Perhaps most important when deciding on a turnover plan for a vacant unit is the return on investment (ROI) that you will receive from the money spent on the renovation. There are two common ways to measure ROI on your renovation costs when turning over a unit: CALCULATE YOUR RETURN ON INVESTMENT
Months to Payback 1
Perhaps the simplest way to determine the return on investment for a unit renovation is to calculate the number of months it takes to recoup the renovation cost given the boost in rent you’ll be able to achieve as a result of the upgrades. As an example, let’s say that you spend $3,500 for a Partial Upgrade of a unit by replacing the flooring, upgrading the appliances, upgrading some lighting and plumbing fixtures, painting, and deep cleaning. And let’s assume that, based on the renovations completed, you believe you can rent the unit for $125 per month more than if you had simply painted and cleaned the unit.
It would take 28 months ($3,500/$125) in order for you to recapture your investment in upgrading the unit. Many multifamily owners would consider upgrade costs that could be repaid in 24-36 months to be a worthwhile capital investment. Given our 28-month payback period in our example, this is likely a good investment.
UPGRADE COSTS THAT CAN BE REPAID IN 24-36 MONTHS ARE WORTHWHILE.
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