Is it worth it? $7,500 kitchen reno for $50 - $75 more a month?

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Is it worth it? $7,500 kitchen reno for $50 - $75 more a month?

Autumn Whittington
Rental Property Investor · Tampa Bay Area, FL · Member since 2019 · 22 posts · 19 votes

I am under contract on a townhouse that should rent for $1200 - $1300 a month. The kitchen is in fair condition (50 yr old, lower end cabinets, laminate counter tops and low end older appliances). I got a detailed estimate from the store and I know the material cost would be $7,500 for new all plywood, soft close-white shaker cabinets, granite, stainless steel appliances, farm house stainless steel sink with back splash. Everything was chosen to look good, last long, be the lowest cost I could find and hopefully low upkeep maintenance. I would be doing the install, not my first. The cabinets would take 4 weeks to arrive, resulting in one month of lost rent. My property manager told me to only expect about $50 - $75 more a month for this upgrade. I expect 8 - 12 yrs to recover this upgrade cost from rent. I can expect an increase in the sale value of about 7% ($10,000) but I don't plan to sell it for another 15yrs once the mortgage loan is paid off. 

Pros: Likely result in renting the property faster, higher rent of about 4 - 6% and if I sell in 15 years, the look should not be too outdated (I hope).

Cons: I lose a months rent, upfront cost that I lost to invest now, my time and effort, long return and risk of the project going over budget or take longer than planned.

Should I just clean it up and rent it ASAP or invest my time and money? 

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Jaysen Medhurst
Rental Property Investor · Greenwich, CT · Member since 2015 · 4k+ posts · 2k+ votes
6y

That's an 7-10% annual ROI on ~$8800, @Autumn Whittington. Is that worth it to you? Can you get a better return by putting that money somewhere else?

There is also the competitive advantage to consider. Will you get better tenants who stay longer? That ups your ROI.

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  • Jaysen Medhurst
    Rental Property Investor · Greenwich, CT · Member since 2015 · 4k+ posts · 2k+ votes
    6y

    That's an 7-10% annual ROI on ~$8800, @Autumn Whittington. Is that worth it to you? Can you get a better return by putting that money somewhere else?

    There is also the competitive advantage to consider. Will you get better tenants who stay longer? That ups your ROI.

    12Reply
  • Will G.
    Rental Property Investor · Maryville, TN · Member since 2009 · 529 posts · 414 votes
    6y

    i vote no! I think keeping the rent amount lower, as long as kitch is clean and functional, is better strategy going forward. We have been too long pushing rents to the max, so imho better to keep rent competitive and do the kitchen when it is "necessary"  

    8Reply
  • Anna Sagatelova
    Property Manager · Cleveland, OH · Member since 2019 · 446 posts · 566 votes
    6y

    I would recommend that you look at other rental listings in that same area and see if your property is really looking the most outdated. If that's the case, consider a few upgrades. I don't think upgrading the sink is a must, but maybe repainting the cabinets for a fresher feel will be more worth your time, and so much cheaper.

    I agree to wait to do a big overhaul when it's more necessary, like cabinets sagging/breaking, laminate counter scratched up, an appliance breaks. In 15 years of renting, you will certainly wear out these items at least once more, so you can't count on that 7% increase 15 years from now.

    9Reply
  • Autumn Whittington
    OP
    Rental Property Investor · Tampa Bay Area, FL · Member since 2019 · 22 posts · 19 votes
    6y

    @Jaysen Medhurst, your question about better and or longer staying renters is fair and valid. Possibly, but that is speculation at this point so I would consider it but not bet on it.

    2Reply
  • Joe Cassandra
    Rental Property Investor · Woodstock, GA · Member since 2017 · 517 posts · 772 votes
    6y

    I just had this convo about a rental. Decided I'd rather rent it out now rather than lose another month in holding costs. 

    So the ROI being 7-10% probably isn't accurate, as you'd likely have another month of holding costs.

    You said 4 weeks for cabinets. Then, you have to wait a couple weeks likely for a new tenant to start the lease (unless you nab a signed lease during reno). 

    So your ROI is likely 0% the first year.

    If your mortgage payment is $800 (i'd guess), you'd make $0 in extra income in holding costs. 

    Oh and utilities you'd be paying too.

    4Reply
  • Autumn Whittington
    OP
    Rental Property Investor · Tampa Bay Area, FL · Member since 2019 · 22 posts · 19 votes
    6y

    @Anna Sagatelova, comps for mostly the same kitchen condition are renting at $1100 - 1300. Those units overall look poorly maintained. Updated kitchens rent for $1200 - 1400. I'll be replacing all the flooring with high end, waterproof, vinyl plank )wood look) flooring so I don't need to worry about replacing carpet every 7 yrs or so, unless a renter tries hard to damage it. Ill also be updating the bathrooms. This reno alone should bring in 1,300 a month with the old kitchen. Ill be on the upper end of what the area supports.

