All too often, the money spent on renovation offers absolutely no return on investment. The reason for this is simple: most people believe that they need to make grand, sweeping renovations in order to increase appeal, and by virtue of that, improve the return on investment. This harkens to the “you have to spend money to make money” mentality, but when it comes to changes to a property, that may not always apply. This chart offers an eye opening look at the actual return on investment of various projects by area.
That chart is actually a good place to start, because when you begin to consider renovating, it’s important to consider how much cost you’ll recoup. When looking at your rental properties, think about appeal. Start with your kitchen. Say you have a rental property with old cabinets, cheaply made, scratched, scuffed, stained and chipped counters. The major appliances are still working quite well, and the flooring is not stained or otherwise unattractive.While sure, a brand new kitchen with sparkling stainless steel, marble counters, hardwood cabinets, and ceramic flooring will appeal to pretty much everyone: can people who would be renting in your area afford that? Instead, take a look at what they won’t like. A look back up at those numbers shows us- if you did a major kitchen remodel, you’d probably only get back a little over 59%. If you just tweaked a few things here and there, 75%.
Anyone who has ever remodeled or renovated anything knows, there’s always some hidden cost waiting around the corner to jump out and say, “Boo!” When budgeting for any given project, go ahead and tack on about 15% of the overall project to your estimate to cover those costs.
Then, consider Do It Yourself versus hiring a contractor. In some cases, DIY is a great way to save money. In other cases, it’s a disaster waiting to happen and will cost you much more. Always remember, it’s cheaper to do it right in the first place than it is to correct mistakes by someone who simply was not qualified. If hiring a contractor, check those references, look up reviews, and make sure to do price comparisons.
Again, going back to our above example of the bad kitchen and can the tenants who rent in that area afford it: consider your market. You can buy an older home and flip it to have fantastic rental returns but while tenants may appreciate you putting in all new everything and holding with market prices: your wallet will not. That isn’t to say that you can’t install new appliances and really create a beautiful rental property, but it is important to consider that issue before you begin. Shopping wisely can accomplish both an appealing rental property while still helping you to recoup the investment. Not only that, if you intend to one day sell the property, but it happens to be in a bad or undesirable area: your bank appraisal will reflect that before it does your granite counter tops.