Dishwasher or not?

From: Apprentice Millionaire


I have just bought a near new IP, and in the kitchen, there is a great big gap where one would fit a dishwasher. Rent will be about $225 per week, and I was wondering whether I should fill the gap with a dishwasher, and whether that would help in attracting better tenants.

Any advice, suggestion, recommendation, opinion welcome. (And Michael, I promise I won't sue :)

Cheers
Apprentice Millionaire
(aka Jacques in the old forum)
 
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Reply: 1
From: Les .



G'day AM,

Let the numbers tell you !! What would you pay for a dishwasher? I don't know (years since I bought one) - but lets take a "frexample" figure of $500. So you spend $500, fill the hole, and add $5 per week to the rent. Would an extra $5 kill the deal? (I suspect not).

So, what do you now have? You have an extra $250 per year returned - on a $500 outlay. That sounds like a 50% ROI to me !!

So why wouldn't you do it? If they cost $1000, then, hell, you only made 25% on it - damn!! ;^)

Regards,

Les

Les
 
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Reply: 1.1
From: Kevin Forster


The only problem I see with it is that tenants may not take as much care of it as you do with yours (if you have one) so the maintenance will increase and normal expected lifespan will decrease. Then again it is also a tax deduction.

The only question is whether the maintenance costs will exceed the rent increase.

Kevin
 
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Reply: 1.1.1
From: Owen .


That's what insurance is for. Depreciation on a dishwasher is over a 5 year period (I think) and I would be pretty sure you would get 5 years out of one with little or no maintainence. As it will have paid for itself in 2 years (Les' example) you are making money from that point onwards. If a tenant trashes it then insurance pays for a new one and your ahead again.

Both my IP's have dishwashers, one which has to be at least 15 years old. Still going strong. Wish I had one in my own home though!?!
 
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Reply: 1.1.1.1
From: Michele B


Sad isn't it. My tenants have things like dishwashers, elegant formal dining rooms, big leafy gardens and multiple bathrooms. How come I don't? Gotta get a life.

Michele
 
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Sim

Administrator
Reply: 1.1.1.1.1
From: Sim' Hampel


I hear ya Michele, maybe we ought to start a support group !

We live in a shoe box in Sydney (no dishwasher) while our tenants enjoy the lifestyle and luxury of our grand estate back in Adelaide !

 
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Reply: 1.1.1.2
From: Apprentice Millionaire


Thanks guys!

Les, you're right. And it turns out the figures are very close to what you are stating (and there's no way I am putting an expensive Miele in there :)

Dishwasher is a strong selling (renting?) point for an IP. So I will put one in.

Cheers
Apprentice Millionaire
(aka Jacques in the old forum)
 
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Reply: 1.1.1.1.1.1
From: Apprentice Millionaire


Michele, Sim', I know what you're talking about. I actually relate to the post on low built houses. And dampness. Sounds exactly like mine!! Ah well, delayed gratification!

Cheers
Apprentice Millionaire
(aka Jacques in the old forum)
 
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Reply: 1.1.1.3
From: Pierre .


You can purchase extended warranties on most goods these days. For less than $50, I'm sure you can get yourself a 5 year warranty to cover the depreciable life of the item.

 
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Sim

Administrator
Reply: 1.1.1.3.1
From: Sim' Hampel


Just make sure you are aware of who is offering the extension to the warranty - the retailer or the manufacturer

We bought a large screen TV in Dec 1995, and the retailer offered us an extended warranty (increased to 5 years) which we took so that the TV would be covered by warranty until the Olympics finished ;-)

Anyway, the retailer went under in about 1998, so our extended warranty was useless, as it was offerred by them and not the manufaturer.

Didn't matter in the end, as the TV is still going strong, but it does pay to be careful, especially with devices that are largely mechanical (like dishwashers) and hence more likely to suffer from wear.

 
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Reply: 1.2
From: Terry Avery


I'm sorry Les but I just don't see it that way. Dishwasher costs $500, you
get $5 p.w. or $250 p.a. that is not 50% ROI as you have not made a profit
until you have paid for the dishwasher. ROI is all money made less costs. On
your figures it will take two years to recover the cost, OK less if you
factor in the depreciation. Once you have recovered the costs (tax, repairs)
then you can calculate the ROI and sold off the old one. How about this:

Cost $500
Extra rent $250 p.a.
Tax on extra rent @ 30% = $75
Life 5 years
Repairs $200
Depreciation $100 p.a. Tax refund @ 30% = $30
Income 5 years x ($250 + $30)= $1,400
less extra tax, repairs and purchase cost $1,400 - $375 - $200 - $500 = $325
profit (and because you have recovered your original $500 your money in hand
is now $825)
ROI $325/$500 = 65%

So that's 65% over five years, sounds good? Well using Hugh's calculators
the annualised
return comes out at about 10.6%. If you invested the $500 at 10.06%
compounding for five years you end up with $827.46.

Sell the old dishwasher for $100 and your ROI is $425/$500 = 85% which is
12.37% annualised.

So the choice is the possibility of earning a 12.37% return on the
dishwasher
or using the $500 toward another IP (what would your expected rate of return
be I wonder?).

50% ROI? I don't think so Les, and I always thought YOU were the numbers
man!
 
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Reply: 1.2.1
From: GoAnna !


Why not borrow the $500 for the dishwasher? This costs about $40 per year.

GoAnna !
(aka Anna before she got real)
 
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Reply: 1.2.1.1
From: Les .



