Remodel or pay it off?

[Landrin Lewien]

Hello all, I’m closing on my rental property, a super cheep house in central Wisconsin only about 10 minutes from my personal house. 2 bed 1 bath closing at $32k I’m putting $8k down payment. The sellers are an older couple that own a few rental properties and are looking to retire and sell there properties. They were renting the house out at $525 a month. The house needs some updates. Paint flooring and some TLC. Everything that I can do myself.

My question is should I spend the money to fix it up or rent it out as is for 525. My payments each month mortgage, tax and insurance included would be less than 300 a month. Should I cash flow $225+a month and pay it off or spend the $5-7K and fix it up and rent it for 600-650 a month? Is it worth it. It’s a small house around 800sqft.

[Chris Gantz]

@Landrin Lewien

If you have the cash and the know how I would definitely recommend putting the upgrades up front to increase the value of your home so you can pay it off faster or refinance it to buy another property.

When we do renovation on apartment units we typically target a 10-15 month pay off period. Meaning if we spend 100 dollars we'll raise the rent per month 10$ to recoup that cost in 10 months. Obviously on larger items like flooring it can be a little longer than 10 months closer to 15, but we still aim for 10. 

Using this logic if you want to put 5-7k into the property you should be able to raise the rent at least $300/month to make it worth your time. 

Where in Wisconsin are you investing?