One of the typical errors made by new rental property investors in Meridian 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 advice is to warn you of potential risks and support you in making informed investment decisions.
We suggest thinking strategically and resolving profitability challenges before buying the property. By keeping your end goal clear from the start, you can avoid financial difficulties from over-improving.
Plan for the long-term
It’s often suggested by experts to start with an exit strategy for your investment. You need to ensure that you can refinance or sell an investment property at the right time and make a profit. If you can’t, why buy the property at all?
Discuss with various lenders to gain insights into mortgage products, costs, and if your goals align with your financials. A good lender can identify barriers you may face and confirm if your strategy is robust.
Calculate property value after repair
A key piece of information to prevent over-improving your Meridian rental property is knowing its After-Repaired Value (ARV). ARV is the expected value of the property after undergoing repairs or renovations. Knowing the property’s value post-improvements is crucial to ensuring a profitable investment.
Use good comparable properties to calculate your ARV. Afterwards, confer with real estate agents, other investors, and your contractor. The more details you gather, the more confident you’ll be that your improvements are sufficient—but not excessive.
Striking the right balance can be difficult, particularly for first-time investors. However, comparables—similar properties sold or rented recently in the area—can guide your improvement decisions. A good grasp of the local rental market enables you to improve your property to charge competitive 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 most homes in the neighborhood have tile floors and composite countertops, avoid installing hardwood and granite.
Though upgrades should be of good quality, luxury materials and high-end products often waste money. 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. View it as an investment instead of your personal home. 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.
Searching for expert advice to maximize your rental property profits? Real Property Management Boise can help. We’re a team of experienced property managers in Meridian and nearby. Contact us online or call us at 208-494-1800 to learn more.
Originally Published on Jan 29, 2021
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