ROI is the fundamental formula all landlords should use when deciding which renovations to undertake for a rental property, as it determines how quickly the renovation will be paid off as a result of the increase in rental income. ROI measures the profitability of an investment; for rentals, this is calculated by taking the annual rent increase resulting from the investment, and dividing it by the cost of the investment.
A rental property’s market value is highly dependent on the net income it generates. Therefore, if a renovation makes a property look attractive but does not increase rent, then it is a wasted investment. For this reason, all renovations must be chosen based on the associated rent increase and ROI.
Many landlords have a limited budget for renovations and lack direction in determining what projects add the most value. Below is a value comparison between one common project suggested by landlords, and my list of DIY alternatives that amount to the same total cost. This value comparison offers a clear illustration of how selecting the right renovations will maximize a landlords’ budget.
* Projected monthly rent increases will vary based on a number of factors including location and previous unit conditions.