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How much would you spend to increase the income on your existing rental?

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  • How much would you spend to increase the income on your existing rental?

    I've already run the ROI numbers but curious if you have a threshold on what you would spend to increase the income of your rental property. Scenario is my 4 plex has a large unfinished attic with walk up access from the upper right unit. I've always planned to finish it at some point but it wasn't in the cards when I did the initial renovations to that unit. Its coming available next weekend. I've got someone coming out to give me an estimate on installing a minisplit this week. What I'm stuck on is whether it makes sense to spend the additional to add a bathroom or not. Its currently a 1 bed/1 ba 2nd floor apartment, approximately 800 sq ft. The attic is roughly another 600 sq ft, high ceilings all the way across, big windows that are already replaced/new and plenty large to add a great closet space, bathroom and still have a separated bedroom/office space.

    Guessing cost to finish without bath will be approx $5k and adding a bath more like $20k. Currently rents for $850/mo. Based on some quick market research, ball parking rent from adding a bed but no bath would go up to maybe $1,150/mo and with a 2 bed/2ba master suite more like $1500. I'm nervous that the higher end narrows the applicant pool too much and is maybe over upgraded, but it is located near downtown in a trendy, young professional kind of area. WWSAD?
    5
    Add a bath
    40.00%
    2
    Don't add a bath
    40.00%
    2
    Other - explained below
    20.00%
    1

  • #2
    Interesting question.
    Real Estate is very localized, so it really depends where you are and what tenants value in a rental.
    If your research points towards an increase in rents at a cost that you are comfortable with, then go for it.
    If you are hesitating for reasons A, B, and C, then maybe table it and revisit after you do more homework.
    Brian

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    • #3
      Would the new 2BR/2BA place be too nice relative to other rentals in the area? Don't want to be renting a penthouse in a green acres neighborhood. The math says spend $5k for a $3,600 annual return (that's a 72% cash on cash ROI if your other costs stay the same). Making a penthouse is 39%. But you already know this, so not sure what the question is?

      Comment


      • #4
        Originally posted by corn18 View Post
        Would the new 2BR/2BA place be too nice relative to other rentals in the area? Don't want to be renting a penthouse in a green acres neighborhood. The math says spend $5k for a $3,600 annual return (that's a 72% cash on cash ROI if your other costs stay the same). Making a penthouse is 39%. But you already know this, so not sure what the question is?
        I think you nailed my hesitation. There has to be a cap to how much this place will make despite upgrades and I don't know what that cap is. I already have the nicest rentals in the neighborhood, but due to proximity to downtown, I'm able to get premium rents and still be cheaper than being downtown so its working. Do I think there's a market for nicer 2 bedroom units? Definitely. But because there isn't anything in the neighborhood to compare it to, my estimates on what people pay and what the return would be is really only a guess. I realize no one here is going to be able to supply the market analysis I need, was just curious if generally the consensus would be to spend a little for a little bump or spend a lot for a bigger bump for the long term even if the return is slower.

        Comment


        • #5
          In the vacation rental business, small expenditures can equal big bucks. I had one cabin where I steadfastly refused to by WIFI because I didn't see why vacationers needed it. They should be enjoying my cabin, not surfing the net.

          Well, I finally added WIFI and the rents jumped about $8K a year.

          A big key for any rental is finding cheap ways to make it "best in class" so that you can then demand top dollar. That might mean granite counters, stainless appliances, upgraded flooring, a wood privacy fence.

          Heck, just getting rid of brass fixtures throughout the place might net you another $2-3K PER YEAR!

          Sometimes it's the little things.
          How can you have any pudding if you don't eat your meat?

          Comment


          • #6
            Wait...get RID of the brass fixtures?
            james.c.hendrickson@gmail.com
            202.468.6043

            Comment


            • #7
              Originally posted by TexasHusker View Post
              I had one cabin where I steadfastly refused to by WIFI because I didn't see why vacationers needed it. They should be enjoying my cabin, not surfing the net.

              Well, I finally added WIFI and the rents jumped about $8K a year.
              Imagine that. You stopped ignoring reality and your business improved . I’d never rent a vacation home with no WiFi. We use it for communication, entertainment, researching our location like finding shops and restaurants and attractions, making reservations, buying tickets, and more. The idea that people want to “get away from it all” is very quaint but life just doesn’t work that way anymore for better or worse.
              Steve

              * Despite the high cost of living, it remains very popular.
              * Why should I pay for my daughter's education when she already knows everything?
              * There are no shortcuts to anywhere worth going.

              Comment


              • #8
                Originally posted by james.hendrickson View Post
                Wait...get RID of the brass fixtures?
                Brass has been out for about 20 years.
                How can you have any pudding if you don't eat your meat?

                Comment


                • #9
                  Originally posted by TexasHusker View Post

                  Brass has been out for about 20 years.
                  I love brass with black doors
                  Appreciate your perspective and I can attest to that. On a whim I decided to expose the brick of the chimney in the first unit I renovated. It ended up taking me more than 8 hours to get this plaster off and was WAY more work than I expected. When I went to do the other units I opted not to expose the brick because of the time involved, but you know what, every time that unit with brick comes available I have more inquiries than I can respond to - dozens within hours - but when an identical unit is open (with the exception of a 2.5 ft section of exposed brick) it sometimes takes me a month to fill them. Its wild but the only thing I can attribute it to is the brick! Someday I'll take the time to do the others I suppose but I would have never guessed it would have that kind of impact.

                  Comment


                  • #10
                    Originally posted by TexasHusker View Post

                    Brass has been out for about 20 years.
                    Who decides these things? I guarantee I can walk into any home supply store and find a full line of brass fixtures in the kitchen, bathroom, lighting, door hardware, and other departments. Brass is one of those timeless styles. People have used it for hundreds of years. It's shiny and holds up well (well good brass does). Somebody must be buying it or the stores wouldn't keep stocking it and the designers wouldn't keep featuring it in their product lines.

