Starting out in real estate investing is definitely among the riskiest time. As you grow your real estate investment portfolio, you can better handle vacancies, repairs, any issues that come up but as your starting out, it is very important to pay close attention especially on your first rehab.
Dennis Spivey and Carter Jones have an article in The M Report, 5 Pros and Pitfalls Investors Face When Jumping Into Residential Real Estate, that has some excellent insights including this reminder on the importance of not over improving.
Overimproving a Rental Property
It’s tempting for investors who buy their first investment property to let their inner Martha Stewart out in every aspect—new floors here, new cabinets and granite over there. However, it’s important for them to be careful not to overspend when renovating their properties.
Whether it’s the client’s first house or their hundredth, it’s important for them to look at the market comps to see what improvements are needed, and more importantly, not needed in order to compete for tenants. Keep in mind that rental investors are not looking to resell their property, and the things that buyers look for (new appliances, expensive flooring, nice fixtures) may not be the things that lure potential tenants.
Investors should learn to salvage what they can while still bringing in light and using inconspicuous colors that appeal to the masses. Having said that, underimproving a property can also cause big headaches down the road. Investors should be careful not to confuse additional improvements with much needed capital expenditures—items that if not repaired now could cost significantly more in the future overall.