I’m kind of confused about something and perhaps you guys can help out. Say I already own a portfolio of properties and i’m debating on whether or not to renovate it. I want to determine my return on the renovation. The caveat here is that I plan to sell the property in 5 years from now. How will I determine the IRR? Renovation: 30k Current portfolio Value: 1M Cash flow after expenses - Forecast after renovation(NOI): 20k

Cash flow after expense - Currently recieving before renovation (NOI): 10k Proceeds from Sale (5 years from now): 2M Given these assumptions, what would you do on your cash flow analysis. I’m not sure if i should include the current house value in the cash flow or not … since I already own the portfolio. Solution 1: Year 1: - 30k Year 2: 1k Year 3: 1k Year 4: 1k Year 5: 2M OR Solution 2 Year 1: - 1.030M Year 2: 1k Year 3: 1k Year 4: 1k Year 5: 2M What would the correct IRR cash flow? (gut feeling tells me its the 2nd one).

If you’re looking at the IRR of the reno, you do it like this:

t0 = -$30k

t1 = $10k

t2 = $10k

t3 = $10k

t4 = $10k

t5 = Estimated sale price with reno in 5 years - Estimated sale price without reno in 5 years (Likely less than the $1M total difference from t0 to t5, as some overall appreication in the property is likely without the reno)

I’d be happy to invest in such a project for sure. But the numbers are unrealistic.