Rent/Update Cost Ratio?
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Rent/Update Cost Ratio? (by Laura [VA]) Oct 9, 2017 12:49 PM
       Rent/Update Cost Ratio? (by Pmh [TX]) Oct 9, 2017 1:06 PM
       Rent/Update Cost Ratio? (by Laura [VA]) Oct 9, 2017 1:09 PM
       Rent/Update Cost Ratio? (by Pmh [TX]) Oct 9, 2017 1:20 PM
       Rent/Update Cost Ratio? (by WMH [NC]) Oct 9, 2017 1:21 PM
       Rent/Update Cost Ratio? (by Pmh [TX]) Oct 9, 2017 1:34 PM
       Rent/Update Cost Ratio? (by Laura [VA]) Oct 9, 2017 4:05 PM
       Rent/Update Cost Ratio? (by Deanna [TX]) Oct 9, 2017 4:11 PM
       Rent/Update Cost Ratio? (by Laura [VA]) Oct 9, 2017 5:44 PM
       Rent/Update Cost Ratio? (by Lynda [TX]) Oct 9, 2017 7:20 PM
       Rent/Update Cost Ratio? (by BRAD 20,000 [IN]) Oct 9, 2017 11:56 PM
       Rent/Update Cost Ratio? (by BRAD 20,000 [IN]) Oct 9, 2017 11:56 PM
       Rent/Update Cost Ratio? (by Robin [WI]) Oct 10, 2017 4:34 AM
       Rent/Update Cost Ratio? (by S i d [MO]) Oct 10, 2017 5:16 AM
       Rent/Update Cost Ratio? (by Laura [VA]) Oct 10, 2017 6:49 AM
       Rent/Update Cost Ratio? (by NC INVESTOR [NC]) Oct 10, 2017 1:58 PM
       Rent/Update Cost Ratio? (by Pmh [TX]) Oct 10, 2017 3:13 PM
       Rent/Update Cost Ratio? (by Laura [VA]) Oct 11, 2017 4:39 AM
       Rent/Update Cost Ratio? (by Sisco [MO]) Oct 11, 2017 8:58 AM

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Rent/Update Cost Ratio? (by Laura [VA]) Posted on: Oct 9, 2017 12:49 PM
Message:

I am exploring various scenarios for a condo of mine that will be turning over in 2018. This is in a very nice neighborhood, and it's gotten somewhat dated, due to a long term tenant. I could afford to put some cash into updates and raise the rent significantly, I believe. Is there a 'rule of thumb' for investing in updates vs. rent increase? The property is probably worth $170K in a $190-200K neighborhood, so there is room for improvement. I could have a totally-updated unit with about $15K of work. If doing $15K worth of updating would raise the rent by $275-300/mo, would it be worth it? --67.172.xxx.xxx




Rent/Update Cost Ratio? (by Pmh [TX]) Posted on: Oct 9, 2017 1:06 PM
Message:

depends on how long you going to keep it... --24.178.xxx.xx




Rent/Update Cost Ratio? (by Laura [VA]) Posted on: Oct 9, 2017 1:09 PM
Message:

Oh, right! I'll keep it 15 more years. --67.172.xxx.xxx




Rent/Update Cost Ratio? (by Pmh [TX]) Posted on: Oct 9, 2017 1:20 PM
Message:

Payback on 15k and rent increase 275 per month is less than 5 years. a no brainer. do it. I sure would. there is no "rule of thumb"...it is only a cash on cash return calculation for each situation and what the alternative returns are. that is a good return bc after 5 years you have 10 years of increased rents (plus the annual increases - not factored in) --24.178.xxx.xx




Rent/Update Cost Ratio? (by WMH [NC]) Posted on: Oct 9, 2017 1:21 PM
Message:

We've stopped worrying about ROI on an update. When it's time to do it, it's time to do it. Use your head about over-improving, but not only will YOU feel better about the place, but it will attract surprisingly better people at a higher price point and newly remodeled. --173.22.xx.xx




Rent/Update Cost Ratio? (by Pmh [TX]) Posted on: Oct 9, 2017 1:34 PM
Message:

WMH makes good point indirectly. sometimes have to put $ in to keep the property up to maintain current rent levels. but. If you can keep current rents without renovation then you must factor in whether it is worth it to sink $ in and then calculate what your increased rents can be. That is why you should compare ROI against alternative returns of investment somewhere else. So here you can drive rents higher, as WMH says, but not bc you feel better about the place, but bc you have a better product that can get a better price. and so should calculate roi.... --24.178.xxx.xx




