To improve or not to improve... that is the question

[Brad E.]

Hi all -

I am looking for some guidance on evaluating the value of improvements to a duplex I recently aquired. Not sure what metric I should be using to evaluate this opportunity.

The situation is that I have a duplex which is occupied with inherited tenants at a below market rent. The other side is empty and I have spent about 5K improvements which has allowed me to raise the rent for that side by $125/month.  Now I am wondering if it makes sense to improve the currently occupied side when the tenant's lease is up.

So the question I am trying to answer is, should I invest an additional 5K to raise rent by 125/month or is it better to leave it as is?

Here are my numbers:

Current rent: $525

Improvement cost: $5000

New rent: $700

My initial thought was to do a simple ROI calculation ($125/$5000) but I feel like there is something missing.

What metric should I use to evaluat this opportunity? Would I measure this over 1 yr or what time period should I be using?

Thanks in advance.

[Andrew B.]

I don't prefer payback method as a financial metric. Return on investment is much better in my opinion. when doing this you take your monthly return $125, multiplied by 12, $1500. This is your yearly return. Divide by investment, $5000. 30% yearly return on your money. If you invested $5000 in the stock market and made 30% wouldn't you be pretty goddamn happy???