New rental property investors in Fort Worth often fall into the trap of over-improving their properties. While it’s natural to desire a rental in good condition to attract top tenants, too many improvements can lower or eliminate your profits. This advice serves to alert you to potential risks and guide you in making informed investment decisions.
We suggest thinking strategically and resolving profitability challenges before buying the property. Starting with a clear end goal helps prevent financial instability from 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
A key piece of information to prevent over-improving your Fort Worth rental property is knowing its After-Repaired Value (ARV). ARV represents the estimated value of the property post-repair or renovation. Knowing the property’s value post-improvements is crucial to ensuring a profitable investment.
Calculate your ARV with accurate comparable properties. Next, discuss with real estate agents, fellow investors, and your contractor. With more information, you’ll feel more assured that your improvements are just right—not overdone.
Achieving the right balance can be tough, especially for first-time investors. However, comparables—similar properties sold or rented recently in the area—can 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
Making your property nicer than others in the area is one of the worst things you can do. If the majority of neighborhood homes have tile floors and composite countertops, steer clear of hardwood and granite.
While it’s important for upgrades to be good quality, luxury materials and high-end products are often not worth the cost. Aim for mid-grade materials that offer good quality without being too costly 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
Lastly, prevent over-improving your rental by staying detached from the house. See it as an investment, not a personal home. Emotional attachment to rental properties can cause you to make preferred renovations that don’t increase profitability. Pride in your rental properties is natural, but it should be from owning a profitable, well-maintained investment, not from spending excessively on improvements.
Need expert advice to enhance your rental property profits? Real Property Management 360 can help. We’re a team of experienced property managers in Fort Worth and nearby. Contact us online or call us at 817-502-3588 to learn more.
Originally Published on Jan 29, 2021
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