Remove tenants, rehab and rerent?

Question

I have a duplex under contract which I plan on house hacking. One side is already vacant. The other side is rented, but it's rented at about $200-250/month less than I could rent it if I fix it up inside. I'd probably spend about $6k to make it pretty.

Any thoughts on how to run those numbers to determine if it's worthwhile?

My first thought is to do something like: (increase in rent * 12) ÷(cost to rehab + vacancy and re-rent expenses) to get the cash-on-cash return (COC of this slice of the deal). In this case, that ends up being about 30%, so great deal, right? Or did I miss something?

Lance McCaskill · Answer

Hey @Greg Clark congrats on getting the property under contract! Your math makes sense if your rehab estimate and projected rents are accurate. If you plan on holding this property long enough, and you are able to rent it out, then the $6k will pay itself off and make sense. Also, the money you put into rehab + vacancy (I am assuming that, by vacancy costs, you essentially mean that you are paying PITI + Utilities yourself instead of a tenant) you can eventually get back once you are able to refinance or sell the property. Another thing to think about is whether or not you want to inherit that tenant vs selecting your own. Depending on where you are located, you may have a difficult time vacating the property (given the eviction freezes) if the tenant does not want to leave. If you screen this tenant and they turn out to be a great tenant, then maybe it's worth it for you to keep him/her. And then if you want to keep the tenant, then like @Anthony Wick said, maybe try raising the rent a little.

Anthony Wick · Answer

@Greg Clark. You're going to spend $6k to get $200-250 a month more in rent? Since you're buying and house hacking, it sounds like you're going to own this a while. It'll be worth it. But, you could always try and just raise the rent a couple hundy on the current tenants and see if they bite.