    3Reply
  • Autumn Whittington
    OP
    Rental Property Investor · Tampa Bay Area, FL · Member since 2019 · 22 posts · 19 votes
    6y

    @Joe Cassandra, good point! Thats why I ask smart people like you to remind me of the thing I know but didn't think of. Metaphorical hand to my face! I say Metaphorical because the CDC says not to touch my face.

    4Reply
  • Anna Sagatelova
    Property Manager · Cleveland, OH · Member since 2019 · 446 posts · 566 votes
    6y

    @Autumn Whittington it sounds like you've done your homework! I would hold off on the major kitchen upgrade.

    Which markets are you in?

    0Reply
  • Autumn Whittington
    OP
    Rental Property Investor · Tampa Bay Area, FL · Member since 2019 · 22 posts · 19 votes
    6y

    @Anna Sagatelova, Fredericksburg VA. Suburbs of DC. I work in Quantico but moving this summer. Doing my last personal buy and rent before I PCS to Hawaii!

    3Reply
  • Anna Sagatelova
    Property Manager · Cleveland, OH · Member since 2019 · 446 posts · 566 votes
    6y

    @Autumn Whittington that's awesome, enjoy Hawaii! Thank you for your service.

    0Reply
  • Joel Roberts
    Rental Property Investor · Fredericksburg · Member since 2019 · 8 posts · 1 vote
    6y

    @Autumn Whittington I also invest in the Fredericksburg,VA area! I personally would skip the major renovation and just repaint the cabinets, add back splash and possibly get new appliances depending on age and what the other townhouses have.

    1Reply
  • Caleb Heimsoth
    Rental Property Investor · Durham, NC · Member since 2016 · 7k+ posts · 7k+ votes
    6y

    @Autumn Whittington no this is not worth it.

    The payback period is way to long.

    4Reply
  • Greg M.
    Rental Property Investor · Los Angeles, CA · Member since 2017 · 2k+ posts · 5k+ votes
    6y

    Since you say you will be updating the rest of the unit, I think it would be stupid not to finish the job and do the kitchen. It'll look like you ran out of money mid-job.

    You say you would lose a month of rent, but this is incorrect. At some point in time you will have to redo the kitchen. It's not an if, but a when. You're going to be out the time at some point. I wouldn't be doing custom cabinets on a rental unless it was really high end. Find some nice ones and put some molding at the top of them to the ceiling and they will pass as custom.  

    As for the unit renting faster of tenants staying longer, I'm a big believer that nicer upgrades help rent the unit faster and help keep tenants longer. 

    2Reply
  • Jonathan R McLaughlin
    Rental Property Investor · Boston, Massachusetts (MA) · Member since 2016 · 2k+ posts · 2k+ votes
    6y

    @Autumn Whittington concept of upgrading sound but you are going WAY too high end for 50-75. I’d only spend that kind of money if I was repositioning from 850-900 to 1300-1500 (exact numbers market dependent but you get the idea.

    But...new doors on the old plywood base or paint and new knobs $30-250? Extra granite piece for small kitchen 500? Or even the nice plastic stuff. All new appliances and paint. Get a package for 1899. your own labor and maybe some overstock or habitat for humanity place and you are looking at half of what your estimate and I bet you could bring in something nice for less.

    And if THAT doesn’t get you 50-75 a month there are other issues :)

    2Reply
  • Jonathan R McLaughlin
    Rental Property Investor · Boston, Massachusetts (MA) · Member since 2016 · 2k+ posts · 2k+ votes
    6y

    @Autumn Whittington if you are holding for 15 years (missed that) you are going to have to update the kitchen again for max value anyway. Don’t go all in now.

    1Reply
  • Autumn Whittington
    OP
    Rental Property Investor · Tampa Bay Area, FL · Member since 2019 · 22 posts · 19 votes
    6y

    @Greg M., agreed, when not if. If I decide to upgrade, I need to consider a lower cost option.

    0Reply
  • Victor S.
    WorldWide · Member since 2016 · 1k+ posts · 1k+ votes
    6y

    can you post a picture? you could always repaint the cabinets and upgrade only the doors (lots of custom builders on fb these days). same for appliances - can probably score some gently used ones for a lot cheaper. i wouldn't worry about counters, unless they are beat up/rotten/etc. 

    1Reply
  • Theresa HarrisPro Member
    Member since 2019 · 15k+ posts · 11k+ votes
    6y

    I fit results in you losing 2 months' rent, I would wait.  Easy enough to do a quick paint job and add new hardware (that you can reuse later).  When you know the unit will be turning over, order the cabinets and everything and do the work then.  You'd lose a months' rent at that time, maybe less.

