Cash on cash return-

[Mario Morales]

I have a three unit building, but one unit needs to be remodeled the other two have been renting out for the past few years.

If I spend X on renovating this apartment to get it ready for rental will the cash on cash return apply ? Do I take a year's rent and the money spent on the rehab to look at my return?

[Tim Ryan]

The way I look at this situation is this:

Let's say the rent you can get at that unit is $1000 as is. And if you rehab you are certain you'll still only get the market rate of $1000. Then don't rehab for zero COC return.

But if you can spend $3000 on the lite rehab and increase rent from $1000 to $1050 then you'd gain $50 per month.

50 x 12 = $600 more annually because you rehabbed.

600 / 3000 = .2 or a 20% cash on cash return!  And 50 is not that much to increase.

I've seen landlords who don't rehab always complain about cash flow. You need to improve the property to improve the tenant. An improved tenant is willing to pay more...