A common mistake for new rental property investors in Lake Oswego is over-improving their rental house. It’s normal to want your rental to be in great condition to draw quality tenants, but excessive improvements can shrink or erase your profits. This cautionary advice is meant to highlight potential risks and assist you in making informed investment decisions.
Our advice is to plan strategically and address any profitability obstacles before purchasing 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. 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 not, what’s the point of making the purchase?
Talk to multiple lenders to learn about mortgage products, costs, and whether your goals fit your financial situation. A knowledgeable lender should inform you of possible obstacles and verify the soundness of your strategy.
Calculate property value after repair
Another crucial detail to avoid over-improving your Lake Oswego rental property is its After-Repaired Value (ARV). The ARV is the estimated worth of the property once it has been repaired or renovated. To guarantee a profitable investment, you need to know the house’s value after improvements.
Determine your ARV with the help of reliable comparable properties. Following that, talk to real estate agents, other investors, and your contractor. The more knowledge you gain, the more confident you’ll be that your improvements are appropriate—but not excessive.
Getting the balance right can be challenging, especially for new investors. Still, using comparables, similar properties recently sold or rented in the area, can help 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
It’s a major mistake to make your property nicer than the surrounding homes. When neighborhood houses mostly feature tile floors and composite countertops, refrain from using hardwood and granite.
While quality upgrades are necessary, luxury materials and high-end products usually aren’t worth the investment. Instead, choose mid-grade materials that are of decent quality without being the most expensive. 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. Consider it as an investment rather than a personal residence. Emotional involvement in rental properties can lead to making preferred renovations that don’t boost profitability. Wanting to take pride in your rental properties is normal, but it should come from having a profitable, well-run investment, not from how much you spent on upgrades.
Want expert advice to increase your rental property profits? Real Property Management Assurance can help. We’re a team of experienced property managers in Lake Oswego and nearby. Contact us online or call us at 971-270-2600 to learn more.
Originally Published on Jan 29, 2021
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