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Renovation cost vs increased rent

Dan Golby

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Mar 17, 2011
Messages
133
I'm in the process of buying a 4-plex. I take possession on the 30th.

It is a 1978 build and could use a substantial amount of work. Windows are horrible, 2X4 build so needs a wrap, aside from fresh coats of white paint there has been little to no upgrades and the ones that were done scream drunken DIY.

I'm still working on getting solid numbers but it is looking like the total renovation cost will likely be around $150k, but I have fears it could get as high as $200k. This will finish all 4 basements, new kitchens, bathrooms, windows, siding, decks added to the front, flooring, electrical, appliances, and on and on.

I estimate my rents should conservatively increase $350/month after the renovation. The beauty of it is I will raise my tenant profile, lower my maintenance costs, and likely decrease vacancies as it will be in demand (it is only half full at the moment due to lousy management)

My question is, does anybody have any tips on how to decide whether to go ahead and renovate or not? Any magic formula that you may use to decide? I'm just wondering if it makes more sense to just leave it as a low end rental and not spend a bunch on it. It is in a great location surrounded by a mix of buildings in similar condition and age, to brand new buildings, to fully renovated older buildings.

I paid $340k rent is currently $950/corner

Located in Cold Lake Alberta.

Any questions or details I missed let me know. Thanks in advance for any advice on how far and fancy I should go with the renovation.
 

Thomas Beyer

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Aug 30, 2007
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13,881
I'm in the process of buying a 4-plex. I take possession on the 30th.

It is a 1978 build and could use a substantial amount of work. Windows are horrible, 2X4 build so needs a wrap, aside from fresh coats of white paint there has been little to no upgrades and the ones that were done scream drunken DIY.

I'm still working on getting solid numbers but it is looking like the total renovation cost will likely be around $150k, but I have fears it could get as high as $200k. This will finish all 4 basements, new kitchens, bathrooms, windows, siding, decks added to the front, flooring, electrical, appliances, and on and on.

I estimate my rents should conservatively increase $350/month after the renovation. The beauty of it is I will raise my tenant profile, lower my maintenance costs, and likely decrease vacancies as it will be in demand (it is only half full at the moment due to lousy management)

My question is, does anybody have any tips on how to decide whether to go ahead and renovate or not? Any magic formula that you may use to decide? I'm just wondering if it makes more sense to just leave it as a low end rental and not spend a bunch on it. It is in a great location surrounded by a mix of buildings in similar condition and age, to brand new buildings, to fully renovated older buildings.

I paid $340k rent is currently $950/corner

Located in Cold Lake Alberta.

Any questions or details I missed let me know. Thanks in advance for any advice on how far and fancy I should go with the renovation.

Don’t overupgrade. Wrap plus windows is how much ?

Then do one unit to see if you can get the desired rent level.

Can you refi in a year or two after Reno’s are done and rent is higher ? If not go slow with upgrades.

Feel free to call or contact me directly Dan !!
 

Dan Golby

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REIN Member
Joined
Mar 17, 2011
Messages
133
Don’t overupgrade. Wrap plus windows is how much ?

Then do one unit to see if you can get the desired rent level.

Can you refi in a year or two after Reno’s are done and rent is higher ? If not go slow with upgrades.

Feel free to call or contact me directly Dan !!

I appreciate that offer.

I will text you to set up a time to talk.


Sent from my iPhone using myREINspace
 

Martin1968

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Jan 22, 2017
Messages
235
How many bed and bathrooms are there per unit?

When you talk retail prices on getting the work done by a general contractor you won't be far off with 150-200K
Without knowing all the details tho I can say 18-20K per unit for a full Reno, everything brand new, managing the project yourself and put in as much time as you can is achievable. Windows at retail installed about 25K. I wouldn't worry about wrap unless you are paying for that particular utility and it pays for itself.

I have done my fair share of 4 plexes in same condition as yours. Let me know if you like some practical advise.
Regards.
 

Dan Golby

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Joined
Mar 17, 2011
Messages
133
Maybe I am getting carried away, I was planning to do a lot of things that can likely be deferred. Things like all new furnaces which would add $10000. Hot water tanks, mostly because I want to move them all closer to the furnace anyway and frame out the basement adds another $5000.

I haven't priced out the siding and wrap yet but the first window quote was $34000 which does seem high.

Flooring budget I put at $20k for the whole building but perhaps that is way too high.

Each unit is 3 bedrooms 1.5 bathrooms. When I upgrade the kitchen I will add a dishwasher....and now I have to go back to work at my "JOB" so I will type more later :)
 

Matt Crowley

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Joined
Dec 14, 2013
Messages
980
It's pretty easy actually. Depends on your exit somewhat.

1) Flip
Look at before renovation vs. after renovation value.

Scour your market and find recently renovated fourplexes for sale / talk to your Realtor for backup information on the sale and comps, go walk through properties. Get comps from Realtor on recent sales and know your product in and out. Take pictures, write a business plan, know the market fully.

Value - current value - cost of renovations = margin

Is margin sufficient for risk of capital?

2) Hold

Income based assessment. If no plan to sell near term what cap rate will you get by investing more capital? Can you refi to get your capital out? What does your holding-period IRR look like 5, 7, 9 years.

If you put together a business plan for the redevelopment I can help you work through the economics. I like projects like this.
 
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