How to calculate ROI on rental updates

[Braden Hobbs]

Hey all, I want to get some opinions on how you all decide if updating rental property is worth the investment.

I have a four-plex that could use kitchen updates to make the place more appealing to renters. I’m trying to decide if it’s worth the $. So far I am thinking I need to see what the potential increase in rents would be but also the potential decrease in vacancy rate.

What is your process to determine if an update or rehab is a good investment?

[Thomas S.]

It depends a great deal on your rental market and quality of property. In my situation, class B properties, I gage it entirely on the rent increase it generates. I limit my cosmetic upgrades to a full pay back in 24 months with the higher rental income it warrants. This maintains your income while paying for upgrades in a more reasonable time frame. A 4 year pay back is too long for my evpectations. It should be a business decision not a personal decision. You do not make money spending your profits.

Cabinets can be refaced or painted at a lower cost yet still warrant a higher rent.