Maybe the best reason to finish your rental’s basement is the potential increase in value and the rental income it will bring. Installing additional bedrooms or another bathroom to your rental property can help you draw and keep tenants more easily, particularly if your property only has one bathroom. In several locations, the jump in rental rates for houses with one bathroom to one with two is significant and possibly reason enough to start making a strategy to get the job done.
Finishing a basement is also an excellent idea to increase the equity in a property, delivering high returns when the time comes to sell. This is particularly correct if the houses in your neighborhood tend to have finished basements, which may adversely influence your sales price if yours is the only property on the market in that area that isn’t fully finished.
Prior to making arrangements to finish your rental’s basement, however, there are several other factors you should spend the time to sort out. Maybe the first one is to find out 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. Notice the variance. 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 development?
For a project like finishing a basement to make sense, the numbers need to add up. If you’re practical, you can intend to perform any or all of the work yourself, but you must guarantee that you have enough time to complete the build in a comparatively short period.
On the financial side of things, there are also property taxes that you need to take into account, along with potential increases in insurance rates, utility costs, etc. Make sure you do some research and completely understand how each of your revenue and expenditures will adjust once the project is finished. Including finished square footage will only be meaningful if you can sustain healthy profit margins once the work is done.
At long last, it’s essential to think about the circumstances from your tenant’s point of view. Are they prepared to put up with ongoing construction in the home? Once you have tenants, you must ensure that they are fully 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 put up with the noise and additional traffic. If you intend to raise the rent once the construction is completed, you will need to negotiate that with your tenants. A few tenants may recoil when they recognize that the extra square footage you’re adding will cost them extra each month.
Then again, if you intend to wait between tenants to finish your rental property’s basement, you’ll need to manage the project carefully to prevent an extended vacancy. Every month that your property isn’t leased is a month that you are losing potential rental income. It’s in your duty to make sure you have everything arranged correctly to get the project completed – and your recently established property re-rented – in as a brief timeline as possible.
Improving a rental property is a lot of work and can require time and energy from working on your investment goals. But the Newington property managers at Real Property Management Hartford Metro/ Greater New London can help. Contact us online or call at 860-436-9955 to discover more about the many services we offer rental property investors like you.