How to Evaluate if Renovations are Worth It

[David Cherkowsky]

Hi All,

I recently purchased my first investment property and am going through the closing process. The property is a 2/1 that I am considering converting to a 2/2 or 3/2. It is a townhouse and the adjacent property (that previously had an identical interior layout and size) has gone through a renovation to expand the kitchen by approximately 100 sqft, and add a second bathroom.

This adjacent property is currently renting for $300-400 more than what I believe I can rent my property for. It also is worth approximately $140k more than my property is currently worth.

My question: when evaluating renovations, is the math as simple as (Additional rent expected per month due to renovation * 12 months/yr)/total cost of renovation = ROI. Or are there other ways that folks typically evaluate this?

Thanks in advance for the help.