Over-improving a rental house is a common pitfall for new Creve Coeur property investors. 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 warning is intended to make you aware of the risks and help you make better investment choices.
We recommend strategic thinking and addressing profitability concerns upfront before acquiring 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
Many experts recommend beginning with an exit strategy for your investment. When purchasing an investment property, you should be confident that you can refinance or sell it for a profit at the right time. Otherwise, why buy the property in the first place?
Speak with a few lenders to understand mortgage products, costs, and if your goals match your financial situation. A good lender can identify barriers you may face and confirm if your strategy is robust.
Calculate property value after repair
Another crucial detail to avoid over-improving your Creve Coeur rental property is its After-Repaired Value (ARV). 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.
Determine your ARV with the help of reliable comparable properties. Afterward, consult 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.
Finding the proper balance can be tricky, 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. By understanding the local rental market, you can upgrade your property to command competitive rents.
Don’t go overboard with improvements
One of the worst errors is upgrading your property beyond the neighborhood’s average. When neighborhood houses mostly feature tile floors and composite countertops, refrain from using hardwood and granite.
Upgrades should be of good quality, but luxury materials and high-end products are usually a waste of 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. Treat it as an investment rather than your own home. When you’re emotionally involved in your rental properties, you might make renovations you like but that don’t enhance profitability much. 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.
Seeking expert advice to boost your rental property profits? Real Property Management Three Bridges can help. We’re a team of experienced property managers in Creve Coeur and nearby. Contact us online or call us at 636-542-8852 to learn more.
Originally Published on Jan 29, 2021
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