Spiderman
21-04-2004, 07:30 PM
I'd be interested to hear from others what would be considered acceptable payback times for improvements (in this case repainting).
I have a 3br unit that would be greatly improved by interior painting. My assessment is that it is worth $180pw as is, or $200pw if painted. It is a 'buy and hold' investment bought for yield rather than growth.
Two coats would cost approx $2500. Doing this now would provide $20pw extra income. Neglecting any tax considerations, this would take 3 years to break even (incl vacancy costs). After the 3 years you would no longer have a freshly painted unit, but it would still be better than what it is now.
Thus assuming static rents, the unit might only rent for $190pw, ie an extra $500 per year for spending $2500 3 years previously.
Though this is still a (delayed) return of 20% per year for at least a few years until the paint depreciates and needs redoing, I then thought of opportunity costs of using that money elsewhere.
For instance it could be spent on boring but important preventative maintenance, improving other properties, used to reduce debt quicker or saved for unforeseen expenses.
And I haven't factored into any impact that repainting will have on values (assuming that bank valuers walk inside and don't just to a 'kerbside'), which could be useful if using any increased equity to fund further purchases.
I think the important statistic here is payback time; in this case 3 years. Do other investors look at payback times when making improvements, and is 3 years considered a good or a bad figure?
I might add that the rental market in the area is strong and a tenant is very keen to move into the unit as is for $180pw. Thus I'm very inclined to sign him up now and let the painting wait.
Regards, Peter
I have a 3br unit that would be greatly improved by interior painting. My assessment is that it is worth $180pw as is, or $200pw if painted. It is a 'buy and hold' investment bought for yield rather than growth.
Two coats would cost approx $2500. Doing this now would provide $20pw extra income. Neglecting any tax considerations, this would take 3 years to break even (incl vacancy costs). After the 3 years you would no longer have a freshly painted unit, but it would still be better than what it is now.
Thus assuming static rents, the unit might only rent for $190pw, ie an extra $500 per year for spending $2500 3 years previously.
Though this is still a (delayed) return of 20% per year for at least a few years until the paint depreciates and needs redoing, I then thought of opportunity costs of using that money elsewhere.
For instance it could be spent on boring but important preventative maintenance, improving other properties, used to reduce debt quicker or saved for unforeseen expenses.
And I haven't factored into any impact that repainting will have on values (assuming that bank valuers walk inside and don't just to a 'kerbside'), which could be useful if using any increased equity to fund further purchases.
I think the important statistic here is payback time; in this case 3 years. Do other investors look at payback times when making improvements, and is 3 years considered a good or a bad figure?
I might add that the rental market in the area is strong and a tenant is very keen to move into the unit as is for $180pw. Thus I'm very inclined to sign him up now and let the painting wait.
Regards, Peter