Condo Renovation: Full or Cheap out?

Question

We have an apartment condo unit that cost $116k and presently rents for $890. A corporate landlord is substantially upgrading suites in their building and renting for $1,050. We could upgrade our unit and realise an increase in rent of $160/month, $1,920 a year. To make our unit comparable we would need

* New bath tub and surround, plus plumbing ($3,000 from a supplier that can do the complete job in one day.)

* Refaced kitchen cabinets and vanity; new counter tops, sinks and faucets ($5,000)

* Ceramic tile in kitchen, bath and hallway ($1,000)

* New carpet throughout ($3,000)

For a total of $12,000. To be truly comparable we would need stainless kitchen appliances but we replaced those in white two years ago and do not want to waste good appliances, so we will use those for a while.

We can use a low interest LOC with current interest costs of $480 (variable). We are considering doing all of these items, or perhaps doing the bath and cabinets first and then carpet after the next tenant.

What do you think of this? Does it make sense to you? It is a lot of cash but the return is not bad. Increased rent $1,920 - Interest Cost $480 = $1,440 net, $1,440 / $12,000 = 12% based on increased rent alone, and we would have property price appreciation approximately equal to the cost of renovations.

We have started and have done the bath. My partner is getting cold feet on the dollar amount and wants to cheap out (lowest builder's grade cabinets instead of refaced with good laminate doors, not replacing carpet, etc). I believe the value is in upgrading. Note that the LOC means that this project would not crimp our cash and prevent further investments.

Comments from BP community welcome.

Dustin Oaks · Answer

@ Stephen E

Why not redo the kitchen cabinets and the counter tops and the sinks and faucets in both the kitchen and bathroom along with the vanity and tub? Then reassess after that? Especially if the flooring is still good throughout the condo. Given your costs you list above it would be about 10K more or less and almost meeting your partner partway. Then your business partner can see how well it looks and gets on board fully with the idea or stands his ground with cold feet.

Wesley C. · Answer

I would renovate but do it a bit cheaper. Not sure the conversion rate, but if you already have new appliances, there is no reason you need to spend $5000 to give the kitchen and bath an attractive facelift.  In a house that price range, a professional  paint job on the cabinets and some new knobs should suffice.  I'd have your tile guys tile right over the existing countertops or go with laminate.  Your tile numbers seem about right, but unless this is a huge condo, $3K seems pretty high for carpet.  Of course I don't live in Canada, so not certain about these numbers, but I'd think you could get the desired effect for less money.

If the renovation gets you more rent that is great, but another upside is that you likely will find better renters and fill vacancies faster with higher end finishes, which will improve your bottom line as well.

Sharad M. · Answer

@Stephen E.

I would personally do it if you are confident in the numbers.

Will the whole repair cost be coming from LOC?