A common mistake for new rental property investors in Northborough is over-improving their rental house. Although it’s natural to want your rental in top shape to attract good tenants, over-improving can reduce or eliminate potential profits. This warning is intended to make you aware of the risks and help you make better investment choices.
We suggest thinking strategically and resolving profitability challenges before buying the property. By keeping your end goal clear from the start, you can avoid financial difficulties from over-improving.
Plan for the long-term
Experts usually suggest planning your investment’s exit strategy right from the beginning. When buying an investment property, you should feel sure that you can refinance or sell it at the right time for a good profit. If you can’t, why buy the property at all?
Discuss with various lenders to gain insights into mortgage products, costs, and if your goals align with your financials. A good lender can identify barriers you may face and confirm if your strategy is robust.
Calculate property value after repair
An essential detail to avoid over-improving your Northborough rental property is its After-Repaired Value (ARV). The ARV is the predicted value of the property after repairs or renovations. You must know the house’s post-improvement value to ensure a profitable investment.
Calculate your ARV with accurate comparable properties. Following that, talk to real estate agents, other investors, and your contractor. The more details you gather, the more confident you’ll be that your improvements are sufficient—but not excessive.
Getting the balance right can be challenging, especially for new investors. Nevertheless, comparables, which are similar properties sold or rented recently in the area, can guide your improvement choices. A good grasp of the local rental market enables you to improve your property to charge competitive rents.
Don’t go overboard with improvements
Over-improving your property compared to others in the area is one of the worst things you can do. If tile floors and composite countertops are common in the neighborhood, avoid installing hardwood and granite.
Ensure your upgrades are of good quality, but know that luxury materials and high-end products are often wasteful. Opt for mid-grade materials that are good quality but not overly expensive or luxurious. Even if your rental is located in an upscale area, use mid-grade materials and make tasteful, not extravagant, improvements.
Prioritize profitability over personal preference
Ultimately, avoid over-improving your rental by not becoming too attached to it. View it as an investment instead of your personal home. Emotional involvement in rental properties can lead to making preferred renovations that don’t boost profitability. It’s normal to want pride in your rental properties, but it should stem from having a profitable, well-run investment, not from excessive spending on improvements.
Seeking expert advice to boost your rental property profits? Real Property Management MetroWest-Worcester can help. We’re a team of experienced property managers in Northborough and nearby. Contact us online or call us at 508-329-6000 to learn more.
Originally Published on Jan 29, 2021
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