If your Huntington rental property has an unfinished basement, you may be thinking about having it finished. There are numerous ideas to want to do so, from adding value to your property to expanding the available living space. But deciding whether to complete your rental’s basement requires thinking a bit beyond the project’s financial aspects. It’s crucial to understand any negative consequences of finishing a basement in a rental property accompanied by the benefits. For that reason, you can more definitely choose if finishing your rental’s basement is the right approach for you.
Maybe the main motivation to finish your rental’s basement is the potential increase in value and the rental income it might bring. Adding more bedrooms or another bathroom to your rental property can help you pull in and hold tenants more easily, particularly if your property only has a single bathroom. In numerous regions, the bounce in rental rates for houses with one bathroom to one with two is significant and may be reason enough to begin making an arrangement to complete the work.
Finishing a basement is also the best approach to increase the equity in a property, offering high returns when the opportunity arrives to sell. This is certainly relevant 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 start making proposals to finish your rental’s basement, there are many other considerations you should take the time to work through. Maybe the first of these is to comprehend what it will cost to complete the project and how it will impact your profit margin. To get 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. Look at the differences. 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 task?
For a project like finishing a basement to make sense, the numbers need to add up. In case you’re helpful, you could plan to make a few or all of the work yourself, but you must guarantee that you have sufficient time to complete the build in a moderately short time frame.
On the financial side of things, there are also property taxes that you need to deal with, aside from potential increases in insurance rates, utility costs, and more. Be sure to do some research and fully understand how each of your income and expenses may change after completing the project. Adding finished square footage only makes sense if you can support healthy profit margins after the work is done.
Finally, it’s critical to understand the condition from your tenant’s point of view. Are they ready to comply with ongoing construction in the home? If you have current tenants, you’ll need to make sure that they are fully aware of the risk associated with the project – and get something from them in writing saying as much. They may be eager to have the extra space, and therefore willing to bear the noise and additional traffic. In case you need to raise the rent once the work is done, you’ll need to explain that to your tenants. Other tenants may resist when they hear that the extra square footage you’re including will cost them extra each month.
Alternatively, if you intend to wait between tenants to finish your rental property’s basement, you’ll need to manage the project carefully to avoid a lengthy vacancy. Each month that your property isn’t leased is a month that you are losing potential rental income. It’s in your benefit to ensure you have everything arranged appropriately to get the project completed – and your newly enlarged property re-rented – in as short a timeframe as possible.
Improving a rental property is a lot of work and can take valuable time away from working on your investment goals. But the Huntington property managers at Real Property Management Landmark can support you. Contact us online or call at 516-522-2859 to learn more about the many services we offer rental property investors like you.
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