Flipping properties can sometimes be a daunting task. Without the proper background on understanding your audience, homeowners can sometimes make unnecessary investments that can spiral their investment down the toilet.

Homeowners can spend a ton of money on kitchen renovations or bathrooms to spruce them up. Most of the time they consider what others buyers would like if they were to purchase this home down the road to justify their renovation costs. However, majority of homeowners often exclude a core subset of buyers: the investors. There are investors out there that will purchase home with the intent of never living in it, but rather renting it only. If you live in a popular neighborhood with little options for income suits in your neighborhood, then your home may be the diamond in the rough to these investors.

I’ve had some personal experience with income suites in an older home that we renovated. We spent about $23k in a basement renovation, which afforded us the ability to charge rent of $1500/month (what would have been $1050 before the reno) and a local realtor appraised the home to be valued at $30,000 more than before the renovation. We didn’t do anything fancy nor did we splurge on expensive décor. We simply made the unit code compliant, safe and habitable, which simply paid off.

We invested 23,000 and the payback was $30,000 (in 3 months) plus an incremental $450/month in rent (1500-1050) for 9 months.

The total profit in 12 months was $34050.

ROI = 34050/23000 = 148%. We assume your expenses would remain unchanged before or after the reno. If they do change you can simply subtract them from the investment gain (numerator) to calculate your ROI.

IRR = 12%, no bank is going to give you 12% in a year.

So overall we agree that income suites are one of the most profitable home renovations least in our experience.

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