A common mistake for new rental property investors in Oak Park is over-improving their rental house. 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 cautionary advice is meant to highlight potential risks and assist you in making informed investment decisions.
We advise thinking strategically and addressing profitability challenges 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. It’s important to feel confident that you can refinance or sell an investment property at the right time and make a profit. Otherwise, what is the purpose of buying it in the first place?
Speak with a few lenders to understand mortgage products, costs, and if your goals match 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 vital factor in avoiding over-improving your Oak Park rental property is understanding its After-Repaired Value (ARV). The ARV is the estimated worth of the property once it has been repaired or renovated. Ensuring your investment is profitable requires knowing the house’s worth post-improvements.
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.
Balancing improvements can be challenging, especially for those new to investing. Nevertheless, comparables, which are similar properties sold or rented recently in the area, can guide your improvement choices. By understanding the local rental market, you can upgrade your property to command competitive 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.
Though upgrades should be of good quality, luxury materials and high-end products often waste money. Opt for mid-grade materials that are good quality but not overly expensive or luxurious. Even in upscale neighborhoods, choose mid-grade materials and make nice but not extravagant upgrades.
Prioritize profitability over personal preference
Finally, ensure you don’t over-improve your rental by not getting too emotionally attached. 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. Pride in your rental properties is natural, but it should be from owning a profitable, well-maintained investment, not from spending excessively on improvements.
Want expert advice to increase your rental property profits? Real Property Management Advantage can help. We’re a team of experienced property managers in Oak Park and nearby. Contact us online or call us at 248-554-1010 to learn more.
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