Rent/Update Cost Ratio? (by Laura [VA]) Posted on: Oct 9, 2017 4:05 PM
Message:

Very helpful info! Thanks! I could probably get away with just doing flooring and a coat of paint, but was thinking I'd also change out countertops & sink, take out the brass-trimmed ceiling fans, put in some can lights, upgrade the blinds, and replace the 12+ year old appliances. We have a rental property shortage, so I want to maximize what this property is bringing in while I can. --67.172.xxx.xxx




Rent/Update Cost Ratio? (by Deanna [TX]) Posted on: Oct 9, 2017 4:11 PM
Message:

One good question to ask is "will this rent if I don't do x"?

If the answer is "no", or "it will be much harder", or "I won't attract the quality of tenant I want", then definitely do it.

If the answer is "yes", then you have your pick-- either do it or don't do it.

Another good question to ask is "will my tenants appreciate/take care of x?"

If the answer is, "Fer sure!" then proceed.

If the answer is, "I don't know..." then be cautious. --96.46.xxx.xx




Rent/Update Cost Ratio? (by Laura [VA]) Posted on: Oct 9, 2017 5:44 PM
Message:

Regarding the 'will it rent' question: absolutely it will rent - whether I do the improvements or not. But I think I can really increase my return on investment, while attracting a more desirable tenant.

There has literally been nothing for rent this summer in this mid-range I'm shooting for - rentals were either dumpy student/low income housing or high-end executive housing. My other places are mid-level and I have tenants who would be homeowners, except for some twist that keeps them renting - from me - and they are mostly mid- to long-term. At the present moment, I have little to no competition. Going to push the envelope a bit on this property and go higher-mid-level, I think... --67.172.xxx.xxx




Rent/Update Cost Ratio? (by Lynda [TX]) Posted on: Oct 9, 2017 7:20 PM
Message:

Laura, I am a big one for "design on a dime." If it was me, I would paint, do the countertops and put newer appliances first, and see how it looks. If it still needs more, change out the brass ceiling fans to something inexpensive in a brushed chrome look. I would NOT hack thru the ceilings to put in can lights--lots of wiring and ceiling repairs. People like fans.

What flooring needs to be replaced? carpets? wood? linoleum? I am an anti carpet person. Ceramic tile is inexpensive these days and comes in so many "looks" (slate, saltillo, marble,etc). And it wears like iron! Depending on how bad the flooring looks, you can just do the worst ones. I do kit, baths, front door entry and under laundry area.

Now, I realize that VA is more costly than TX, but those repairs shd not cost $15K unless you did extensive floor work. I could do it for $10K including appliances (used stainless steel in nice cond). --108.87.xx.xxx




Rent/Update Cost Ratio? (by BRAD 20,000 [IN]) Posted on: Oct 9, 2017 11:56 PM
Message:

Laura,

Take the cost and divide it by the rent increase. Other than shifting your market, a basic upgrade should pay for itself in a few months, maybe a year.

BRAD --68.50.xx.xxx




Rent/Update Cost Ratio? (by BRAD 20,000 [IN]) Posted on: Oct 9, 2017 11:56 PM
Message:

Laura,

Take the cost and divide it by the rent increase. Other than shifting your market, a basic upgrade should pay for itself in a few months, maybe a year.

BRAD --68.50.xx.xxx




Rent/Update Cost Ratio? (by Robin [WI]) Posted on: Oct 10, 2017 4:34 AM
Message:

I agree with Lynda. No way should you spend $15K on cosmetics, especially not can lights.

Keep in mind that trends change. Shiny brass to antique brass to satin nickel to oil-rubbed bronze to...not sure what the current trend is. Colors chnage too. Warm earth-tone granite has been supplanted by cool white and grey granite. That updated slate tile floor may soon be outdated. (I remember when slate was "so 70s." Now it's back.)

Do updates that are economical and can be updated easily in the future. There are some really high-end looking formicas now. Do a luxury vinyl plank in a tile look. Maybe a super neutral tile in the entry and laundry areas. Can you hit the ceiling fans with a can of Hammered Bronze spray paint? We bought a house full of shiny brass light fixtures. For $12 of spray paint and a couple hours of work we updated every single one. --204.210.xxx.xxx




Rent/Update Cost Ratio? (by S i d [MO]) Posted on: Oct 10, 2017 5:16 AM
Message:

The question is always ROI. The "will it rent" is the same question if you are calculting vacancy as part of your expenses.

