Over-improving a rental house is a common pitfall for new Calabasas property investors. Although it’s natural to want your rental in top shape to attract good tenants, over-improving can reduce or eliminate potential 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 your end goal in mind helps you avoid financial instability caused by over-improving.
Plan for the long-term
Experts generally advise starting with a plan for your investment’s end—your exit strategy. You need to ensure that you can refinance or sell an investment property at the right time and make a profit. If not, what’s the point of making the purchase?
Have conversations with a few lenders to understand mortgage products, costs, and if your goals are financially feasible. A knowledgeable lender should inform you of possible obstacles and verify the soundness of your strategy.
Calculate property value after repair
Another vital factor in avoiding over-improving your Calabasas rental property is understanding its After-Repaired Value (ARV). ARV represents the estimated value of the property post-repair or renovation. 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 knowledge you gain, the more confident you’ll be that your improvements are appropriate—but not excessive.
Finding the proper balance can be tricky, particularly for first-time investors. Nevertheless, comparables, which are similar properties sold or rented recently in the area, can guide your improvement choices. 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. If neighborhood houses generally have tile floors and composite countertops, don’t opt for hardwood and granite.
Ensure your upgrades are of good quality, but know that luxury materials and high-end products are often wasteful. Rather, target mid-grade materials that are reasonably priced yet good in quality. Even for rentals in high-end neighborhoods, focus on mid-grade materials and nice, non-extravagant improvements.
Prioritize profitability over personal preference
Finally, steer clear of over-improving your rental by keeping emotional attachment in check. Consider it as an investment rather than a personal residence. When you’re emotionally involved in your rental properties, you might make renovations you like but that don’t enhance profitability much. 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.
Need expert advice to enhance your rental property profits? Real Property Management Limitless can help. We’re a team of experienced property managers in Calabasas and nearby. Contact us online or call us at 805-702-7800 to learn more.
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