Over-improving rental properties is a frequent pitfall for new investors in Lakeland. It’s normal to want your rental to be in great condition to draw quality tenants, but excessive improvements can shrink or erase your profits. This cautionary advice is meant to highlight potential risks and assist you in making informed investment decisions.
Our advice is to plan strategically and address any profitability obstacles before purchasing the property. When your end goal is clear from the outset, you are less likely to encounter financial issues due to over-improving.
Plan for the long-term
Experts generally advise starting with a plan for your investment’s end—your exit strategy. When purchasing an investment property, you should be confident that you can refinance or sell it for a profit at the right time. Otherwise, what is the purpose of buying it in the first place?
Consult with several lenders to learn about mortgage products, costs, and whether your goals align with your finances. A knowledgeable lender should inform you of possible obstacles and verify the soundness of your strategy.
Calculate property value after repair
A key piece of information to prevent over-improving your Lakeland 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. Next, discuss with real estate agents, fellow investors, and your contractor. Gathering more information will boost your confidence that your improvements are adequate—but not overdone.
Striking the right balance can be difficult, particularly for first-time investors. Yet, you can rely on comparables, similar properties sold or rented recently in the area, to direct your improvement decisions. Understanding the local rental market enables you to enhance your property to charge market-competitive rents.
Don’t go overboard with improvements
Making your property nicer than 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.
Upgrades should be of good quality, but luxury materials and high-end products are usually a waste of 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. If you get emotionally involved in your rental properties, you might make renovations you prefer, which don’t necessarily improve profitability. Wanting to take pride in your rental properties is normal, but it should come from having a profitable, well-run investment, not from how much you spent on upgrades.
Want expert advice to increase your rental property profits? Real Property Management Lakeside can help. We’re a team of experienced property managers in Lakeland and nearby. Contact us online or call us at 863-877-1078 to learn more.
Originally Published on Jan 29, 2021
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