How much should I raise rent for remodel

Question

I’m considering a master bath remodel for an occupied unit.  The tenant is all for it.  Rent is currently $1500.  Does anyone know of a ball park metric for how much your rent should increase in relation to how much money you invest in a remodel?  Should it pay for itself in X # of years?  How do you fairly assess the rental increase after an upgrade?

Steven Foster Wilson · Answer

I agree with JD! I think you have to look at the surrounding areas and go from there. If anything your might just get more back if you refinance or sell.

Vicky L. · Answer

Do your tenants know that this remodel will raise their rent?

David Lambert · Answer

It sounds like you are trying to determine the rent increase based off the cost of the remodel and not the value of the remodel. It doesn't matter how much you spend on the bathroom. What's important is how the market values the improvements. Ideally, I would want to view comparables and determine the value of the improvements based on this data. Then determine a budget that would make sense based on that value.

Also, are you budgeting a certain percentage of your rental income for capital expenditures such as this? It may be that these improvements do not warrant raising the rent but are needed in order to ensure the property is competitive for the market. In this situation having a capital expenditure fund to draw from "prices in" the improvements and does not affect your calculated cashflow.

I love the idea of getting the remodel done while still receiving rents. It seems like a Win/Win. You don't have to delay listing the property even longer during a turnover and the current tenants get an appreciated upgrade. Great thinking and I hope it goes well!

Chris Seveney · Answer

To get people to give more accurate info they would need:

1. Location

2. Size and SF

3. Current finish level

As mentioned depending on market conditions, based on the information provided its impossible to get anyone to provide any insightful information

My recommendation is to say I have a 3br 2ba 1200sf house in XYZ. We are redoing the kitchen and bath. The kitchen will have solid surface tops and the baths will be redone with tile floor and surround. We were getting 1500 a month, we checked some comps on rentometer that show ... What are your thoughts?

Jason Smith · Answer

Wait for them to move out, the next tenant will pay much more for a new unused bathroom. Plus if something is delayed (dealing with contractors, supply shortages) they are going to complain. Where if they move out the 31st and you tell the new tenants they can move in the second week of the month and the bathrrom is scheduled to be done, but no promises - they seem to more agreeable.

Rick Albert · Answer

The most important question is why do it with existing tenants? Wouldn't you get a better return if they move out and then you remodel before new tenants come in? That way you can advertise that you have a brand new bathroom. Otherwise you have an existing tenant that is going to put wear and tear on a brand new bathroom that you will likely not be able to get out of their deposit.

The only way it makes sense to me is if you raise rents and the deposit to market value. Otherwise you are better off waiting until after they leave.

Plus remodeling bathrooms can come with it's own set of surprises. There could be plumbing issues discovered, costing you more time and money and even more inconvenience to your tenants.

Austin Johnson · Answer

it doesn't really work that way...I could drop $200k into my bathroom. that doesn't correlate  to increased profits. when I'm underwriting apartments, I pull comps. ok, so all three surrounding apartment buildings have tiled walls in the shower with LVP flooring? and they're all charging $.50/sf? good to know. if my subject property has a plastic tub and carpet. (and if everything else is the same) I know my value can go up to $0.50/sf. then work backwards. example: say you're getting $0.30 currently. so you can see a 0.20 increase/sf for the renovation. 1200 sqft total(guess based on being a 3/2) that's a $240/month rent raise based on the remodel.  $2880/year return.

are you doing the remodel to maintain or to improve income? Cap Ex covers to maintain. if you're looking to improve income, you need to do the above math with actual numbers and figure if dropping $5k is worth an increase of $2880/year.

Theresa Harris · Answer

What is the market rent for a comparable unit?

Joel Houston · Answer

@JD Martin the kitchen and master bath are in need of updating and I plan on doing it if my tenants move out.  It is a 3/2 so that’s not an issue.  With my current tenants staying for the foreseeable future and willing to live through the rehab I might as well do the remodel while still receiving rents.  I’m just trying to figure out how much to raise the rents for the upgrade.

JD Martin · Answer

See what comparable properties where you are with that kind of bathroom are going for. Most of the time, unless you're talking about some real foo-foo stuff, you're not really getting more money as much as you're renting out faster because you have a nicer place. Are you remodeling because it desperately needs it, or because the tenant would like to have it? In general, you shouldn't really be doing any work that isn't necessary given the market of your property, financially speaking.

Also, as someone who has rehabbed an entire bathroom before while a tenant was gone for a long holiday weekend, it is a rough job with a lot of possible things that can go wrong. I wouldn't do it again unless it was a 2 bathroom house.

How much should I raise rent for remodel

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