If your Sun Prairie 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. Though, deciding whether to complete your rental’s basement requires thinking a bit beyond the project’s financial aspects. It’s crucial to evaluate any possible obstacles to finishing a basement in a rental property along with the benefits. Like this, you can more boldly decide if finishing your rental’s basement is the proper move for you.
Possibly the greatest reason to finish your rental’s basement is the potential increase in value and the rental income it may bring. Adding more bedrooms or an extra bathroom to your rental property can help you attract and retain tenants more clearly, particularly if your property only has a single bathroom. In several areas, the jump in rental rates for houses with one bathroom to one with two is significant and perhaps cause enough to start planning to get the work done.
Finishing a basement is similarly a great way to increase the equity in a property, presenting 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 adversely alter your sales price if yours is the only property on the market in that area that is not fully finished.
Before making arrangements to finish your rental’s basement, though, there are many other issues you should take the time to work through. Perhaps the first one of these is figuring out what it will cost to complete the project and how it will impact your profit margin. To get started, you’ll 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 discrepancy. 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 are handy, you could plan to do some or all the work yourself, but you’ll need to make certain that you have enough time to complete the build in a relatively short time frame.
On the financial side of things, there are similarly property taxes to contemplate, as well as potential increases in insurance rates, utility costs, and so on. Be sure to do some research and fully understand how each of your income and expenses 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.
Finally, it’s important to take into account 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’re 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 understand that the extra square footage you’re adding will cost them extra each month.
Then again, 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 time period 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 Sun Prairie property managers at Real Property Management Greater Madison Metro can help. Contact us online or call at 608-310-1290 to find out more about the many services we offer rental property investors like you.
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