Know the Return Before You Improve Your Property
Forget what you may have read or heard about what rate of return a remodeled rental property unit may give you.
Perhaps you’ve been lead to believe, for instance, that a remodeled kitchen will pay back, say, 70 percent of its cost, or a remodeled bath, say 100 percent of its cost. This is not necessarily true. To make money at real estate investing, you should never rely on any of these specific payback figures, and instead, learn to evaluate every rental property and every project on its own merits.
Foremost, your profits relate directly to how much your tenants (buyers) value your rental property units. In other words, improvements are only as good as the price someone is willing to pay for them, and these relative comparisons differ in time and place.
In this case, research competing properties and tenant (buyer) preferences. Learn what you need to achieve competitive advantage. Think twice about making any property improvement that will do little to attract tenants willing to pay higher rents or buyers willing to pay your desired higher price.
In other words, smart real estate investing requires you to know what rate of return you will achieve for any modifications you make to your rental properties.
Author: James Kobzeff, December 29th, 2008
