New rental property investors in Leander often fall into the trap of over-improving their properties. While it’s natural to desire a rental in good condition to attract top tenants, too many improvements can lower or eliminate your profits. This caution is designed to make you aware of the risks and help you make well-informed investment choices.
We recommend strategic thinking and addressing profitability concerns upfront before acquiring the property. Starting with your end goal in mind helps you avoid financial instability caused by over-improving.
Plan for the long-term
Experts generally advise starting with a plan for your investment’s end—your exit strategy. It’s important to feel confident that you can refinance or sell an investment property at the right time and make a profit. 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 trustworthy lender will explain potential barriers and evaluate the strength of your strategy.
Calculate property value after repair
To avoid over-improving your Leander rental property, knowing its After-Repaired Value (ARV) is crucial. The ARV is the predicted 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.
Calculate your ARV with accurate comparable properties. 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.
Balancing improvements can be challenging, especially for those new to investing. Nevertheless, comparables, which are similar properties sold or rented recently in the area, can guide your improvement choices. 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. If the majority of neighborhood homes have tile floors and composite countertops, steer clear of hardwood and granite.
While it’s important for upgrades to be good quality, luxury materials and high-end products are often not worth the cost. Go for mid-grade materials that provide decent quality without the high cost or luxury. Even in high-end areas, opt for mid-grade materials and make improvements that are nice but not over-the-top.
Prioritize profitability over personal preference
Finally, steer clear of over-improving your rental by keeping emotional attachment in check. Treat it as an investment rather than your own home. Emotional attachment to rental properties can cause you to make preferred renovations that don’t increase profitability. Pride in your rental properties is natural, but it should be from owning a profitable, well-maintained investment, not from spending excessively on improvements.
Interested in expert advice to optimize your rental property profits? Real Property Management All Connect can help. We’re a team of experienced property managers in Leander and nearby. Contact us online or call us at 512-806-0606 to learn more.
Originally Published on Jan 29, 2021
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