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Rental Renovation ROI Calculator
Calculate the return on a rental renovation in three dimensions: monthly payback period, cash-on-cash yield, and the capitalized equity lift (rent increase / cap rate). Includes downtime rent loss during construction.
insurance, tax creep
Payback period
7 yr 10 mo
Annual cash-on-cash ROI
12.74%
Equity lift at market cap
$42,000
Net equity gain
$22,218
Net cash flow over hold
-$2,142
How the math works
Renovation ROI in a rental is driven by two effects: monthly rent lift (operating income) and capitalized equity gain (the rent lift divided by the market cap rate). A $225/month rent lift on a 6% cap market means about $45,000 of added property value — usually far more than the renovation cost.
Factor in downtime rent loss during the project. Value-add renovations (flooring, paint, kitchen update, light bath reno) typically hit 18-36 month payback at 25-50% IRR. Major structural work (foundation, roof) rarely produces meaningful rent lift and is almost purely defensive.
How to Use
- Enter the total renovation cost.
- Enter the expected monthly rent lift and any added expenses.
- Set the planned hold period after completion.
- Enter your market cap rate to calculate equity lift.
- Include downtime weeks — lost rent during the project.
Frequently Asked Questions
Why multiply rent lift by 1/cap rate for equity?
In a rental market, property value ≈ NOI ÷ cap rate. A $2,700 annual NOI lift at a 6% cap = $45,000 added property value. That's the value you're creating on top of operating income.
What renovations produce the biggest rent lift?
Kitchens, bathrooms, in-unit laundry, flooring upgrades, and fresh paint typically produce the highest rent-per-dollar lift. Structural repairs (foundation, roof) preserve value but rarely raise rent.
Should I renovate between tenants or mid-lease?
Almost always between tenants. Mid-lease renovations create tenant friction and often rent reductions. Plan renovations to coincide with natural turnover.
Do luxury upgrades pay back in B/C neighborhoods?
Rarely. Rent caps at the top of the local comp range. A $50K luxury kitchen in a $1,800/mo market might lift rent $50, not $400. Know your market ceiling.
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