Beware of Overimprovement

Budgeting your costs of improvements guards you against overimprov-ing your property relative to its neighborhood and relative to the prices (rent levels) your buyers (tenants) are willing and able to pay. Survey the top rental rates in the neighborhood relative to the size and quality of units you intend to offer. If $850 a month is tops and your inferior units now rent for $700 a month, using the 20 percent rule, you should limit costs to no more than, say, $6,000 to $9,000 per unit. These figures assume

2 With smart leverage, of course, your returns will jump up greatly.

that after renovations you could raise your rents to $800 or $850 a month and pocket another $100 to $150 a month in income:

-= $6,000 cost of improvments

-= $9,000 cost of improvments

Again, these specific returns won't apply in your market, but it's the method that counts. Run through your numbers to satisfy yourself the market actually supports the selling price or rent level you intend to ask. Plus, these calculations reveal whether your hoped-for rent level (if realized) will give you an adequate payback on your investment.

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