Rental Property Highest & Best Use?

Is your Philadelphia rental property at its highest and best use?

Highest and Best Use is a Real Estate term that means the reasonable, probable and legal use of a property.

From a Property Management, or a Real Estate Investment Perspective, “Highest & Best Use” simply means what is the most profitable state your Philadelphia rental property should be.

As a property manager, and as a Philadelphia rental property investor myself, I often see properties that fall short of this. In fact as an investor I look for properties that aren’t living up to their potential. Its my investment strategy to find properties that have problems that are easily fixable; and if the current property owner hasn’t seen its rental potential then all the better for me.

Having a rental property not as its highest and best use is simply leaving money on the table. Possibly lots of money on the table!
Certainly Highest and Best Use can mean a lot of different things.

It can be simple:

  • Adding Bedrooms. Its common to see Philadelphia rental properties where the owners eliminated one of the bedrooms. Infact I purchase a duplex where the owner knocked down a bedroom wall rather than fix the heating system. For me it was an easy bonus to create rental value by adding the room back in. The property was certainly zoned for it and interior walls are inexpensive enough.
  • Adding a Family Room. As a property manager I know that Philadelphia Tenants want functional rental spaces. A finished basement can do just that.
  • Adding a Washer & Dryer. Again, functionality. Its something tenants need. A rental property with a washer and dryer will rent far quicker and for far more than a rental property without. And it makes sense - should a tenant pay a laundromat or pay you? If there is room for a washer and dryer, it’s always recommended.

Or it can be more involved:

  • Turning a Duplex into Triplex. Or vise-versa, a good property management company should be able to tell you what your market calls for. Many duplex’ in Philadelphia are zoned as triplex’.
  • Selling to Buy a More Profitable Rental Property. Not all rental properties are created equal, and neither are all real estate sale transactions. Sometime the best strategy for a property is to hold it as a rental until the market shifts or to sell a bad rentaland reinvest. Many bad rentals can be sold well as to someone not interested in being a rental investor at all - rather they are looking for their next home.

A good property manager can help advise you of rental values, weighed against the cost associated with change. They can tell you what to sell and what properties to keep.


Joe White

Joe White is a Philadelphia Property Manager and Real Estate Broker. He is the owner of Grow Property Management and has been involved in the management, sales and purchases of Philadelphia area rental investment properties since 2008. He is an author and works as a real estate investment consultant and construction manager.

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