If your Kansas City, MO rental property has an unfinished basement, you may be thinking about having it finished. There are multiple aspects to want to do so, from adding value to your property to expanding the available living space. But selecting whether to complete your rental’s basement requires thinking a bit beyond the project’s financial aspects. It’s imperative to consider any serious disadvantages to achieving the basement in a rental property along with the benefits. In this manner, you can determine more easily whether finishing your rental’s basement is the best option for you.
Perhaps the biggest reason to finish your rental’s basement is the potential increase in value and the rental income it may offer. Creating additional bedrooms or another bathroom for your rental property can help you encourage and maintain tenants more easily, usually if your property only has a single bathroom. In some locations, the jump in rental rates for houses with one bathroom to one with two is significant and could be a good enough reason to begin making a plan to get the job done.
Finishing a basement is also an effective method to increase the equity in a property, generating high returns when the time comes to sell. This is especially true if the houses in your neighborhood tend to have finished basements, which may adversely affect your sales price if yours is the only property on the market in that area that isn’t fully finished.
Before preparing plans to finish your rental’s basement, however, there are lots of other considerations you should take the time to work through. Maybe the first one is identifying what it will cost to complete the project and how it will impact your profit margin. Primarily, 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 disparity. 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 available, you can intend to do some or all of the work yourself, but you will need to make sure that you have the time to complete the build in a relatively short time.
On the financial side of things, there are also property taxes that need to be addressed, along with potential increases in insurance rates, utility costs, and so on. It is also imperative to do some research to fully understand how each of your revenues and expenditures will adjust once the project has been finished. Adding finished square footage only makes sense if you can have healthy profit margins once the work is accomplished.
Ultimately, it’s significant to consider the case from your tenant’s point of view. Are they willing to cooperate with the ongoing construction in the home? If you have current tenants, you’ll need to make sure that they are actively engaged in 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 put up with the noise and additional traffic. In case you’re attempting to raise the rent once the structure is completed, you will need to specify that to your tenants. Some tenants may hesitate when they realize that the extra square footage you include will cost them extra each month.
Then again, if you intend to wait between tenants to finish your rental property’s basement, you will need to manage the project carefully to evade a lengthy vacancy. Every 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 lined up properly to get the project completed – and your freshly widened property re-rented – in as short a period as possible.
Improving a rental property is a lot of work that will take valuable time away from working on your investment goals. But the Kansas City, MO property managers at Real Property Management Principles will help. Contact us online or call at 816-305-6476 to learn more about the many services we offer rental property investors like you.
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