Condo Renovation: Full or Cheap out?

[Stephen E.]

We have an apartment condo unit that cost $116k and presently rents for $890. A corporate landlord is substantially upgrading suites in their building and renting for $1,050. We could upgrade our unit and realise an increase in rent of $160/month, $1,920 a year. To make our unit comparable we would need

* New bath tub and surround, plus plumbing ($3,000 from a supplier that can do the complete job in one day.)

* Refaced kitchen cabinets and vanity; new counter tops, sinks and faucets ($5,000)

* Ceramic tile in kitchen, bath and hallway ($1,000)

* New carpet throughout ($3,000)

For a total of $12,000. To be truly comparable we would need stainless kitchen appliances but we replaced those in white two years ago and do not want to waste good appliances, so we will use those for a while.

We can use a low interest LOC with current interest costs of $480 (variable). We are considering doing all of these items, or perhaps doing the bath and cabinets first and then carpet after the next tenant.

What do you think of this? Does it make sense to you? It is a lot of cash but the return is not bad. Increased rent $1,920 - Interest Cost $480 = $1,440 net, $1,440 / $12,000 = 12% based on increased rent alone, and we would have property price appreciation approximately equal to the cost of renovations.

We have started and have done the bath. My partner is getting cold feet on the dollar amount and wants to cheap out (lowest builder's grade cabinets instead of refaced with good laminate doors, not replacing carpet, etc). I believe the value is in upgrading. Note that the LOC means that this project would not crimp our cash and prevent further investments.

Comments from BP community welcome.