I have a couple of vacancies and I am considering putting some money into the current units. What is a good rule of thumb for ROI in updating units I can do the basic and invest 6k and get an extra $100 per month OR I could put 18k in and get an extra 275 per month. Is there a formula that any of you would recommend to determine the best course?
You can always use the BP calculator to run the numbers, run both scenarios and see the differences.
Also another thing you should consider (and the calculator won't help you on this one) is consider the amount of time will take to renovate and fill your unit.
It really depends on the investment return that you’re seeking. As a point of reference a general rule of thumb that big business uses for capital investment is payback in 5 years or less.
Your $6k investment option is a 5 year payback. Your $18k scenario is 5-1/2 year payback. Both would be marginal for us.
We’re currently rehabbing some of our units, total cost $15k, increased rent of $490 for a 2-1/2year payback.
Just my $.02
@Jeff Quinlan a lot depends on where you are relative to market rent. My personal rule is never over improve; it is a waste of money. So do what is necessary. Paint and flooring provides a pretty good return as does sprucing up the building and common areas including landscaping. Bathrooms and kitchens sell but they get expensive in a hurry.
@Jeff Quinlan (100x12)/6,000 is the formula to figure out your roi on that capital improvement but you’ll also want to consider what value that increase in noi will generate based on your area/property cap rate
Thank you, everyone, for your great feedback!
@Jeff Quinlan it sounds like you know what you're doing already. My bigger concern would be how does a $275 pop in rent take to that submarket? You could also try one of each and see how well it gets absorbed in the market.