One of the biggest mistakes that new Lake Oswego rental property investors make is to over-improve their rental house. It is valid to want the rental to be in good condition and to appeal to quality tenants. However, improving the property too much can reduce or even cut any profits you hope to gain while you recoup your remodeling costs. Perhaps the best way to avoid this issue is to think strategically and address obstacles to profitability upfront – before you even purchase the property, if necessary. When you proceed with your ultimate objective in a great understanding, you would not be able to end up in a financially shaky situation from over-improving.
Many professionals suggest you start with planning the end of your investment’s life – your exit strategy. When you purchase an investment property, you need to feel confident that you will refinance or sell the property no matter what and generate a tidy profit. Otherwise, what is the purpose of purchasing in the first place? So, as you’re crunching the initial numbers, think about what you will need to get out of your property for a couple of years down the road – as well as any improvements you’ve arranged. Contact some lenders to learn about mortgage products, costs, and if your goals align with your financials. A decent lender should be willing to mention what barriers you may face and whether your strategy is solid or not.
Another critical piece of information you need to avoid over-improving your Lake Oswego rental property is your After Repaired Value (ARV). To guarantee that your investment is profitable, you must consider the worth of the property once you finish improvements. From this figure, you can assure that you’re not going too high with your remodeling plans. Using good comparable properties, calculate your ARV. Afterward, talk to real estate agents, other investors, and your contractor. The more facts you obtain, the more confident you’ll feel that your improvements are enough – but not too much.
Finding that balance can be a real challenge, particularly if you are a first-time investor. Erring in either direction can cost you big time. Yet, an excellent strategy to find the right improvements for your rental house is to fall back on your comparables once more. If you recognize what the other rental homes in the location look like – and what they rent for – you can improve your property up to the point that it will allow you to charge market rents and no more.
Probably the most terrible thing you can do is make your property nicer than others in the area. If most neighborhood houses use tile floors and composite countertops, don’t install hardwood and granite. Even though all that you upgrade should be of good quality, in general, luxury materials and high-end products are a complete waste of money. There are exceptions to this rule, mainly if your rental is in a high-end neighborhood or certain upgrades would give you a substantial boost in a property. However, even in such cases, you should aim for mid-grade materials and good but not too nice improvements.
Finally, avoid over-improving your rental house by remembering not to get too attached to the house. Try to view it as an investment, not a home. Once you get emotionally involved in your rental properties, you may start to make changes that you want but will not do a lot to improve profitability. Indeed, you deserve to take pride in your rental properties, but that pride should come from being the owner of a profitable and well-run investment and not how much you spent on improving the property.
Would you like some expert advice on how to improve your rental property to maximize profits? We can help! At Real Property Management Assurance, our team of Lake Oswego property managers can help you find comparables, calculate your market rents, and much more! To learn more about what we offer investors like you, contact us today online or call us at 971-270-2600.
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