Reviewing your rental property: Is it giving you the best return for your investment?


Is your rental giving you a good return on your investment? Is this return likely to continue in the future? Should you make some upgrades? Is it time to sell and buy a replacement property with more growth potential or earning capability?

These are all questions any investor should be constantly pondering. Since the housing market crash of 2008, the local rental market has been strong. Because of this, more developers are back in the game and this affects the rental market. In reviewing your rental investment, consider the following:

Location of your rental
Location is just as important in rental properties as it is in owner-occupied homes. Proximity to amenities and the mountains will always help maintain a property’s appeal, thus value. Some constraints, for example geographical limitations to further development, will also work to maintain demand in certain areas.

Upgrade investment
Upgrades in a rental unit are necessary from time to time, but the best return on investment is to limit such work to minor and cosmetic tasks. Typically, adding expensive finishes and moving around walls are expenses that will not pay back — unless you are adding additional bedrooms and perhaps bathrooms.

Tenant consistency
A key consideration is tenant loyalty. If your renters that have been with you forever, don’t trash the place, consistently pay their rent on time, and are decent people, you may have built a bond with them. This works two ways: Perhaps you are keeping the rent below market rate in return for the extended tenancy and decent care of your property. As with everything, emotion is a factor!

Alternative investment options
With the advent of new urban developments in Boulder County, there are opportunities to switch to alternative investments. It could be trading one unit for two, or purchasing a multiplex in favor of a single-family home. But don’t forget a few things: Every purchase and sale will come with some expenses. Also, established locations were developed for a reason. And, as the saying goes, sometimes it’s better the devil you know than the devil you don’t!

Sales potential
In our current very expensive real estate market, some streets/neighborhoods that have been predominantly rentals in the past have become more owner-occupied. Areas that a decade ago homebuyers wouldn’t even consider looking in are now attractive options, thus their values have dramatically increased. Good examples of this are certain streets in the Martin Acres neighborhood. If you own such a property, it may be a good time to sell and invest in other areas that can then similarly grow in value.