ROI on upgrades for rentals

[Dustin Beam]

So what numbers/returns do you use when updating your units? To me it's not as simple as regular ROI calcs because the upgraded don't last forever.

My apartments are a little tired and I'm hoping I can get an extra $100/mo. Not sure if I can get that much extra by fixing it up, but if I can I may have to spend 3-4k on each to do it. That would roughly be 33% ROI, but if a tenant moves out after a year or two, I would likely need to spend more money, thus extending my break even time.

Thoughts?

[Mike Dymski]

This can be more art than science but it may help to separate recurring maintenance and turns from upgrades. Your recurring maintenance would be part of your normal performance tracking, whatever those metrics are, and the longer term upgrades would be part of the ROI and payback calculation you mentioned. If you are changing lighting and plumbing fixtures, replacing or resurfacing counters, replacing/installing vinyl or other hard surface flooring, replacing appliances, and other longer-term upgrades, those are easier to run a separate return calculation on. If you are painting and performing general maintenance and turns, those costs could be part of your ongoing budget.

Try also to tenant proof your upgrades as much as possible.

If you are able to spend $3-4k and, even if you have to spend a little more on a later turn, to get $100/mo more in rent, that is a strong return...likely stronger than what you otherwise could get with that money.  On a 5+ unit property, a $100/mo rent increase will increase the property value by $15,000 on an 8 cap.  Hope that helps and good luck.