I'm renovating a disaster of a house! ( see my previous post: Renovating an Ugly Duckling House )
Before I made the offer, I considered what I want to do with the property. If I rent it, I think I can get $2000/month, because of the location (near the beach) and the pool. If I sell it, current houses on the market in this area with pools are going for $250,000 and up, mostly up!
I walked through every room of the interior and listed every item with a corresponding cost.
Kitchen cabinets, countertops and appliances - $7000, another $6500 for bathrooms, $5000 for tile floors throughout, plus miscellaneous; total interior estimate $23,150 + contingencies = $25k.
Outside, I have to consider the roof (the seller told me his inspector said it had 5 years of life still left, which I seriously doubt), garage door, pool cage, landscaping, windows, paint, possibly doors (because Pat hates the style of the existing doors). My estimate for the exterior with a built in contingency is also $25,000.
So...rent $2000/mo = $24000/yr less $1600 taxes, $1500 insurance, and $1000 operating expenses = $19,900, divided by $220,000 (total investment) = 9% return. If the house increases in value by 3% per year, the first year ($220,000 x 1.03 = $226,600) will add another $6600! Now my return is $19,900 + $6600 = $26,500 divided by $220,000 = 12%! That's a heckova return in today's market.
If I sell it, I predict (based on my experience as a REALTOR) that I can get as high as $280,000, maybe even $300,000 because I am going to make this place look FABULOUS!
What would I rather do? Rent it! Great neighborhood, Great Location, Great house = potential for great tenants for years to come.
Next: Getting Estimates