One of the typical errors made by new rental property investors in Warrick is over-improving their rental homes. While it’s natural to desire a rental in good condition to attract top tenants, too many improvements can lower or eliminate your profits. This caution is designed to make you aware of the risks and help you make well-informed investment choices.
We recommend strategic thinking and addressing profitability concerns upfront before acquiring the property. Starting with a clear end goal helps prevent financial instability from over-improving.
Plan for the long-term
Most experts recommend planning your investment’s exit strategy from the start. Confidence in your ability to refinance or sell an investment property for a profit at the right time is essential. If you can’t, what’s the reason for buying it at all?
Have conversations with a few lenders to understand mortgage products, costs, and if your goals are financially feasible. A trustworthy lender will explain potential barriers and evaluate the strength of your strategy.
Calculate property value after repair
Another vital factor in avoiding over-improving your Warrick rental property is understanding its After-Repaired Value (ARV). The ARV is the estimated worth of the property once it has been repaired or renovated. To guarantee a profitable investment, you need to know the house’s value after improvements.
Determine your ARV with the help of reliable comparable properties. Afterwards, confer with real estate agents, other investors, and your contractor. With more information, you’ll feel more assured that your improvements are just right—not overdone.
Achieving the right balance can be tough, especially for first-time investors. Still, using comparables, similar properties recently sold or rented in the area, can help guide your improvement decisions. Knowledge of the local rental market lets you upgrade your property to charge competitive market rents.
Don’t go overboard with improvements
One of the biggest mistakes you can make is to upgrade your property beyond the neighborhood standard. If the majority of neighborhood homes have tile floors and composite countertops, steer clear of hardwood and granite.
Though upgrades should be of good quality, luxury materials and high-end products often waste money. Aim for mid-grade materials that offer good quality without being too costly or luxurious. Even in high-end areas, opt for mid-grade materials and make improvements that are nice but not over-the-top.
Prioritize profitability over personal preference
Lastly, prevent over-improving your rental by staying detached from the house. See it as an investment, not a personal home. Becoming emotionally involved in your rental can result in renovations you like but won’t significantly enhance profitability. Pride in your rental properties is natural, but it should be from owning a profitable, well-maintained investment, not from spending excessively on improvements.
Interested in expert advice to optimize your rental property profits? Real Property Management Results can help. We’re a team of experienced property managers in Warrick and nearby. Contact us online or call us at 812-461-1676 to learn more.
Originally Published on Jan 29, 2021
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