Some real estate investors do not know how to properly calculate vacancy, so I'll share a quick example.

Let's say you have a property that rents for $1,000 a month that you've owned for 5 years. Over that time, you collect 95% of the potential rents. (12 months * $1000 * 5 years * 95%) = $57,000.

In year six, you consider an upgrade that costs $5,000.

There are only 2 possible gains you can make to your bottom line: increased rents and/or decreased vacancy.

The 5% vacancy "cost" over 5 years was $3,000. So even if you are 100% occupied with a paying tenant that whole time, you cannot recoup your entire investment purely off of decreased vacancy. You're still "in the hole" $2,000 from the upgrade.

To offset that, you'd need to collect $2,000 more rent over 5 years. $2,000 / 5 years / 12 months (assumes 100% full, paying tenants)... $33.33/month rent increase.

So...run your numbers and plug in whatever your goal is. Pmh says 5 years is a "no brainer." I have higher goals. I won't do an upgrade unless the payback is less than 3 years, and sometimes I shoot for 18 months. Closer to what Brad looks at. Money needs to be made quickly in this game.

Can you reduce vacancy and increase rents to where your payback is less than 3 years? Less than 18 months? What numbers do you need?

After 5 years, your paint is scratched, smudged and faded...your fixtures are no longer "updated". To me, 5 year payback is far too long for anything except major structural systems (roof, foundation, plumbing, etc). Updates done purely to look "fresh" must pay back in 3 years or less or you'll just have to redo them again and again and never break even. Paint, light/plumbing fixtures, flooring, central AC, counters, etc. all need to be on a 3-year or less pay back or you're just making contractors rich. --173.19.xx.xxx




Rent/Update Cost Ratio? (by Laura [VA]) Posted on: Oct 10, 2017 6:49 AM
Message:

AWESOME tips! And it all makes sense, thanks. I'm working on a spreadsheet now! --67.172.xxx.xxx




Rent/Update Cost Ratio? (by NC INVESTOR [NC]) Posted on: Oct 10, 2017 1:58 PM
Message:

We just finished rehabbing a house that we've had for 11 years. When we bought it the neighborhood was a D today it is an A. After our last tenant left in July we decided to fix it up to reflect the neighborhood since the condition wouldn't rent as is.

We gutted the kitchen and bath completely. It isn't a large property (1050 SF) but with everything from new kitchen and bath to refinishing floors, new exterior patio,new flooring in kitchen and foyer and bath, solid surface countertops and bath fixtures and new appliance package we didn't come close to $15,000. I also doubled the rent. We'll pay for the rehab in 14 months.

From the upgrades you are describing the costs sound way too high. --75.181.xxx.xx




Rent/Update Cost Ratio? (by Pmh [TX]) Posted on: Oct 10, 2017 3:13 PM
Message:

Sid is somewhat right. It depends on your time horizon. My properties are all long term holds. 5 years would work for me. it all depends on what the alternative returns on the $ spent would be. opportunity cost. would I prefer 3 years instead of 5. sure. however you have to compare what it costs to bring rental up to bring in market rates. Sometimes you have to spend more now to drive rents up to market or higher than mkt. it all depends on your market. I could spend $15k in CA to maintain mkt rents or $5k in TX for the same work. So long story short: do ROI analysis based on what you can drive rents to and decide what your own time horizon is for payback. I think long term 20-30 years bc my rentals will be a supplemental part of my retirement funds. So spending now with 5 year payback works for me. For others it is a 3 year payback. I don't nickel & dime on my properties. That is why I can charge higher than mkt rates and my turnovers have always been 1 day (bc of referrals from happy renters who stay on average 3 years) except when I take a house out for rehab & spend $15k like I did when I renovated bathrooms and at same time put in new energy efficient windows. These have taken 30 days. Those were my only vacancy factors. Otherwise all rented 100% every year for 20 years since I started.. --104.218.xxx.xx




Rent/Update Cost Ratio? (by Laura [VA]) Posted on: Oct 11, 2017 4:39 AM
Message:

Many great ideas to think about. Thank you so much to everyone for your input! --67.172.xxx.xxx




Rent/Update Cost Ratio? (by Sisco [MO]) Posted on: Oct 11, 2017 8:58 AM
Message:

Consider re laminating your tops. This will save time and avoid potential unforseen issues that increase the job complexity.

I too work at eliminating the dated looks from my units, but if your market is very hot you should probably increase your rents without the upgrades. --72.172.xxx.xx



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