A common mistake for new rental property investors in Springfield is over-improving their rental house. 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 advice serves to alert you to potential risks and guide you in making informed investment decisions.
We recommend strategic thinking and addressing profitability concerns upfront before acquiring the property. Starting with a clear end goal helps prevent financial instability from over-improving.
Plan for the long-term
Most experts recommend planning your investment’s exit strategy from the start. Confidence in your ability to refinance or sell an investment property for a profit at the right time is essential. If you can’t, what’s the reason for buying it at all?
Have conversations with a few lenders to understand mortgage products, costs, and if your goals are financially feasible. A reliable lender should clearly explain any potential barriers and assess the solidity of your strategy.
Calculate property value after repair
An essential detail to avoid over-improving your Springfield rental property is its After-Repaired Value (ARV). The ARV is the estimated worth of the property once it has been repaired or renovated. You must know the house’s post-improvement value to ensure a profitable investment.
Use good comparable properties to calculate your ARV. Then, speak 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.
Striking the right balance can be difficult, particularly for first-time investors. Still, using comparables, similar properties recently sold or rented in the area, can help guide your improvement decisions. Knowledge of the local rental market lets you upgrade your property to charge 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.
Upgrades should be of good quality, but luxury materials and high-end products are usually a waste of money. Aim for mid-grade materials that offer good quality without being too costly or luxurious. 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
Lastly, prevent over-improving your rental by staying detached from the house. See it as an investment, not a personal home. Emotional involvement in rental properties can lead to making preferred renovations that don’t boost 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.
Need expert advice to enhance your rental property profits? Real Property Management Momentum can help. We’re a team of experienced property managers in Springfield and nearby. Contact us online or call us at 417-324-7601 to learn more.
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