If your Newport News rental property has an unfinished basement, you may be thinking about having it finished. There are several grounds to want to do so, from adding value to your property to expanding the available living space. But determining whether to complete your rental’s basement involves thinking a bit beyond the project’s financial aspects. It is essential to consider any potential downsides to completing a basement in a rental property together with the advantages. Thus, you can more boldly decide if finishing your rental’s basement is the best move for you.
Perhaps the greatest justification to finish your rental’s basement is the potential increase in value and the rental income it may bring. Adding more bedrooms or another bathroom to your rental property can help you attract and retain tenants more effortlessly, particularly if your property only has a single bathroom. In so many aspects, the increase in rental rates for houses with one bathroom to one with two is significant and perhaps reason enough to start planning to get the work done.
Finishing a basement is also a great way to increase the equity in a property, offering 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 undesirably influence your sales price if yours is the only property on the market in that area that isn’t fully finished.
Before making plans to finish your rental’s basement, however, there are many other considerations you should take the time to work through. Possibly the first one of these is to discover what it will cost to complete the project and how it will impact your profit margin. To start, 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. Monitor 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 handy, you could plan to do some or all of the work yourself, but you’ll need to assure 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 take into consideration, as well as potential increases in insurance rates, utility costs, and so forth. Be sure to do some research and fully understand how each of your income and expenditures may change after you have completed the project. Adding finished square footage only makes perfect sense if you can sustain healthy profit margins once the work is complete.
Finally, it’s important to consider the situation from your tenant’s point of view. Are they willing to put up with ongoing construction in the home? If you have current tenants, you’ll need to make sure that they are completely on board with 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. If you are planning to raise the rent once the work is done, you’ll need to communicate 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.
On the other hand, if you plan to wait between tenants to finish your rental property’s basement, you’ll need to manage the project carefully to avoid a lengthy 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 you have everything lined up properly to get the project completed – and your newly enlarged property re-rented – in as short a timeframe as possible.
Improving a rental property is a lot of work and can take precious time away from working on your investment goals. But the Newport News property managers at Real Property Management VA Peninsula can help. Contact us online or call at 757-251-9188 to find out more about the many services we offer rental property investors like you.
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