Over-improving a rental house is a common pitfall for new Nampa property investors. It’s understandable to want a well-maintained rental to attract quality tenants, but too many improvements can cut into or erase your potential profits. This warning is intended to make you aware of the risks and help you make better investment choices.
We advise thinking strategically and addressing profitability challenges 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 usually suggest planning your investment’s exit strategy right from the beginning. When purchasing an investment property, you should be confident that you can refinance or sell it for a profit at the right time. If you can’t, what’s the reason for buying it at all?
Speak with a few lenders to understand mortgage products, costs, and if your goals match your financial situation. A competent lender can outline potential obstacles and determine if your strategy is sound.
Calculate property value after repair
An essential detail to avoid over-improving your Nampa rental property is its After-Repaired Value (ARV). ARV represents the estimated value of the property post-repair or renovation. Ensuring your investment is profitable requires knowing the house’s worth post-improvements.
Use accurate comparable properties to figure out your ARV. Afterward, consult with real estate agents, other investors, and your contractor. With more information, you’ll feel more assured that your improvements are just right—not overdone.
Achieving the right balance can be tough, especially 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. Opt for mid-grade materials that are good quality but not overly expensive or luxurious. Even in a high-end neighborhood, aim for mid-grade materials and tasteful, not extravagant, improvements.
Prioritize profitability over personal preference
Finally, ensure you don’t over-improve your rental by not getting too emotionally attached. See it as an investment, not a personal home. When you’re emotionally involved in your rental properties, you might make renovations you like but that don’t enhance profitability much. Taking pride in your rental properties is natural, but it should come from owning a profitable, well-managed investment, not from the amount spent on improvements.
Seeking expert advice to boost your rental property profits? Real Property Management Nampa can help. We’re a team of experienced property managers in Nampa and nearby. Contact us online or call us at 208-960-0660 to learn more.
Originally Published on Jan 29, 2021
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