In order to determine whether home improvements are worth the cost/headache, people compare the cost to the projected increase in value. For investment properties, I often see people compare the cost to the expected rent increase. For instance, if a $10,000 kitchen improvement will translate into $100/mo increase in rent, then it takes ~100 months to recoup your investment.
Let’s look at why this approach is misguided.
Continuing with the example above, let’s also remember that this increase in $100/mo translates into an increase in annual net operating income of $1200 (for sake of this example, let’s say costs and other income sources remain unchanged). Depending on your local cap rate (short for capitalization rates, explained at