Rehabs present one of the most challenging pricing situations I’ve found in the apartment industry.
There’s a tug of war between the business desire to allocate capital in a way that provides a measurable real return on investment (ROI) and the human desire to preside over a nicer portfolio. Candidly, I find that a lack of familiarity and comfort with the math behind ROI calculations often gets in the way—and not always just from the jobsite side of the team.
The basic premise of rehabs* is straightforward: An operator invests $X to increase rent $Y, gaining a return of Z% in the process. As long as Z% is higher than the cost of capital, the overall return is positive.
Seems simple enough, right? But I’ve encountered several issues that cause me to believe that operators aren’t always getting what they think they’re getting from their rehab investments.
Read more...Rehab ROI: Do the Math | Multifamily Executive Magazine