ROI question for experts

[Marita Jojo]

Need help with ROI

Single Family

Purchase Price - 260k

Taxes - $10k

Rennovations - $30k

Rent - $4k/month

ARV - $400k

If I convert it to multi family - 4 units

Purchase Price - $260k

Taxes - $10k

Rennovations - $110k

Rent - $5k/month

ARV - $500k

Please advise what will be the best option to move forward.

Thanks

[Chris Seveney]

@Marita Jojo

Are you selling or keeping it

What is the rental income delta?

Need more info

[Marita Jojo]

@Chris Seveney plan to keep it

[Marita Jojo]

@Chris Seveney what other info you need? What is rental delta?

[Evan Polaski]

@Marita Jojo, clearly I don't know this specific deal to confirm or deny any of your assumptions. It seems like your ROI is basically the same in each option, but you are taking on a much bigger project to convert a single family to a four-family.

So basic calculations, since we don't have a full financial picture, i.e. what does financing of each look like?  What are operating expenses of each?

48,000/300,000 = 16% ROI
60,000/380,000 - 15.7% ROI

Appreciation:
Renovated single family = 33% appreciation potential
Convert to Quad = 31.58%

So in both calculations your percentage return from gross revenue AND appreciation is higher renovating the single family. And this does not include the real world issues, namely are you even allowed to convert this property to a four-unit and taking a single family to 4 unit is very likely going to cost more than $110k (but this depends on the actual layout and work scope).

[Benjamin Aaker]

Since you plan to keep it the ARV doesn't matter in this calculation. For the 4 plex you are spending an extra 80k in renovations (I question your 110k renovation number to get to 4 units - this could be low but I don't know the square footage or layout). For that 80k, you are getting 12k / year extra rent. The ROI on that is 15% in the first year. If you are able to do this at the municipal level and your numbers are correct, this would be a good investment, but there are a bunch of assumptions here.