New rental property investors in St. Augustine often fall into the trap of over-improving their properties. It’s understandable to want a well-maintained rental to attract quality tenants, but too many improvements can cut into or erase your potential 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. When your end goal is clear from the outset, you are less likely to encounter financial issues due to over-improving.
Plan for the long-term
Many experts recommend beginning with an exit strategy for your investment. When purchasing an investment property, you should be confident that you can refinance or sell it for a profit at the right time. Otherwise, why buy the property in the first place?
Discuss with various lenders to gain insights into mortgage products, costs, and if your goals align with your financials. A reliable lender should clearly explain any potential barriers and assess the solidity of your strategy.
Calculate property value after repair
Another crucial detail to avoid over-improving your St. Augustine rental property is its After-Repaired Value (ARV). The ARV is the projected value of the property after repairs or renovations. To make sure your investment is profitable, it’s essential to know the property’s value after improvements.
Use accurate comparable properties to figure out your ARV. Afterward, consult with real estate agents, other investors, and your contractor. Gathering more information will boost your confidence that your improvements are adequate—but not overdone.
Balancing improvements can be challenging, especially for those new to investing. However, you can use comparables—similar properties recently sold or rented in the same area—to guide your improvement decisions. Knowledge of the local rental market lets you upgrade your property to charge competitive market rents.
Don’t go overboard with improvements
One of the biggest mistakes you can make is to upgrade your property beyond the neighborhood standard. If tile floors and composite countertops are common in the neighborhood, avoid installing hardwood and granite.
Though upgrades should be of good quality, luxury materials and high-end products often waste money. Aim for mid-grade materials that offer good quality without being too costly or luxurious. Even in a high-end neighborhood, aim for mid-grade materials and tasteful, not extravagant, improvements.
Prioritize profitability over personal preference
Finally, ensure you don’t over-improve your rental by not getting too emotionally attached. See it as an investment, not a personal home. Emotional attachment to rental properties can cause you to make preferred renovations that don’t increase profitability. Taking pride in your rental properties is natural, but it should come from owning a profitable, well-managed investment, not from the amount spent on improvements.
Want expert advice to increase your rental property profits? Real Property Management First Coast can help. We’re a team of experienced property managers in St. Augustine and nearby. Contact us online or call us at 904-425-8388 to learn more.
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