If your Federal Hills rental property has an unfinished basement, you may be thinking about having it finished. There are several essential options to do so, from adding value to your property to expanding the available living space. However, choosing whether to complete your rental’s basement involves looking beyond the project’s financial aspects. It’s essential to balance any possible problems in regards to the completion of the basement in a rental property along with the advantages. Therefore, you can more confidently determine if finishing your rental’s basement is ideal for you.
Probably the main incentive to finish your rental’s basement is the potential increase in value and the rental income it could offer. Adding extra bedrooms or one more bathroom to your rental property will make it much easier to attract and retain tenants, mainly if your property only has a single bathroom. In certain places, the jump in rental rates for properties with one bathroom to one with two is significant and maybe a good reason to begin creating a plan to get the job finished.
Finishing a basement is also a perfect way to increase the equity in a property, generating high returns when you want it to sell. This is particularly the case if the houses in your neighborhood tend to have finished basements, which may seriously affect your sales price if yours is the only property on the market in that area that isn’t fully finished.
However, before you make arrangements to finish your rental’s basement, there are several other aspects you should take the time to deal with. Probably the number one of these is finding out what it will cost to complete the project and how it will impact your profit margin. To get one started, you’ll need to evaluate the fair market rent on your current property as-is and also for the property once the improvements have been made. Distinguish the difference. How big of a jump in rent will you see from having the work done? 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 efficient, you may be planning to accomplish any or all of the work yourself, but it is important to ensure that you have sufficient time to complete the build in a very short timeline.
On the financial side of things, there are also property taxes to consider, as well as potential increases in insurance rates, utility costs, and many more. Don’t forget to conduct some research and completely understand how your profits and costs may alter after finishing the project. Incorporating finished square footage only makes sense if you can keep healthy profit margins after the work is finished.
Lastly, it’s imperative to understand the situation from your tenant’s point of view. Are they willing to support ongoing construction in the home? If you have current tenants, you will have to make sure that they are totally committed to the project – and get something from them in writing saying as much. They may be willing to have the extra space, and therefore ready to deal with the noise and additional traffic. If you want to raise the rent once the project is finished, you will need to discuss it with your tenants. Some tenants may be hesitant when they grasp that the extra square footage you’re incorporating will cost them extra each month.
On another note, if you choose to wait between tenants to finish your rental property’s basement, you’ll need to manage the project carefully to prevent a long vacancy. Every month that your property isn’t leased is a month that you are losing potential rental income. It’s your job to ensure that you have everything managed well to get the project completed – and your newly broadened property re-rented – within as brief a timeline as possible.
Improving a rental property is a lot of work and can take precious time away from working on your investment goals. But the Federal Hills property managers at Real Property Management Metro can help. Contact us online or call at 410-290-3285 to find out more about the many services we offer rental property investors like you.
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