                    Maybe it's not this year's trendy finish but the problem with that is that nobody will want whatever that is a year or two from now when something new is trendy. I'd much rather go with something not trendy that will always be in style.
                    Steve

                    * Despite the high cost of living, it remains very popular.
                    * Why should I pay for my daughter's education when she already knows everything?
                    * There are no shortcuts to anywhere worth going.

                    Comment


                    • #11
                      Originally posted by disneysteve View Post

                      Who decides these things? I guarantee I can walk into any home supply store and find a full line of brass fixtures in the kitchen, bathroom, lighting, door hardware, and other departments. Brass is one of those timeless styles. People have used it for hundreds of years. It's shiny and holds up well (well good brass does). Somebody must be buying it or the stores wouldn't keep stocking it and the designers wouldn't keep featuring it in their product lines.

                      Maybe it's not this year's trendy finish but the problem with that is that nobody will want whatever that is a year or two from now when something new is trendy. I'd much rather go with something not trendy that will always be in style.
                      If you want to make money with vacation rentals, you go with what is in style. It's super cheap to change out brass fixtures and hardware. You'll pay for it with one week's worth of rentals.

                      Brushed nickel and oil-rubbed bronze have been the "in" look for at least 20 years.
                      How can you have any pudding if you don't eat your meat?

                      Comment


                      • #12
                        Originally posted by TexasHusker View Post

                        If you want to make money with vacation rentals, you go with what is in style. It's super cheap to change out brass fixtures and hardware.
                        I guess that's just one more reason I have no interest in being a landlord. I'm not a trendy sort of guy. I prefer going with good quality classic stuff.

                        I actually find it hard to believe that someone renting a vacation cabin for a week would even care. I can see it more for someone renting a long term home. When we shop for a vacation home, we just want it to look clean and well-maintained. I don't care what kind of hardware the kitchen cabinets have or what color the bathroom walls are painted.
                        Steve

                        * Despite the high cost of living, it remains very popular.
                        * Why should I pay for my daughter's education when she already knows everything?
                        * There are no shortcuts to anywhere worth going.

                        Comment


                        • #13
                          Originally posted by disneysteve View Post
                          I don't care what kind of hardware the kitchen cabinets have or what color the bathroom walls are painted.
                          You're in the minority.

                          We took on a home back in 2009 that had been doing about $5000 in rents (maybe paying the utilities and not much more) a year that was very comfortable, but had carpet, brass everything, formica counters, a rickety ping pong table, no hot tub, a couple of small TVs, and a dining room that looked like it came from gramp's house. Just your style!

                          Anyway, the owner wanted to know how to really ramp up the income. I told him for about $30K, he could probably triple his rent. So he bought granite counters, stainless appliances, two flat screen TVs, a gently used slate pool table, a hand made hickory dining table, and all new leather living room furnishings. New pots and pans, dishes, and utensils.

                          In 2018 the home did about $29K in rent, it's all time high, and it has grossed around $177K since we took it over. So his $30K to update was well spent.

                          I tell my owners all the time, do you want a cabin that YOU like or one that makes you MONEY? If you want to make money, quit stumbling over a bar of gold to save spending your nickel.
                          Last edited by TexasHusker; 03-25-2019, 05:04 PM.
                          How can you have any pudding if you don't eat your meat?

                          Comment


                          • #14
                            I am currently living out this "cost/benefit" scenario with a cabin I just purchased for my mother. Right now the cabin does $45K a year, but with updating and new creature comforts, I think I can push it to $50-55 pretty easy.

                            All new stainless appliances - $1700
                            New leather sofa sleeper and chair - $1750
                            Original piece of art to replace cheesy print - $300
                            50 inch flat screen TV - $450
                            Stand-up arcade for the loft - $1200 delivered
                            New rustic ceiling fan to replace brass one - $300
                            New deer antlers dining room fixture to replace brass one - $150
                            Replace all brass hinges and door handles - $300 ish
                            Replace old dining table with carved mexican pine - $1000
                            Toss cheap living room rug and replace with handmade persian off of ebay - $317
                            Replace brass kitchen knobs with oil rubbed bronze - $50

                            I think we will spend $7K-ish to get this place really nice. Here is the "before" picture:

                            Last edited by TexasHusker; 03-27-2019, 07:01 AM.
                            How can you have any pudding if you don't eat your meat?

                            Comment


                            • #15
                              Originally posted by TexasHusker View Post
                              I am currently living out this "cost/benefit" scenario with a cabin I just purchased for my mother. Right now the cabin does $45K a year, but with updating and new creature comforts, I think I can push it to $50-55 pretty easy.

                              I think we will spend $7K-ish to get this place really nice. Here is the "before" picture:
                              You said I'm in the minority. Well I'm very proudly there. The fact that you feel the need to spend thousands to make this place even more gorgeous than it clearly already is is awful. People are way, way, way too demanding if they would make a rental decision based on the style of the ceiling fan or quality of the picture hanging on the wall. I could never be in a business where I was forced to cater to the whims of the public like that.

                              Now some of the things on your list seem perfectly reasonable. Sofas wear out. Bigger TVs are pretty much the norm today. Adding the arcade unit is an extra amenity but having to change door hinges is just plain nuts in my mind. If someone is that outrageously picky that they aren't going to come because they don't like my door hinges than I don't want their business. I'd suck at this.
                              Steve

                              * Despite the high cost of living, it remains very popular.
                              * Why should I pay for my daughter's education when she already knows everything?
                              * There are no shortcuts to anywhere worth going.

                              Comment

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