Updates on Long Term Buy & Hold Properties

[Deborah Burian]

We have owned a number of properties for some years and are starting to do updates as tenants leave and before we rent out again. We are also somewhat interested in investing in property updates to grow the rents on existing inventory versus just buying more. I'm looking for any ideas on how to evaluate the ROI on significant updates. For instance, a new bath might cost $5000 but add $50 to the rent. Seems straightforward but what is an appropriate timeline to amortize the expense. How do you account for any increase in equity value of the property. Can we just use the commercial model and multiply the value by the increase in rents? Any ideas are welcome. Thank you.

[Jonathan Twombly]

@Deborah Burian Lots of investors use a rule of thumb of ROI = 20%/year for improvements. In other words, if you spend $5,000 and you get an additional $100/month in rent, you have $1200 more in rent/year and that exceeds 20% by a comfortable margin. If you can't get 20% then don't do it unless it's absolutely necessary to rent the apartment or it's a life/safety issue.