If your Lewes rental property has an unfinished basement, you may be thinking about having it finished. There are a couple of valid reasons to do so, from adding value to your property to expanding the available living space. But deciding when to complete your rental’s basement requires planning other than the project’s financial aspects. It’s necessary to weigh any possible threats to the completion of the basement in a rental property together with the positive impact. In this way, you can more surely determine if finishing your rental’s basement is the right move for you.
One of the essential gains to finish your rental’s basement is the potential increase in value and the rental income it may provide. Adding extra bedrooms or another bathroom to your rental property can help you encourage and keep tenants, particularly if your property has a single bathroom. In most locations, the increase in rental rates for houses with one bathroom to one with two is significant and perhaps enough motivation to start making a plan to get the work done.
Finishing a basement is also the best method to increase the equity in a property, generating high returns when the time comes to sell. This is particularly true if the houses in your neighborhood tend to have finished basements, which may negatively affect your sales price if yours is the only property on the market in that area that isn’t fully finished.
However, before you attempt to finish your rental’s basement, there are a variety of other concerns that you need to take into consideration. Possibly the first one of these is to find out what it will cost to complete the project and how it will impact your profit margin. To begin with, 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. Check 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 project?
For a project like finishing a basement to make sense, the numbers need to add up. If you’re efficient, you could plan to execute some or all of the work yourself, but you’ll need to make sure that you have sufficient time to complete the build in a relatively short time frame.
On the financial side of things, there are also property taxes that need to be counted, along with potential increases in insurance rates, utility costs, etc. It is essential to do some research and truly understand how your income and expenses may change after completing the project. Adding finished square footage can only be significant if you can maintain healthy profit margins once the work is complete.
In the end, it’s important to evaluate the situation from your tenant’s point of view. Are they able to deal with ongoing construction in the home? If you have current tenants, you’ll need to be certain that they are completely on board with the project – and get something in writing for confirmation. They may be eager to have the extra space, and therefore willing to stand the noise and additional traffic. If you’re aiming to raise the rent once the project is performed, you will need to coordinate that with your tenants. Some tenants may stop short when they realize that the extra square footage you establish will cost them extra each month.
On the other side, if you want 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 is in your benefit to make sure that everything is perfectly arranged to get the project completed – and your freshly established property re-rented – in as short a timeframe as possible.
Improving a rental property is a lot of work and can require precious time away from working on your investment goals. But the Lewes property managers at Real Property Management Diamond can help. Contact us online or call at 302-313-7700 to discover more about the many services we offer rental property investors like you.
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