If your East Nashville rental property has an unfinished basement, you may consider finishing it. There are several 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 requires thinking a bit beyond the project’s financial aspects. It’s critical to weigh any prospective downsides to finishing a basement in a rental property and the advantages. For that reason, you can quickly determine if finishing your rental’s basement is the best option for you.
Maybe the main reasons to finish your rental’s basement are the potential increase in value and the rental income it might bring. Putting more bedrooms or another bathroom on your rental property can help you attract and keep tenants more easily, particularly if your property only has a single bathroom. In certain areas, the jump in rental rates from houses with one bathroom to one with two is significant and perhaps good enough to begin planning to complete the work.
Finishing a basement is also a good idea to increase the equity in a property, offering high returns when the time comes to sell. This is undoubtedly true if the houses in your neighborhood tend to have finished basements, which may undesirably affect your sales price if yours is the only property on the market in that area that isn’t fully finished.
However, before preparing plans to finish your rental’s basement, there are several other aspects you should take the time to work through. Maybe the first one is to evaluate what it will cost to complete the project and how it will impact your profit margin. To get started, you’ll need to assess the fair market rent on your current property and 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 task?
For a project like finishing a basement to make sense, the numbers need to add up. If you’re skillful, you could plan to do some or all of the work yourself, but you must ensure that you have enough time to complete the build in a moderately short time frame.
On the financial side of things, there are also property taxes that you need to cope with, aside from potential increases in insurance rates, utility costs, etc. Be sure to research and fully understand how your income and expenses may change after completing the project. Including finished square footage only makes sense if you can maintain healthy profit margins after the work is done.
Finally, it’s essential to care about the situation from your tenant’s point of view. Are they willing to comply with ongoing construction in the home? If you have current tenants, you’ll need to ensure they are completely involved 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 accept the noise and additional traffic. If you want to raise the rent once the work is finished, you must clarify that with your tenants. Other tenants may resist when they realize the extra square footage you include will cost them extra each month.
Conversely, if you prefer to wait for tenants to finish your rental property’s basement, you’ll need to manage the project carefully to skip a lengthy vacancy. Each month that your property isn’t leased, you are losing potential rental income. It’s your job to ensure that you have everything organized appropriately 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 time away from working on your investment goals. But the East Nashville property managers at Real Property Management Key Response can support you. Contact us online or call 615-953-8700 to learn more about the many services we offer rental property investors like you.
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