To Carpet or Not to Carpet. That is the Question.

[Brian Washburn]

I just bought my first rental in Omaha, NE. It's a 3BR 1BA with 1900sqft. I'm putting about $6k into renovations, including rebuilding the bathroom from scratch and new kitchen vinyl floors. The house has about 1000sqft of gross carpet that is probably from the late 80s. A couple people have looked at the house and asked me if I am replacing the carpets. Our plan was to spend our money on the updates we are doing, and replace the carpets in a couple years using cash from rent. Should we stick to our plan and wait a couple years to update the carpet, or spend and extra grand on carpets now?

[Nathan DeJonge]

Brian,

As with everything in rentals...go back to the numbers.

Is replacing the carpets now going to be financially worth it? By that I mean that if you spend $1000 now on new carpets will you recoup that in a couple years (I guess let's say 2 to make my point?).

You have to consider how much the super old carpet will effect your monthly rent. Let's say your ran the number and are hoping to get $1000 a month on your house. If you think you can get that despite the current carpet status then you should not replace the carpet. However, if we are looking at spending an extra $1000 in a two year or 24 month time period then that comes out to a cost of about $42 a month. 

That means that if the old carpet forces you to reduce rates by more than $42 dollars a month, than you should replace the carpet. Or if you think that the new carpet will allow you to increase rent by more than $42 a month then you should also pay for new carpets.

*I am obsessed with finances and investments, so my above number ares not perfectly true. If you look at the opportunity cost of investing that $42 a month in let's say that stock market as opposed to the carpet, then the number are different. Assuming a $42 investment each month for 2 years with an interest rate of 7% compounded annually would would result in $1,043 dollars. So in this case the rent difference is actually closer to $43.50.