Top 5 Renovations to Maximize ROI on Your Investment Property
Learn How to Earn More and Spend Less
Whether you’ve recently purchased rental properties or have owned them for quite some time, renovations will become part of the equation at some point. Ultimately your goal should be to obtain the maximum return on your investment. When you consider making renovations think about what updates will make a good first impression on the tenant and provide the greatest perceived value.
While earning a high ROI is dependent on the scope of your renovation, your location and the building’s curb appeal, property owners across the US report rent increases of 10-30% on expenditures ranging between $2,500-$8,000.
Here are the top five renovations that will deliver the biggest bang for your buck:
Due to wear and tear, carpeting needs to be replaced fairly regularly which can drive up costs. Although the majority of tenants prefer hardwood floors, a more cost-effective alternative is laminate which offers the look of wood at a significantly lower cost. Another option is to lay carpeting in bedrooms and plank vinyl in main living areas. According to Capreit, a national multifamily real estate company, new flooring can earn $50 to $100 more per month in rent depending on the market and size of the unit.
2. Interior Lighting
Updating interior lighting is an inexpensive way to make a great impression on a potential tenant. If adding fixtures is not practical, simply update what you already have. Working with existing wiring will certainly reduce electrician costs. You can reduce the overall electric bill on the property by replacing exterior and interior lighting with LED fixtures. Not only does this improve the overall lighting, the lower utility costs offer significant ROI.
A freshly painted space always looks more attractive and inviting. Choose light or neutral colors rather than bright or bold hues. Lighter colors make rooms look bigger, and it’s easier for tenants to visualize where to place their furniture and accent pieces. Expect to spend between $3-$5 per square foot for walls, trim, and ceiling, if you hire a professional crew. A 1,500 square foot apartment will run you $2,700-$3,200 including labor and materials.
4. Bathroom Updating
Updating a bathroom typically has a high initial investment but can deliver an ROI ranging from 70-80%. A full remodel of a small bathroom can run as high as $10,000. However, if the bathroom only requires a simple update, the costs are significantly lower, and the results will be well worth the investment. For example:
- Replace the shower head
- Resurface the bathtub
- Clean tile grout
- Change out the vanity and faucet
- Replace or add shelving
- Add lighting
5. Kitchen/Appliance Updating
Replacing appliances can be expensive, but they do not have to be. When shopping for appliances, check out big box stores that offer discounts on open box models.
If the unit does not have a washer and dryer but features a dishwasher, buy an all-in-one unit that fits neatly into the dishwasher space. For example, an LG 27” Sidekick model is available for under $400. Offering a washer/dryer combo in a building without laundry facilities will be a major attraction to tenants.
Appliance updates are often part of a kitchen renovation that delivers an attractive ROI. Apartment owners can achieve rent increases up to $100 with basic kitchen improvements, such as countertops, paint, and appliances. More extensive upgrades including countertops, paint, appliances, flooring, cabinets, and lighting, can net $150 to $200 more in rent per month.