Does This Deal Make Sense

[Chris G.]

Have property that's split up into 4 units, 3 units have been rented out for awhile now bringing in close to $3k per month combined ($850+$850+1250) two are small one bedroom apartment and other is larger apartment. There is another unit which has been vacant for close to 15 years and everything inside is at least 30 years old, the unit is only about 550 sqft total. We've been mainly using it as storage, since it would pretty much need everything renovated (paint, kitchen, appliances, electrical, plumbing, windows, full bathroom, split sytem ac, etc.). I've been trying to reach out to some contractors to have them quote the job which I'm still waiting to hear back on.

Due to the location and layout of this unit it's very unique and we can likely rent it for $800 per month. Is there any formula to figure out if the repairs are worth it? Like we spend 25k on all of the repairs and rent it for $800 a month to me that seems good, but spending 60k on repairs to only get $800 a month doesn't seem that appealing. The building is completely paid off so there is no monthly cost for this unit at the moment but it's also making $0 per month how it is right now. 

[Charles Carillo]

@Chris G.

When doing repairs/upgrades to rental properties; we use a 36/48 month payback. For example; if we invest $1,200 into upgrading a unit (washer/dryer for example). Are we able to increase rent by at least $25? If so, that is like a 25% ROI. For you; if it costs $35,000 to renovate the unit, and you rent it for $800; your payback is roughly 44 months (not including rent increases).

In certain situations, I would deviate from the 36/48 month payback but, it is a good rule of thumb when quickly running numbers.