If your Severance rental property has an unfinished basement, you may be thinking about having it finished. There are many considerations to do so, from adding value to your property to expanding the available living space. But choosing when to complete your rental’s basement involves planning beyond the project’s financial aspects. It’s necessary to consider any possible risks to finishing a basement in a rental property along with the benefits. From this perspective, you can decide more easily if finishing your rental’s basement is the best option for you.
One of the primary aspects to finish your rental’s basement is the potential increase in value and the rental income it may provide. Providing extra bedrooms or another bathroom to your rental property can help you acquire and maintain tenants more quickly, mostly if your property has a single bathroom. In most places, the increase in rental rates for houses with one bathroom to one with two is significant and perhaps reason enough to start making a plan to get the work done.
Finishing a basement is also an ideal approach to increase the equity in a property, offering 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 directly affect your sales price if yours is the only property on the market in that area that isn’t fully finished.
However, before you make efforts to finish your rental’s basement, there are several other issues that you need to consider. Possibly the first one of these is to understand 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. Please 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 a finished basement to make sense, the numbers need to add up. If you’re handy, you could plan to do some or all of the work yourself, but you’ll need to make sure that you have enough time to complete the build in a relatively short time frame.
On the financial side of things, there are also property taxes to be taken into consideration, along with potential increases in insurance rates, utility costs, etc. Remember to do some research and truly understand how your profits and losses may change after completing the project. Adding finished square footage only makes sense if you can maintain healthy profit margins once the work is complete.
At last, it’s critical to analyze the scenario from your tenant’s point of view. Are they ready to put up with the ongoing construction in the home? If you have current tenants, you’ll need to be certain that they are ready to deal with the project – and get something out of them in writing to confirm as much. They may be eager to have the extra space, and therefore ready to bear with the noise and additional traffic. If you’re trying to raise the rent once the project is finished, you will need to coordinate that with your tenants. Some tenants may balk when they realize that the extra square footage you’re adding will cost them extra each month.
However, if you want to wait between tenants to finish your rental property’s basement, you’ll need to manage the project carefully to avoid a long 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 that everything is perfectly coordinated to get the project completed – and your freshly improved property re-rented – in as short a timeframe as possible.
Improving a rental property is a lot of work and can consume valuable moments from working on your investment goals. But the Severance property managers at Real Property Management of the Rockies can assist. Contact us online or call at 970-658-0410 to discover more about the many services we offer rental property investors like you.
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