Maybe the main interests to finish your rental’s basement is the potential increase in value and the rental income it offers. Making more bedrooms or adding another bathroom to your rental property can help you invite and keep tenants more easily, especially if your property only has a single bathroom. In other places, the jump in rental rates for houses with one bathroom to one with two is significant and probably good enough to start making a strategy to get the project completed.
Finishing a basement is also the best strategy to increase the equity in a property, delivering high returns when the time comes to sell. This is definitely true if the houses in your neighborhood tend to have finished basements, which may adversely impact your sales price if yours is the only property on the market in that area that isn’t fully finished.
However, before making arrangements to finish your rental’s basement, there are several other aspects you should spend the time to think about. Maybe the first is to determine what it will cost to complete the project and how it will impact your profit margin. To begin with, you’ll have to evaluate the fair market rent on your current property as-is and also for the property once the improvements have been made. Take note of the difference. How big of a jump in rent will you see from having the work completed? How long will it take you to recoup the cost of the construction?
For a project like finishing a basement to make sense, the numbers need to add up. If you’re handy, you may choose to do any or all of the work yourself, but you must ensure that you have enough time to complete the build in a relatively short period.
On the financial side of things, there are also property taxes that you need to focus on, along with potential increases in insurance rates, utility costs, and so on. Don’t forget you do some research to fully understand how each of your profits and expenditures will adjust once the project is completed. Incorporating finished square footage can only be impactful if you can retain healthy profit margins once the work is performed.
Finally, it’s critical to consider the circumstances from your tenant’s point of view. Are they prepared to put up with ongoing construction in the home? When you have current tenants, you need to ensure that they are completely committed to the project – and get something from them in writing saying as much. They may be keen to have the extra space, and therefore willing to sit through the noise and additional traffic. If you decide to raise the rent once the building has been finished, you will need to inform your tenants. A few tenants may balk when they realize that the extra square footage you include will cost them extra each month.
On the other hand, if you decide to wait between tenants to finish your rental property’s basement, you will need to manage the project carefully to prevent a lengthy vacancy. Every month that your property isn’t leased is a month that you are losing potential rental income. It is your responsibility to make sure that you have everything prepared properly to get the project completed – and your recently established property re-rented – in as short a timeframe as possible.
Improving a rental property is a lot of work and can consume time and energy from working on your investment goals. But the Roanoke property managers at Real Property Management Colonial can help. Contact us online or call at 540-595-7411 to discover more about the many services we offer rental property investors like you.