    0Reply
  • Bill Goodland
    Rental Property Investor · Allentown PA, United States · Member since 2016 · 567 posts · 442 votes
    6y

    @Autumn Whittington ROI doesn't sound bad, but what about the opportunity cost of having the place sit vacant while waiting for cabinets and cost of labor for putting it together? The improvements will definitely increase the value, but if you're not planning on recapturing that equity soon with a sale or refi I would hold off while there is still useful life in the kitchen you have left. That way, on the next turnover you can have time to plan by setting reserved aside, ordering cabinets ahead of time and lining up contractors for right after the tenants move out

    2Reply
  • Michael Tempel
    Property Manager · Minneapolis, MN · Member since 2014 · 380 posts · 167 votes
    6y

    @Autumn Whittington

    Yes, this is how we raised value significantly in apartment buildings since 2007.

    Take 75-150 rent increase * 50...or 150! Suddenly you gave a building that is worth significantly more and spits out cashflow

    0Reply
  • Kenneth HynesPro Member
    Rental Property Investor · Easton, PA · Member since 2013 · 359 posts · 92 votes
    6y

    @Autumn Whittington    As others noted would recommend holding off the major upgrades .. mainly for reasons @Joe Cassandra said above.    Long term hold like that  will give you plenty of time to upgrade  later 

    Where in Hawaii you headed ?

    1Reply
  • Philomena Crea
    Member since 2020 · 10 posts · 4 votes
    6y

    @Autumn Whittington it would also help you financials annual income depending on you whether positive geared and resale valued the property in future,as well as an depreciation due over the years as well as any use of the property as a security for a second rental purchase as you are increasing the value of your current investment ,but as for rent , probably the only benefits are ability to attract better long term tenants ( I would hope) and less vacancy

    0Reply
  • Carlos Guzman
    Investor · Member since 2020 · 4 posts · 10 votes
    6y

    Based on my understanding the kitchen is in fair condition and unit can be rented as is but if you upgrade it as you stated for $7,500 then rent will only boost by $50-$75 a month……or increase sale value of up to $10K – which is basically what you are investing financially and from a time angle….

    So there’s see 3 options at play from my viewpoint:

    • 1) Leave as is if everything is working fine and maybe do minor changes where applicable if people are still renting it like based on what you see around your area…”if it aint broke, don’t fix it”…
    • 2) Do a bit of TLC - paint existing cabinets, change handles, depending on the condition of the counter top either keep it or replace it, maybe a back-splash and only change appliances if required but I wouldn’t go for high-end stainless steel. Keep the cost as low as possible whilst adding value.
    • 3) Or, as you stated go all in for $7,500…..

    Now, as plan is to hold and rent long term I would definitely first explore option (1) and if I don’t like it then I would stick for option (2) --- BUT I wouldn’t go for option (3). I would only go for option (3) unless plan is to sell it and expect a significant appreciation value as a result of it (or from a rent perspective) and based on the numbers you forecast, it seems not worth it.

    My strategy is always option (1) or (2) where plan is to hold and rent. Below is an example of one of my option (2)….

    4Reply
  • Carlos Guzman
    Investor · Member since 2020 · 4 posts · 10 votes
    6y

    Based on my understanding the kitchen is in fair condition and unit can be rented as is but if you upgrade it as you stated for $7,500 then rent will only boost by $50-$75 a month……or increase sale value of up to $10K – which is basically what you are investing financially and from a time angle….

    So there’s see 3 options at play from my viewpoint:

    • 1) Leave as is if everything is working fine and maybe do minor changes where applicable if people are still renting it like based on what you see around your area…”if it aint broke, don’t fix it”…
    • 2) Do a bit of TLC - paint existing cabinets, change handles, depending on the condition of the counter top either keep it or replace it, maybe a back-splash and only change appliances if required but I wouldn’t go for high-end stainless steel. Keep the cost as low as possible whilst adding value.
    • 3) Or, as you stated go all in for $7,500…..

    Now, as plan is to hold and rent long term I would definitely first explore option (1) and if I don’t like it then I would stick for option (2) --- BUT I wouldn’t go for option (3). I would only go for option (3) unless plan is to sell it and expect a significant appreciation value as a result of it (or from a rent perspective) and based on the numbers you forecast, it seems not worth it.

    My strategy is always option (1) or (2) where plan is to hold and rent. Below is an example of one of my option (2)….

    2Reply
  • J. Mitchell Bernier
    Lender · Southwest Georgia · Member since 2017 · 315 posts · 278 votes
    6y

    @Autumn Whittington I personally say no. I look at any improvement(excluding roof and A/C) and I want to get my cost back in 3-5 years. If it takes me longer I don’t do it.

    You could probably get away with just painting the cabinets adding new hardware and maybe a new Formica countertop and get the same rent increase and that should only be 3-4K in cost.

    Good luck

    1Reply
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