G'day Terry,

I've always appreciated your input - haven't seen that much of you lately (you can say the same for me too, I suppose). And I only just found this post - in the old days, you simply "surf" and look for the blue writing - now, you go back a few pages, then set "Mark Read" and it's all over, Red Rover. I only happened to find this post because I was "search"ing for something else and it just popped up in the Search.

You said:-

"I'm sorry Les but I just don't see it that way. Dishwasher costs $500, you get $5 p.w. or $250 p.a. that is not 50% ROI as you have not made a profit until you have paid for the dishwasher.

Les>> Fair comment, Terry - the figure I was talking was Gross ROI ;^) Probably the better term is "Cash on Cash return" - you put down $500, you get $250 per annum back. And, you're right, I was not getting into intimate detail when I suggested this ...

But just think what the average renter would think with a GAP in the kitchen where a dishwasher would be? "Cheap landlord - won't even put in a dishwasher - just wants the MONEY!!" So if it takes an extra week to rent this IP, what has THAT cost? (Nearly one year's income on that extra $5 ....)

But how about putting the rent up $10 per week, and tell the tenants that the dishwasher is THEIRS after 2 years !!! Would that have them take a bit more care with it? (Read "no maintenance costs") And what have YOU made on it in the meantime? You've had NO vacancy over that 2 years. That's $1000, no maintenance, 30% deprec, etc. After 2 years, you will DROP the current rent by $10, and THEY take care of maintenance on the 'washer from that time on - and they take it with them when they go.

And what if it was bought on credit ?(thanks, Anna - good point) It could help the numbers even more (and that extra cash could allow you to continue to grow your IP's, even while the tenants are "paying off" their dishwasher). But, of course, you still have to pay off the loan at some point .... Still, if that $500 were put into IP's, AND the tenants had their dish-washer, what growth are you generating by investing in IP's (as you said)?

Now THAT's a WIN/WIN wouldn't you think?

You said:-

"50% ROI? I don't think so Les, and I always thought YOU were the numbers man!"

Terry, I can't see your numbers are anything but correct - but sometimes the numbers have to take second place behind lateral thought. It's always important to look at both sides of any given situation, though, so thanks for your input,

Regards,


Les
 
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Reply: 1.2.1.1.1
From: Paul Zagoridis


Les I've missed you!

I just click on New, quickly read them. click Mark Read. Make sure the numbers are equal and done.

You are a genius. This bit is instant classic again!

That will make me a fortune over the years.

On 5/31/01 11:55:00 PM, Les . wrote:
>But how about putting the rent
>up $10 per week, and tell the
>tenants that the dishwasher is
>THEIRS after 2 years !!!
>Would that have them take a
>bit more care with it? (Read
>"no maintenance costs") And
>what have YOU made on it in
>the meantime? You've had NO
>vacancy over that 2 years.
>That's $1000, no maintenance,
>30% deprec, etc. After 2
>years, you will DROP the
>current rent by $10, and THEY
>take care of maintenance on
>the 'washer from that time on
>- and they take it with them
>when they go.

Regards

Dreamspinner
Oz Film Biz is at
http://www.healey.com.au/~paulz
 
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Reply: 1.2.1.1.2
From: Apprentice Millionaire


Hi Les,

>But just think what the average renter would think with a GAP in the kitchen
>where a dishwasher would be? "Cheap landlord - won't even put in a dishwasher - just
>wants the MONEY!!" So if it takes an extra week to rent this IP, what has THAT cost?
>(Nearly one year's income on that extra $5 ....)

As the one who originally put up the question, I wanted to add that I have actually followed your advice, and this is precisely what has happened: the dishwasher isn't in yet (settlement is today, finally!), but my property manager has told me that tenants *all* ask about the gap in the kitchen, and show a smile when they are told a dishwasher goes in there!

Thanks again for the advice!

Cheers
Apprentice Millionaire
(aka Jacques)
 
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Reply: 1.2.1.1.3
From: Terry Avery


Hi Eric,

Nice to hear from you again. Can't disagree with your lateral thinking at
all about putting in a dishwasher and differentiating your IP from others.
Just thought I would question the calculations, were they back of the
envelope? Even so my calculations showed ROI of between 10 and 12% which
makes it worthwhile as it is cash flow positive. If the dishwasher is
problem free then you will make more money the longer you can hold it. I
would expect that the dishwasher will have paid for itself in a short time
which makes it an even more attractive proposition.

Cheers

Terry
 
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Reply: 1.2.1.1.3.1
From: Apprentice Millionaire


Hi Terry,

>Hi Eric,

Not sure who you are writing to, as Les, Paul and myself replied, and none of us are called Eric.

The dishwasher I picked is a Dishlex, good quality, brings an extra $5 per week, and I put it on my LOC. It will last a good while, and in the scope of things, it will have paid for itself in little time.

Cheers
Apprentice Millionaire
(aka Jacques)
 
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Reply: 1.2.1.1.3.1.1
From: Terry Avery


Oops, sorry I meant to type Les. Slip of the brain I suppose as I have been
following the thread started by Eric. My apologies to Les for mistakenly
referring to such a venerable contributor with the name of someone who knows
little about IPs.
 
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Re: Dishwasher or Flood?

Reply: 1.2.1.1.3.1.1.1
From: Gee Cee Cee


Just make sure your insurance covers dishwasher leakage or burst pipe.

Ever seen the damage to a kitchen etc when a hose blows off one of those things ?

Gee Cee
 
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Re: Dishwasher or Flood?

Reply: 1.2.1.1.3.1.1.1.1
From: Apprentice Millionaire


Thanks Gee Cee. Excellent advice!

Cheers
Apprentice Millionaire
(aka Jacques)
 
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