Cap improvements with cashflow. Calculate ROI based on increase?

[Jonathan Siegle]

Hello,

I'm putting together a capital plan for two 6-flats that I own. Improvements include both capital improvements (new boiler) and also in-unit upgrades. The plan is to fund these improvements via cashflow. 

When calculating my ROI for these improvements, do divide the total cost of the improvements by the increase in cashflow? Or do I divide the total cost of the improvements by combined cashflow?

Example:

Total cost of improvements: $142,000

Current NOI: $22,364

NOI after improvements: $36,108

NOI Increase: $13,734

Is the ROI calculation

142,000 / 13,734 = 10.33 years

OR

142,000 / 36,108 = 3.93 years

Thanks!

[Thomas S.]

142,000 / 13,734 = 10.33 years

That however is far to long of a ROI. You need to either raise the rents higher or scale back on the improvements. Your income simply does not justify that level of expense.

If you are paying utilities do just the boiler, if tenants pay utilities do the unit upgrades but keep them to the minimum based on a 2 year pay on increased rent and just maintain existing boiler.