If your Woodward Park rental property has an unfinished basement, you may be thinking about having it finished. There are various reasons to want to do so, from adding value to your property to expanding the available living space. But analyzing whether to complete your rental’s basement includes thinking a bit further than the project’s financial aspects. It’s imperative to measure any potential drawbacks to finishing a basement in a rental property together with the positive effects. For that reason, you will know more easily whether finishing your rental’s basement is the best decision for you.
Possibly the greatest factor to finish your rental’s basement is the potential increase in value and the rental income it could bring. Adding more bedrooms or an additional bathroom to your rental property could make it easier for you to recruit and keep tenants, mainly if your property only has a single bathroom. In other locations, the jump in rental rates for houses with one bathroom to one with two is significant and probably a good reason to start getting the work done.
Finishing a basement is also an excellent method to increase the equity in a property, offering high returns when the moment comes to sell. This is particularly the case if the houses in your neighborhood tend to have finished basements, which could negatively impact your sales price if yours is the only property on the market in that area that isn’t fully finished.
Before you take action to finish your rental’s basement, however, you need to understand a few other concerns. Probably the first one is to identify what it will cost to complete the project and how it will impact your profit margin. To get started, you will need to evaluate the fair market rent on your current property as-is and also for the property once the improvements have been made. Notice the discrepancy. How big of a jump in rent will you see from having the work complete? How long will it take you to recoup the cost of the project?
For a project like finishing a basement to make sense, the numbers need to add up. If you’re versatile, you may aim to carry out some or all of the work yourself, but be sure that you have suitable time to complete the build in a relatively short time frame.
On the financial side of things, there are also property taxes to be concerned about, aside from potential increases in insurance rates, utility costs, and so forth. Be sure to undertake some research and carefully understand how your revenues and expenses may adjust after reaching your goal. Inserting finished square footage only makes sense if you can retain healthy profit margins once the work is over.
After all, it’s vital to think about the situation from your tenant’s point of view. Are they able to support ongoing construction in the home? If you have current tenants, you’ll need to guarantee that they are pretty much okay with the project – and request a bit from them in writing to say something. They may be excited to have the extra space, and therefore prepared to endure the noise and additional traffic. If you decide to raise the rent once the construction is complete, you’ll need to talk about it with your tenants. Other tenants may hesitate when they know that the extra square footage you’re adding will cost them extra each month.
On the other hand, if you prefer to wait between tenants to finish your rental property’s basement, you should manage the project carefully to mitigate an extensive vacancy. Every month that your property isn’t leased is a month that you are losing potential rental income. It is in your interest to ensure that it is correctly aligned to get the project completed – and your newly extended property re-rented – in as short a timeframe as possible.
Improving a rental property is a lot of work and can take valuable time away from working on your investment goals. But the Woodward Park property managers at Real Property Management Platinum can help. Contact us online or call at 559-425-8550 to discover more about the many services we offer rental property investors like you.
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