One of the greatest errors made by new Creve Coeur rental property investors is to over-improve their rental house. It’s natural to want your rental to be in good condition and to appeal to quality tenants. However, improving the property too much can mitigate or even eliminate any profits you aim to achieve while you recoup your remodeling costs. One of the effective approaches to minimize this risk is to think strategically and address obstacles to profitability upfront – before you even buy the property, if possible. When you begin with your end goal in clear view, you will be less likely to end up in a financially shaky situation from over-improving.
The majority of specialists 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 any specific time and gain a tidy profit. Or else, what is the sense of buying from the start? Then, as you’re crunching the initial numbers, think about what you will need to get out of your property for a couple of years down the road – incorporating any improvements you have prepared. Speak to some lenders to learn about mortgage products, costs, and whether your goals align with your financials. A great lender can clarify which barriers you may face and whether your strategy is solid or not.
Another crucial piece of information you need to avoid over-improving your Creve Coeur rental property is your After Repaired Value (ARV). To ensure that your investment is profitable, you need to know what will be the selling price of the property the moment you finish improvements. With this figure, you can then be assured that you’re not going too high with your remodeling plans. Using good comparable properties, calculate your ARV. At that time, talk to real estate agents, other investors, and your contractor. The more information you possess, the more confident you’ll feel that your improvements are enough – but not too much.
Finding that balance can be a real challenge, mostly if you are a first-time investor. Erring in either direction can cost you big time. But one way to find the right improvements for your rental house is to consult your comparables again. If you recognize what the other rental homes in the vicinity 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.
Probably the worst thing you can do is to make your property nicer than others in the neighborhood. If most neighborhood houses have tile floors and composite countertops, don’t install hardwood and granite. While everything you upgrade should be of good quality, most of the time, 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 major boost in a property. But even in such cases, you can still aim for mid-grade materials and good but not very extravagant improvements.
At the end of the day, 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 might begin to make major improvements that you like but will not do much to improve profitability. It is reasonable to want to take pride in your rental properties, but that pride should come from being the owner of 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 Three Bridges, our team of Creve Coeur 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 636-542-8852.
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