What threatens rental investments the most? A common question asked by many real estate rental investors.
Real estate investments always carry risks. According to the popular real estate investor’s blog, BiggerPockets, value determines whether an investment property succeeds or not. Measuring a property’s value and how to change it becomes an investor’s greatest challenge.
Improvements Can Threaten Rental Investments
Real estate investors need to know how to make improvements which increases value. Too many investors make renovations with little or no effect upon increasing a property’s value.
Wasting time and money making modifications to a rental hoping to increase value for higher rents occurs too often. Sometimes, modifications not only waste money but actually decrease the value.
When it comes to property values, some things can be controlled by investors.
This requires due diligence to create value. For instance, making impulse purchases often leads to later finding out that the property sits in a bad location with no positive return on the investment.
Neglecting necessary renovations or hiring an ineffective property management company leads to decreasing value.
In essence, real estate rentals investors hurt their future earnings and the property’s value by making poor decisions. Think of rentals as a long-term investment. Never make rash decisions or cut corners which affect property values.
Follow these tips to get the maximum value out of your real estate rental investments:
Avoid Bad Neighbors Who Threaten Rental Investments
Everyone knows to avoid bad neighborhoods.
But, on occasion, bad neighbors affect nearby property values too. Due diligence of a neighborhood requires introducing yourself to the neighbors and inquiring about the neighborhood. Locals provide valuable information to get a feel for the people your tenants must deal with.
Watch out for these Red Flags:
Excess Noise: Too much noise ruins the atmosphere. Loud barking dogs, exotic birds squawking in high pitches, neighbors playing music too loudly day and/or all night.
Hoarders: The outside of a home provides hints of what is inside. Littered front and back yards with junk hurt surrounding property values.
Criminal Activities: If the neighborhood drug dealer lives nearby, kiss the property values goodbye.
Too Many Cars: Cars parked on the grass, vehicles on blocks, too many cars crowding a driveway, old poorly maintained cars nearby all contribute towards lowering other properties values.
Pay attention to the nearby neighbors to determine if they contribute or negate your rental’s value and rents.
Poor Location Threatens Rental Investments
You can never fix a bad location.
Check out the surrounding neighborhood before buying a rental property. Drive by at different hours and especially at night. Is the neighborhood safe and crime-free day and night? Will your tenants feel safe in this neighborhood?
Bad locations contribute to undesirable school districts and lack of convenient amenities. The closer the proximity to highways, jobs, bus stops, metro stations, shopping, good restaurants, and other necessities the better the neighborhood.
Put simply, people want to live in good neighborhoods offering convenience and the necessities for a good life.
Out of Style Houses Threatens Rental Investments
Like fashion clothing, homes come in different architectural styles and time periods.
While a “retro” style may make a comeback once in a while, don’t depend on their longevity. People’s tastes differ and constantly change.
Do you want to buy a rental with pastel yellow bathrooms or kitchens out of date? Evaluate the cost of making renovations to take outdated styles back into fashion. Bear in mind the ever-changing styles and fashions. Make your renovations practical and able to withstand time and tastes.
Bathrooms and kitchens are very important. However, don’t get carried away with current fashions. Don’t decorate using your personal favorite colors unless they are “classics” and remain so over the years.
Keep your renovations clean and simple.
Improvements should invite people in and tell potential tenants that the landlord cares about the property. Providing a new, clean environment goes a long way to impress potential tenants.
Overly Renovating Threatens Rental Investments
Don’t get carried away trying to make your rentals too nice.
Perfection costs money. Your tenants don’t expect perfection. Overly renovating hurts your ROI. Stay within the standards of the neighborhood as over-renovating costs compared to other houses works against your value.
Never end up with “unbalanced renovations”. For instance, luxurious bathrooms and a gourmet kitchen in a home with other rooms fit for a working-class family appears unbalanced.
Focus on making the interior appear clean and inviting.
Not much money required to simply apply fresh paint in every room. Make the interior a good reflection of how you want your tenants to keep it up. A rental with leaking sinks, peeling wallpaper, and other deficiencies leave tenants with little expectations to keep the home in good condition.
The outside of the home also requires attention. Make sure the house numbers appear visible from the street. Installing a new mailbox doesn’t hurt either. Yards must be clean with entrances and windows clear of brush and bushes. Trim the trees above the roofline to give the home a clean appearance from the street. These low-cost improvements increase value while providing desirable “curb appeal”.
Knowing the renter market keeps the cost of rental renovations in line. Don’t overinvest in needless items like custom blinds or fancy fixtures as renters do not want to pay higher rents for them.
Keep your renovations focused on the essentials like electrical, plumbing, the roof, etc. Make your house maintenance free and able to withstand years of renting to keep the best value for your money.
Poor Management Threatens Rental Investments
Bad management threatens rental investments the most by hurting your future earnings and property value.
Beware of property managers who fail to provide efficient services. Missing reports, maintenance laziness, ignoring safety concerns, and incompetent repairs and work all lead to trouble.
Put your property management in the hands of a company who cares.
Never rely on a property manager who only wants to place breathing persons into your rentals with no concern about whether they pay rent on time or take care of the property. Tenants who don’t care how your rentals look or function leads to great properties turning into losers quickly resulting in loss of value.
Contact Us for all your property management needs.
Your rentals will be in good hands with us!
Steven Rich, MBA – Guest Blogger
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