New rental property investors in Lewisville often fall into the trap of over-improving their properties. 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 advice is to warn you of potential risks and support you in making informed investment decisions.
Our practical suggestion is to consider strategic planning and tackle profitability issues before buying. If you begin with a clear end goal, you are less likely to face financial troubles from over-improving.
Plan for the long-term
It’s often suggested by experts to start with an exit strategy for your investment. You need to ensure that you can refinance or sell an investment property at the right time and make a profit. If not, what’s the point of making the purchase?
Speak with a few lenders to understand mortgage products, costs, and if your goals match your financial situation. A reliable lender should clearly explain any potential barriers and assess the solidity of your strategy.
Calculate property value after repair
Another crucial detail to avoid over-improving your Lewisville 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. The more data you collect, the more confident you’ll be that your improvements are sufficient—but not over-the-top.
Finding the proper balance can be tricky, particularly for first-time investors. However, you can use comparables—similar properties recently sold or rented in the same area—to guide your improvement decisions. Knowing the local rental market helps you upgrade your property to achieve competitive market 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.
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 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. 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. 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.
Searching for expert advice to maximize your rental property profits? Real Property Management Lakeview can help. We’re a team of experienced property managers in Lewisville and nearby. Contact us online or call us at 940-323-0505 to learn more.
Originally Published on Jan 29, 2021
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