Rule of Thumb when spending renovations to increase rents?

Question

We all know the 1,2% when it comes to renting. How about a rule on the return you can get on improving/rehabbing a rental unit to raise rents, is there a general rule for that?

For example, I have a multifamily of 3 units that are renting each for $850. The interior serves its purpose, but is very dated. If I put $15,000 of rehab into each unit, installing modern rental-grade cabinets, granite countertops, nice laminate flooring, stainless steel appliances, modern light fixtures, new plumbing fixtures, etc., is that worth getting $250 extra rents per unit?

The additional rents for the rehab price would pay itself off in 5 years, and it would of course attract a more desirable tenant. Thoughts?

Adam Juodis · Answer

@Matthew Olszak The property has a class C interior in a A neighborhood(Westmont, IL). I'm planning to rehab with durable materials, but with the rehab, it should attract a higher class tenant which would most likely take better care of the property, to generalize.

Matthew Olszak · Answer

@Adam Juodis In addition to checking your comps, like @Josh Dillingham mentioned, also be sure that your tenant base can handle these upgrades so they last more than 5 years. Since your potential rent is $1k/mo, the deposit won't be enough to handle replacing even a small chunk of your upgrades (ie a tenant cracks your granite or scratches your stainless appliances). Just be sure your upgrades will be able to handle the wear/tear of your tenant class.

Tom V. · Answer

Do you mean $250 more per month?  So, $250*12 = $3,000 per year?

$3,000 / $15,0000 = 20% per year.

If you can find another investment where you can get 20% ROI, you're better off than most professional investors.

If you can really bump rents that much, you're supposed to spend that money every time a unit becomes vacant.