Do you have a rental house? Are you thinking about fixing it up? Doing a rental property kitchen renovation perhaps? We’re toying around with the idea and I’m just starting to crunch the numbers. Is it worth it? What’s a good return on investment for a project like this?
Let’s talk through this one together. Let me know your thoughts at the end in the comments too! This could make for some good back and forth commentary!
Our Rental Property – Also Known as “The Cash Cow”
Liz and I bought our rental house for cash in 2015. We paid a whopping $81,000 and put another $8,000 into it.
Today, we rent it out for $1,350 a month and after property taxes and insurance, we net about $11,000 every year. Not too shabby for a $90,000 investment (that’s worth $180,000 today, by the way!! Housing prices have been crazy, am I right??)!!
Here’s what the place looks like:
The Front Door View
From the front, the house looks pretty good. Sure, it’s a terrible color, but we plan on repainting it in a couple years. And, paint is cheap, so we’re not too worried about the cost there. Once it’s painted, the look from the outside will be fantastic!!
The Front Porch
A beautiful space! I wish my personal house had a front porch like this!
The Living Room
Walk in the front door and come into the living room – a great open space with real hardwood floors (I refinished those myself!)
The Dining Room
Right beside the living room is the dining room. another great space with wonderful lighting coming in from those high windows!
And then you walk into the kitchen…
- The refinished floors have water damage all over them
- There weren’t cabinet doors when we bought the house. We made some for the lower shelves, but kept the top shelves open. People either love it or hate it…Most hate it.
- The top cabinets are so close to the counter that you can’t put a microwave on it…Heck, you can barely operate a toaster there (as you can see in the picture).
- There is no dishwasher
- The fridge and stove just sit in no-mans-land…
The whole space is really just a mess.
I think after people rent there for a year, they just grow tired of the kitchen and get out of dodge (we’ve never had renters stay for more than a year, which is our minimum contract term).
So, this whole rental property kitchen renovation…we’re strongly considering it!
Rental Property Kitchen Renovation – The Necessary Questions
As a business man that owns and manages a rental property, I have to ask myself this question:
“If we put a bunch of money into remodeling the kitchen, when will we actually see a return on our investment?”
In other words, if we sink $10,000 into the kitchen, can we then charge a higher rent per month and start to recoup our investment over time? How many months of increased rent will it take to get our renovation investment back?
If you’re in a similar situation, these are the questions you need to ask yourself too. If you invest $10,000 into the kitchen and you never raise the rent, then you really just threw away $10,000 for absolutely no reason.
If we redid the kitchen, we would…
- demo the sink and all the cabinets (free, compliments of my sledge hammer)
- keep the fridge and stove
- buy an over-the-stove microwave and a dishwasher ($1,000 total)
- mayyyybe put down vinyl planking over the damaged hardwood floors ($300)
- install a floating bar on the wall to the left (not seen in picture, an empty wall of nothing — $200)
- new counters and cabinets ($4,500)
So, all in, the cost would be $6,000 (if you’re wondering, we’d do all the install work ourselves, which is probably saving us $5k).
The Return on Investment
With the new, beautiful kitchen, we figure we could raise the rents from $1,350 a month up to $1,500. That means an extra $1,800 a year.
At a cost of $6,000, it would take us roughly 3.5 years to get our money back.
That’s actually not too bad.
I’d say anything less than four years is probably worth it. If you’re over four years, then you might want to grab your pencil again and start slashing out some costs somehow.
And, some added benefits:
- With this renovation, we’d probably raise the resale value of the house by $5,000 if we ever decided to sell it.
- AND we might actually get some tenants that would want to stay there for more than one year, which would really save me the headache of re-showing the house every summer!
The Rental House Kitchen Renovation – Should We Do It?
So what do you think?
Should we get out the sledge and start demo-ing the kitchen tomorrow? Is this a slam dunk? Or, is this something we should hit pause on and really think through?
What’s your experience with this stuff? Would you do the rental house kitchen renovation??
My name is Derek, and I have my Bachelors Degree in Finance from Grand Valley State University. After graduation, I was not able to find a job that fully utilized my degree, but I still had a passion for Finance! So, I decided to focus my passion in the stock market. I studied Cash Flows, Balance Sheets, and Income Statements, put some money into the market and saw a good return on my investment. As satisfying as this was, I still felt that something was missing. I have a passion for Finance, but I also have a passion for people. If you have a willingness to learn, I will continue to teach.