite.
While quality upgrades are necessary, luxury materials and high-end products usually aren’t worth the investment. Rather, target mid-grade materials that are reasonably priced yet good in quality. Even in upscale neighborhoods, choose mid-grade materials and make nice but not extravagant upgrades.
Prioritize profitability over personal preference
To avoid over-improving your rental, remember not to get emotionally attached to the house. Think of it as an investment, not a home for yourself. When you’re emotionally involved in your rental properties, you might make renovations you like but that don’t enhance profitability much. It’s understandable to want pride in your rental properties, but it should be due to owning a profitable, well-managed investment, not the amount spent on upgrades.
Need expert advice to enhance your rental property profits? Real Property Management Brevard can help. We’re a team of experienced property managers in Titusville and nearby. Contact us online or call us at 321-610-8022 to learn more.
Originally Published on Jan 29, 2021
We are pledged to the letter and spirit of U.S. policy for the achievement of equal housing opportunity throughout the Nation. See Equal Housing Opportunity Statement for more information.
