Whats the reno budget and how many Units are you renoing at this stage?!
Interested to know what the IRR (Internal Rate of Return) of the reno would be. As you would have already considered, leaving them as is and recieving a slightly smaller rent would be a better return for your $
The reno budget is:
1) $8-10k total to do the structural work that needs doing anyway (negotiated $13k off the price of the whole block on this basis).
2) $10k per unit, which includes complete strip, reseal and tile of bathrooms and new bathroom furniture, repaint of interior, replacement of carpet. The kitchens are in good condition.
At present we are doing the structural work plus 2 units, although the tenant in the other unit has indicated that they would like to move into a renovated unit, so I said 'up the rent by 30 bucks a week and do all the mowing and you can'. If they choose to take this option, we will then renovate the third unit.
The units unrenovated get $250 a week in rent. We (as in the managing agent and I) expect to get $300 a week for the renovated units. If we don't include the structural work ($8-10k, which had to be done anyway and was taken off the price with some risk contingency), we have a situation where spending $10,000 per unit improves the weekly rent by $50.
Simplistically, then, $50 per week multiplied by 52 weeks = $2600, for $10,000 outlay. In percentage terms, the return on the renovating dollars is therefore 26% p.a., and growing as rents increase.
Of course, I don't know if this is how you actually calculate IRR, but to my way of thinking, adding $2600 per year for $10k outlay seems worth it. Also, the value of the property should increase significantly (by perhaps $20-30k per unit, I think).
If anyone has thoughts, I'd love to hear 'em!
congratulations! Thats really, really good and I hope to be in your position one day soon.
