If your Canoga Park rental property has an unfinished basement, you may be thinking about having it finished. There are many reasons 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 means thinking a bit ahead of the project’s financial aspects. It’s vital to consider any serious drawbacks to finish a basement in a rental property along with the advantages. Along these lines, you can determine more effectively whether finishing your rental’s basement is a wise fit for you.
Perhaps the biggest reason to finish your rental’s basement is the potential increase in value and the rental income it may bring. Adding additional bedrooms or another bathroom to your rental property can help you encourage and retain tenants more easily, specifically if your property only has a single bathroom. In many districts, the jump in rental rates for houses with one bathroom to one with two is significant and could be reason enough to begin making a proposal to get the job done.
Finishing a basement is also an optimal solution to increase the equity in a property, achieving high returns when the time comes to sell. This is particularly important 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.
Before you decide to finish your rental’s basement, however, you can take time to work on several other factors. Maybe the first is to know what it will cost to complete the project and how it will impact your profit margin. Initially, 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. Note the difference. 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 project?
For a project like finishing a basement to make sense, the numbers need to add up. If you’re suitable, you can intend to complete some or all of the work yourself, but you must guarantee that you will be able to complete the build in a relatively short time.
On the financial side of things, there are also property taxes to consider, aside from potential increases in insurance rates, utility costs, and so on. It is also necessary to do some research to completely understand how each of your income and costs will adjust once the job has been completed. Adding finished square footage only makes sense if you can maintain healthy profit margins once the work is accomplished.
Finally, it’s important to understand the case from your tenant’s point of view. Are they willing to endure ongoing construction in the home? If you have current tenants, you’ll need to make sure that they are actively interested in the project – and get something from them in writing saying as much. They may be longing to have the extra space, and therefore willing to put up with the noise and additional traffic. If you’re proposing to raise the rent once the structure is finished, it is essential to point out that to your tenants. Some tenants may balk when they realize that the extra square footage you’re adding will cost them extra each month.
Then again, if you like to wait between tenants to finish your rental property’s basement, you’ll need to manage the project carefully to evade a prolonged vacancy. Every month that your property isn’t leased is a month that you are losing potential rental income. It’s in your best interests to guarantee that you carefully coordinate everything to get the project completed – and your recently enlarged property re-rented – in the shortest possible period.
Improving a rental property is a lot of work that will take valuable time away from working on your investment goals. But the Canoga Park property managers at Real Property Management West San Fernando Valley will support. Contact us online or call at 818-727-0100 to learn more about the many services we offer rental property investors like you.
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