Plainfield, IL · Member since 2016 · 139 posts · 53 votes
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?
Rental Property Investor · Brattleboro, VT · Member since 2015 · 204 posts · 174 votes
9y
I'd say it all depends on your market. are there other units in your area with similar upgrades to yours renting for $1100 per month? if so then it could be justifiable. but if your upgrades are above what your area can support you might be pricing yourself out of your market. at some point you'll trigger the law of diminishing returns. only you can no where that line is based on research of your market. I just bought an 800 sqft single family home and put $5000 into it an raised the rent by $150 per month. I could have put nicer materials in it but I don't think it would be something my market would be willing to pay for.
Real Estate Broker · Chicago, IL · Member since 2015 · 1k+ posts · 2k+ votes
9y
@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.
Plainfield, IL · Member since 2016 · 139 posts · 53 votes
9y
@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.