One of the main reasons for the failure of new Meridian rental property investors is they over-improve their rental house. It’s reasonable to choose your rental to be in good condition and to appeal to quality tenants. However, improving the property too much can lessen or even remove all profits you expect to achieve while you recoup your remodeling costs. One of the best strategies in reducing this threat is to think strategically and address obstacles to profitability upfront – before you even acquire the property, if possible. When you begin with your end goal from a good perspective, you will not ever see yourself in a financially shaky situation from over-improving.
Most experts suggest commencing by planning the end of your investment’s life – your exit strategy. When you get an investment property, you need to feel confident that you can refinance or sell the property at a given point in time and develop a tidy profit. If not, what does the purchase mean from the beginning? So as you’re crunching the initial numbers, think about what you will need to get out of your property for several years down the road – including any improvements you have planned. Interact with a few lenders to learn about mortgage products, costs, and whether your goals align with your financials. A great lender will describe the barriers you may face and whether your strategy is solid or not.
Another crucial piece of information you need to avoid over-improving your Meridian rental property is your After Repaired Value (ARV). To safeguard that your investment is profitable, you need to know what will be the market value of the property after you finish improvements. With this figure, you can then be confident that you’re not going too high with your remodeling plans. Using good comparable properties, calculate your ARV. Then, talk to real estate agents, other investors, and your contractor. The more awareness you have, the more confident you’ll feel that your improvements are enough – but not too much.
Finding that balance can be a real challenge, primarily if you are a first-time investor. Erring in either direction can cost you big time. But one technique to find the right improvements for your rental house is to recheck your comparables again. If you recognize what the other rental homes in the town 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.
Another big mistake you can make is to get your property nicer than others in the district. If most neighborhood houses have tile floors and composite countertops, don’t use hardwood and granite. Although everything you upgrade should be of good quality, most often, luxury materials and high-end products are a complete waste of money. There are exceptions to this rule, specifically if your rental is in a high-end neighborhood or certain upgrades will offer you a significant boost in a property. But even in such cases, you can still aim for mid-grade materials and good but not excessive improvements.
Finally, 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. When you get emotionally involved in your rental properties, you could start making big changes that you desire but won’t do much to improve profitability. It is logical to want to take pride in your rental properties, but that pride should come from being the owner of a 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 Boise, our team of Meridian 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 208-494-1800.
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