How much to spend for an extra $100 in rent? ROI

Question

When updating a property for a rental, what do you feel is a reasonable time frame to get back your improvement investment.

Example:

If I have a property that I can rent for $1,000 a month, but by spending a bit more, I could raise the rent to $1,100 per month, what amount is reasonable to spend to get that extra $100 per month ($1,000-$1,200 per year) of extra income?

If I spend an extra $1,000 for a $100 per month increase, within 12 months I should have my investment back.  What do most of you do?

Steve Vaughan · Answer

As a general rule on improvements or upgrades, I seek a 24-month payback.  50% per year plus a higher value and less maintenance headaches.  Can't get that out of a CD!

Collin Goodwin · Answer

Dan, if you own more than one rental, it can be a good idea to make the upgrades and build a reputation for yourself by bringing quality upgraded homes to the market, and therefore expecting the higher rents...this could pay off in the future. Personally, I am comfortable recouping the costs within a year or two. What upgrades do you plan on doing for $1000? It could also pay off in the future if you are "tenant proofing" the house with less maintenance burdensome materials.

Dan Perrott · Answer

I have always done a complete upgrade on each unit on the first opportunity.  Kitchens and Baths always seem to attract the best returns.  For these major upgrades, I expect to get the $ back over a few years.  I do this because the maintenance $ do go down with a quality rehab in place.

For simple upgrades (for example, new flooring), I would expect it to be paid for in about 6 months or less.

Hope this helps.