Over-improving rental properties is a frequent pitfall for new investors in Lake Mary. Wanting a well-kept rental to attract quality tenants is natural, but too many improvements can diminish or wipe out your profits. This advice serves to alert you to potential risks and guide 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
Many experts recommend beginning with an exit strategy for your investment. Confidence in your ability to refinance or sell an investment property for a profit at the right time is essential. Otherwise, why buy the property in the first place?
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
Another vital factor in avoiding over-improving your Lake Mary rental property is understanding its After-Repaired Value (ARV). The ARV is the projected 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 by using quality comparable properties. Then, speak 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. Knowledge of the local rental market lets you upgrade your property to charge competitive market 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. Aim for mid-grade materials that offer good quality without being too costly or luxurious. Even for rentals in high-end neighborhoods, focus on mid-grade materials and nice, non-extravagant improvements.
Prioritize profitability over personal preference
Lastly, prevent over-improving your rental by staying detached from the house. Think of it as an investment, not a home for yourself. If you get emotionally involved in your rental properties, you might make renovations you prefer, which don’t necessarily improve profitability. It’s understandable to want pride in your rental properties, but it should be due to owning a profitable, well-managed investment, not the amount spent on upgrades.
Need expert advice to enhance your rental property profits? Real Property Management Vanguard can help. We’re a team of experienced property managers in Lake Mary and nearby. Contact us online or call us at 407-681-7802 to learn more.
Originally Published on Jan 29, 2021
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